Friday, December 5, 2008

Things I Cannot Say Enough Bad Things About

Now suppose that we had a way to raise the multiplier by more than half, from 1.8 to 2.8. The same fiscal stimulus would now produce an increase in GDP of $2.8 trillion--quite a difference. Nice deal if you can get it.

In fact you can. It is pretty easy to increase the multiplier; just raise import tariffs by enough so that the marginal propensity to import out of income is reduced substantially (to zero if you want the multiplier to go all the way to 2.8). Yes, yes, import protection is inefficient and not a very neighborly thing to do--but should we really care if the alternative is significantly lower growth and higher unemployment?

That's Dani Rodrik talking, words for which he's earned an immediate demotion from the relevant links section. Presumably I don't need to tall you how stupid that is. If you read the rest of the article, he suggests some other policies - e.g. a large Tobin tax - that are first-order equivalent.

Also check out A Stitch in Haste on a recent tax initiative in New York City.


Gabriel said...

Well, his analysis is valid given his assumptions, so he's not wrong. We may disagree with the relevance such an analysis, i.e. we might prefer a different set of assumptions and value judgment criteria, but that would be something else.

So, maybe you should also tell us what you object to?

Anonymous said...

this post is mis-titled. You have not said anything let alone anything "bad." Being dismissive is just irritating - which may be worse. So, for we dense non-economists, please offer your illumination!

I often think that smart economists like Rodrik make statements that are so blatantly stupid that they simply sit there waiting for the audience to laugh mercilessly.