November 19, 2013
Jeffrey Sachs again takes on Paul Krugman (and indirectly Larry Summers) in his call for a new macroeconomics. (My comments on past attacks, with links to the originals, can be found here and here.) I’m not sure that there is much new here, so I would again take Krugman’s side.
Sachs’ complaint is that we should be doing long-term planning to lay infrastructure for transportation, energy, and other areas of the economy. This is fine and I would expect no objections from Krugman. Certainly there are none on my part.
However in a world where folks in Washington have little interest in long-term plans the question is whether we are better with a do nothing approach or a stimulate the economy anyway you can approach. I am firmly in the latter camp, as is Krugman to my understanding.(I would also go with work sharing schemes as an alternative low-budget route to sustain high levels of employment.)
After all, the people who go years without jobs are not going to get that time back. They and their families will have suffered through hardship because of bungled macroeconomic policy in Washington. Some of the long-term unemployed will never work again. What are we supposed to tell these millions of people who are unemployed through no fault of their own, wait until we can get out grand investment plans through Congress?
It’s very hard to see the downside of stimulus that is less than optimally spent. We have a higher debt to GDP ratio? Fixations on such things might be the rage in Washington, but it’s hard to see why economists should share this obsession.
I would also temper somewhat Sachs enthusiasm for long-range planning and government investment. We certainly need more, but a little humility would be appropriate. I have a lot of respect for Sachs (he was my candidate for World Bank president), but I don’t trust him or anyone else to make all the right calls on what investments we should be making to structure the economy over the next 2-4 decades.
Some plans will inevitably go wrong. Perhaps high-speed rail really won’t prove to be a terribly efficient way to move people around in 15-20 years or maybe solar is not a form of clean energy that should be at the top of our list. I’m a big fan of both, but if we jump in full force with both feet, we may find that we have made some serious mistakes. This possibility would suggest a more gradual ramping up of commitments even if progressives somehow got control of the keys to the government.