While much of DC has gone to the beach, apparently my CNBC pal Jimmy P (aka, James Pethokoukis) has decided to spend August challenging my posts. He raises some good points to which I’ll briefly respond. But broadly speaking, I’m unsurprisingly unconvinced. In both posts he’s written about, I was careful to point out that other stuff is going on, yet to me, P’s critiques argue, “but…other stuff is going on!”
That’s true—the point is, what’s dominant? I also post a tough question for Mr. P at the end. Let’s just see what he’s bringin.’
First, re this post from earlier this morning, I was particularly careful to note the “other stuff” point—second sentence!—and made the point of linking to a more detailed study that both accounted for much of that other stuff yet still credited the Recovery Act with lifting growth, adding jobs, and lowering unemployment.
“But what about monetary policy!?,” asks Jim. True dat! But when he says “advocates of the Obama’s stimulus seems to always forget the Fed,” he can’t possibly be talking about moi! Readers of my blog know that not only have I gone on ad nauseum in praise on the Fed’s efforts to boost growth and jobs, but I’ve developed and touted the more important and nuanced argument that what’s really necessary is additional fiscal stimulus to complement the Fed’s work on interest rates (Bernanke also stresses this point). Absent fiscal stimulus to generate more demand, too few consumers and investors will respond to low interest rates.
BTW, Jimmy’s incorrect argument that peeps like me fail to credit the Fed’s work in combatting the downturn is particularly odd given his view that they’ve made such a hash of it.
The rest of Jimmy’s critique seems to be about how the White House economics team, of which I was a member, was consistently optimistic in its forecasts. That’s also true, though the same could be said of the Fed and for that matter, the Blue Chip consensus forecasts.
But he does make a subtle mistake here. He claims that we overestimated the salutary impact of the stimulus on the economy. Actually, we got the deltas pretty much right (i.e., we got results much like others, such as CBO—though admittedly, in some cases at the higher end of their estimates). What we and others got wrong was not the impact of the Recovery Act; it was the depth of the weakness in the economy, which is why I argued in my post that the problem was that the Recovery Act faded too soon.
“From machine tools, to railroads, transistors, radar, lasers, computing, the internet, GPS, fracking, biotech, nanotech — from the days of the Revolutionary War to today — the federal government has supported innovation often well before private capital would risk the investment.”
To which Jimmy responds: “But is there any, like, evidence that Washington can mass replicate Silicon Valley?”
That’s, like, a non-sequitur. I’m with JP that the feds should not (and do not) decide “here’s a great place for an innovative agglomeration!” Let the market and geography make that call.
So here’s my challenge to Jimmy P. Agree or disagree:
Due to a broad swath of externalities including coordination, first mover, risk averse private capital, and R&D costs, absent government support for new forays into potentially transformative innovations like those on my list above, the market would often underinvest in them.
If you agree, you’re solidly with me re my actual post. If not, I clearly have to keep working on your re-education.