Dr. Skousen is an economist at Rollins College, Department of Economics, Winter Park, Florida 32789, and editor of Forecasts & Strategies, one of the largest investment newsletters in the country. The third edition of his book Economics of a Pure Gold Standard has recently been published by FEE.
People saved more and we had a recession in 1990.
A reduction in the federal deficit is short-term expansionary.
The two statements above, made on January 7, 1997, at the American Economic Association meetings in New Orleans, contrast the old and the new visions of economic policy.
MIT professor Olivier Blanchard, reflecting old-style Keynesian thinking, blamed the 1990-1991 recession on excessive saving instead of higher taxes and tight money.
Alan Blinder, Princeton economist and former Fed official, represented new classical thinking when he declared that increased deficit spending was bad for the economy and that a deliberate policy of cutting the deficit was expansionary because it would mean a decline in interest rates. Keynes must be turning over in his grave!
Both statements were made at a well-attended meeting titled, Is there a core of practical macroeconomics that we should all believe? The participants were all mainstream economists from established institutions, yet they could not agree on many fundamental issues. Blanchard (MIT) was anti-saving and John Taylor (Stanford) was pro-saving. Some said the Phillips trade-off between inflation and unemployment was real, others said it was chimera. Supply-side economics was not represented. No one advocated tax reduction in an age of high tax burdens.
The debate could have been much more lively if the organizers had invited economists from outside the mainstream, such as Marxists and Austrians. But in most cases unorthodox thinkers are not invited to the sessions sponsored by the AEA. What to do? Most outcasts offer their own programs, side by side with the regular AEA sessions.
Where Were the Free-Market Advocates?
The Marxists are particularly well organized—the Union for Radical Political Economists sponsored over 30 sessions of their own. The Growth and Gender session was especially unprecedented: All five members of the panel were from the University of Utah’s economics department, which has apparently been taken over by Marxists. Imagine, a Marxist revolution in the center of conservative Utah!
Why the free-market schools don’t offer their own agenda at these national meetings is a mystery. The Society for the Development of Austrian Economics has its own program at the annual meetings of the Southern Economic Association; why not sponsor sessions at the annual AEA meetings? In the exhibit hall, where thousands of academic economists mingle and search for alternative books and materials, there were hardly any representatives of free-market economics. The American Enterprise Institute was there, but that was about it.
My Debate with Paul Samuelson
Quite by accident, I ran into Paul Samuelson, the famed MIT economist and Nobel Prize winner. We had recently been corresponding over an article I wrote entitled, The Perseverance of Paul Samuelson’s Economics. It is a rather unfriendly review of all 15 editions of Samuelson’s famed textbook. (The article, along with a rebuttal by Samuelson, appears in the Spring 1997 issue of The Journal of Economic Perspectives.) I accuse Samuelson of, among other things, an anti-saving mentality. But Samuelson denied the charge, saying that he regularly appeared before Congressional committees advocating a higher saving rate to stimulate economic growth. In response, I said it was too bad he didn’t inform his students of his views in his textbook. Instead they got the paradox of thrift.
What Will Stimulate Long-Term Growth?
One of the more interesting sessions I attended was a discussion about the 50th anniversary of the Employment Act of 1946. Murray Weidenbaum (Washington University) and Martin Feldstein (Harvard) represented the free-market viewpoint, while Robert Eisner (Northwestern) represented the Keynesian approach. Andrew Brimmer, a former Fed official, chaired the panel.
The Employment Act of 1946 established three economic policy goals: full employment, stable purchasing power of money, and economic growth. Most of the panel agreed that all three policies had been achieved in the 1990s—employment was dynamic and growing, inflation was low, and recession had been avoided. However, there was an uneasy feeling that economic growth could be substantially higher than the current 2-3 percent rate. In a recent Business Week column (September 2, 1996), MIT professor Rudi Dorbusch advocated two structural reforms in the United States that would substantially increase economic growth: privatize Social Security and privatize education. I asked the panelists what they thought of these proposals. Surprisingly, everyone on the panel except Eisner endorsed them.
The Dismal Science Comes to China
Most of the agenda at AEA meetings is pretty plain fare, although I encountered a few exceptions. One was a paper presented by K. K. Fung, who teaches at the University of Memphis. Dying for Children advocates the buying and selling of birth rights as a way of solving China’s population problem. Each Chinese married couple would have the right to one child, plus an additional child if a parent or grandparent died. Or they could buy a birth right in the marketplace from an elderly Chinese who chooses to exit early (commit suicide). Accordingly, hopelessly ill grandparents would be encouraged to exit early in order to create another grandchild. According to Fung, suicide would then be viewed as beneficial—allowing a child to be born! Brigham Young University’s Larry Wimmer, who presided over the session, called the paper grim, a proposal that sets families against parents and grandparents. It amounts to a social program of euthanasia.
Apparently the dismal science has a long way to go before solving the world’s problems.