Monday, November 16, 2009

It's not as bad as you think



While recovering from what was most likely a case of the H1N1 virus (which wasn't as bad as I had feared), I've spent some time with good friend and fellow supply-sider Brian Wesbury's new book It's Not as Bad as You Think. He and I share an innate optimism regarding the future of the U.S. economy, even though we both agree that fiscal and monetary policies present serious headwinds to progress. Our optimism is driven by a belief that capitalism, free markets, and people's desire to better their lot in life add up to a force that can drive progress in spite of the roadblocks set up by misguided politicians and policymakers. His book is well laid out and easy to get through, and he brings a lot of common sense to bear on all the problems leading up to last year's panic recession, and how things are likely to sort themselves out going forward. I should add that he also does a terrific job of explaining the key differences between how supply-siders view the world and how most of the other economists in the world (the Keynesians) do. It's a refreshing antidote to what you see in the press these days.

13 comments:

brodero said...

What is the biggest difference between supply side economics and the Austrian school of economics?

Tom Burger said...

Brodero,

If you don't mind, here is my thought on this subject. The biggest difference is that the supply siders do not employ the Austrian's capital structure concepts. They tend to think of capital as a dollar denominated magnitude instead of an inter-temporal structure (Rothbard's Man, Economy and State does a great job of describing these theories).

The supply siders are also comfortable with the central management of the money supply. The Austrian business cycle theory says that credit expansions by the central bank explain most every thing about the boom/bust cycle. It seems that monetarists, like Friedman, as well as the supply siders think free markets are important everywhere except in money.

Manipulated interest rates create problems in part because of the time structure of capital, so these two differences are closely interrelated.

Tom Burger said...

Hope you are feeling better, Scott. Glad to hear the flu wasn't as bad as you initially feared.

randy said...

David Brooks has a nice (even if somewhat light) essay today that is tangentially related to Wesbury's optimism. It both supports the optimism, and leaves room for the possibility that the optimism is rooted in elements of American character that are no longer there.

"This moral materialism fomented a certain sort of manic energy. Americans became famous for their energy and workaholism: for moving around, switching jobs, marrying and divorcing, creating new products and going off on righteous crusades.”

It also touches on Tom Burgers intertemporal decision making.

“But it’s not clear Americans have ever really been self-disciplined. Instead, Americans probably postponed gratification because they thought the future was a big rock-candy mountain, and if they were stealing from that, they were robbing themselves of something stupendous.”

http://www.nytimes.com/2009/11/17/opinion/17brooks.html?hp

Michael said...

Hi Scott -

Given this post, I'm curious as to what you think of Roubini's column from Sunday: http://www.nydailynews.com/opinions/2009/11/15/2009-11-15_the_worst_is_yet_to_come_unemployed_americans_should_hunker_down_for_more_job_lo.html

brodero said...

Thank you Scott

brodero said...

Sorry...Thank you Tom

Scott Grannis said...

Re supply side vs Austrians: Tom should read Brian's book, since he makes it clear that Fed mismanagement of monetary policy is a very big deal to supply siders. He also rants a good deal about how bad monetary policy distorts decisions and leads to booms and busts.

I'm not an expert on Austrian economics, but I have had numerous discussions over the years with Austrian-oriented colleagues and friends. It's my recollection that the Austrians fail to appreciate the huge role that taxes can play in an economy, and they fail to appreciate the market signals re money, credit and monetary policy that supply-siders focus so much attention on.

Scott Grannis said...

Re Roubini: He is most definitely not a supply-sider. More government spending is not what we need at this point. We need supply-side policies that increase the incentives for the private sector to work and invest, not government policies that take money from one person and give it to another. Roubini needs to read Brian's book to see what he is missing.

brodero said...

Not wanting to stir things up....is
supply side more real world and
Austrian more ideological??

Public Library said...

Randy,

Thanks for the share! Good little article.

Scott Grannis said...

brodero: I think so. If nothing else, supply-siders are extremely focused on market-based signals and government-driven incentives.

But it is also true that both supply-siders and Austrians believe that stable monetary policy is a very good thing. They will argue about how best to achieve that, but all would acknowledge that a zero-inflation world would be a necessary condition for a strong economy.

Tom Burger said...

Scott,

The Austrian Scholars hardly ignored taxes! Rothbard's book "Power and Market" systematically analyzes all forms of government intervention -- every conceivable tax -- and their distorting effects on the market.

Austrian School economists are not into modeling economic statistics and predicting future values of same. Supply siders are more "real world" if you consider the current state of things, with governments trying to "manage" economies, more real world. I guess it is our current reality.

There is a huge gap between the way you think about money and Austrian School thinking. From your comments, Scott, you apparently approved the massive injection of bank reserves because there was a "demand" for money. Mises and Rothbard argued that a central bank should NOT try to create zero inflation -- assuming you mean changes in the CPI. The worst, most damaging credit expansions (1920s and the last few decades) have all occurred with CPI readings that were quite low.

Tom