NYT Columnist Wants Keynes on Steroids

Big G.jpgThe February 1, 2009, print edition of the Sunday New York Times Magazine will run a long opinion piece, The Big Fix, by staff writer, David Leonhardt. The piece, already available on line, reads as an exuberant, unqualified endorsement of a massive and immediate increase in the role and size of the US federal government—as the only solution to current challenges.

The piece offers a few serious reflections and suggestions, including promoting national investment in education. But it is overall both intemperate and naïve. For some, it may even be irresponsible. Certainly, it contains no acknowledgement of any limitations on its diagnosis of current problems or prescription for curing them.

Mr. Leonhardt encourages any kind of immediate large government spending, for any reason. He writes, seriously, that: “Employing people to dig ditches and fill them up again would” be good government policy. He adds: “Even the construction of a mob museum in Las Vegas, a project that was crossed off the [Obama Administration’s] list after Republicans mocked it, would work to stimulate the economy, so long as ground was broken soon.” He concludes: “Pork and stimulus are not mutually exclusive.”

Are these suggestions seriously responsible? Less fancifully, Mr. Leonhardt says that John Maynard Keynes was right, that government, with its “enormous resources,” is the only force that can catapult a nation out of a deep financial crisis. Sensibly, Mr. Leonhardt says, any such catapult must be designed to increase the nation’s economic growth rate in short order so that enough return is generated to repay debts that any bold government spending plan entails.

As things stand, Mr. Leonhardt asserts without evidentiary support, future sources of US economic growth are unlikely to come from leading past sources, such as Wall Street, Detroit, or Silicon Valley. Instead, Mr. Leonhardt advises, the way out of the current turmoil is for government spending to be made in areas showing under-investment in recent years.

These include investment in government-directed computerization of medical record-keeping; government monitoring of the efficacy of medical treatments; government investment in clean-energy processes; and government investment in education and technology. No doubt, these are areas in which investment may be desirable and economic growth plausible, but can only government do these things, as Mr. Leonhardt asserts?

More difficult yet, Mr. Leonhardt believes that government policies can and must be designed to change cultural norms. He cites two in particular that government should reverse: “consume before invest; worry about the short term, not the long term.” The piece does not explain how government policies can shift cultural norms to make people invest before consuming or worry about the long term, not the short term. (Nor, for that matter, does the piece consider whether worrying about the short-term is always ill-advised—and some of Mr. Leonhardt’s own prescriptions, like government ditch digging and filling, are very short term prescriptions indeed.)

According to Mr. Leonhardt, moreover, government has a good track record at big programs with lasting effects—on both cultural norms and economic prosperity. For this proposition, Mr. Leonhardt cites, without evaluation, the following: Medicare, Social Security, the highway system, the GI Bill, the National Science Foundation, the National Labor Relations Board and the Defense Department’s incubation of the Internet. It would be helpful, when advocating government spending as the only solution to current woes, and giving these examples in support, to note limitations on the success of these examples as well as acknowledge examples of governmental efforts that did not succeed.

It is unclear why Mr. Leonhardt chose to write this piece in the form of a screed—or why editors of the Times’ Magazine propose to run it as written. It is not obvious that government is the only solution to problems, and the piece does not exactly make arguments for that proposition. It is possible that US capital markets, auto manufacturing, and computer technology industries will recover, expand and produce economic growth. But Mr. Leonhardt declares they will not promote sufficient economic growth to work off the current downturn, without explaining why.

It certainly is not obvious that government funded ditch digging and filling is a way, much less the only way, to thaw frozen credit flows. Nor is it obvious that government takeover of investment activity is the only or best way to stimulate inherently risky ventures in, or unleash creative leaps in, medicine, energy, education or technology.

No doubt, it could be valuable to direct investment into such pursuits. But why that should be undertaken solely by government, rather than through entrepreneurial initiative, is unexplained.

Mr. Leonhardt’s opening theme is about how crisis invites opportunity to radical change. He cites, perhaps out of context, Obama Administration officials as portraying the current crisis as an opportunity to refashion the US economy and US society. He says that Lawrence Summers, Obama’s chief economic advisor, told him that Rahm Emanuel, Obama’s chief of staff, said: “You never want a serious crisis to go waste.”

It is not obvious what this quotation means, exactly, or how it translates into the un-pragmatic prescription Mr. Leonhardt is publishing. Perhaps Mr. Leonhardt’s piece is merely trying to provoke thought, and not be taken seriously on its merits. While even that seems a strange role for one of the country’s important newspapers to play, one may have hope that President Obama is not listening to Mr. Leonhardt on matters of national policy.

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4 Responses

  1. Re: digitising medical records… The British National Health Service has been trying to do this for a number of years. The project is overdue and quite far above budget. Now, this is a disaster in Britain. But, in America, it would be a catastrophe, as there’s a greater suspicion of government spending in the States than across the pond.

  2. A.J. Sutter says:

    There are a number of things I think are fundamentally wrong about the Leonhardt piece, including (“without limitation” seems not too pedantic to add, in this case) almost every sentence he writes about economic growth. So as not to go off on tangents, I’ll simply say thanks for the link.

    Apropos of government spending though, I attended an interesting presentation earlier this week by Richard Koo, a former economist at the NY Fed and now chief economist for Nomura Securities in Tokyo (and an adviser to several Liberal Democratic Party governments here, so not a left-winger by any means). Looking at Japan’s experience in the 1990s, he points out that during the whole “lost decade,” Japanese GDP never declined. He attributes this to government spending. Koo claims that in a “balance sheet recession” such as the present one in the US, it’s up to government to borrow and spend when business and households aren’t doing so. He also favors capital injections to banks (Japan did that as well). Tax cuts and government purchases of bad assets don’t put the money back into the economy, he claims, and are a bad idea.

    Not that Koo’s logic would justify digging holes etc.; but to be fair, some expenditures Leonhardt advocates are a bit more constructive than that, even if his reasoning is awful.

  3. Frank says:

    I did not find the piece as unconvincing as you did. You ask “can only government” invest in EHR, clean fuels, etc.? No, but only government can create the types of incentives that can get private entities to try. And in extreme credit crunches, perhaps private entities won’t try even if there are good incentives.

    I will focus on one perverse consequence of a superficially compelling idea.

    As part of the proposed stimulus, the unemployed (and their families) will be granted categorical Medicaid eligibility. As an advocate of universal coverage, I am happy to see this. But I also realize that there is a shortage of doctors (and especially specialists) willing to see Medicaid patients now. So the real solution to the problem will involve more far-reaching reforms than a simple entitlement.

    As for electronic medical records: other countries are doing better than us with a more dirigiste approach. The key is how to create interoperability while also promoting innovation in the recording, recombination, and analysis of the data. I can think of few worthier places for government to invest research funds–especially if it leads us to try to learn from other countries approaches. Note that even Bill Frist has praised the way our country’s example of socialized medicine–the VA–has used gov’t funds to get EHR going:


  4. Susan Chan says:

    Regarding David Leonhardt’s “The Big Fix”. How is it possible to discuss fixing the US economy without discussing its place in the global economy?

    This is now a global crisis. As Obama said (if not yet fully acted on) – a global crisis needs a global solution.

    Keynes would have agreed. But commentators like Leonhardt ignore this. More international political leaders (e.g. Gordon Brown and now even Angela Merkel) have picked up the importance of international cooperation in economic policy (which Markwell’s account shows was crucial to Keynes) than US economists have.

    Maybe this reflects the elimination of genuine understanding of Keynes among US economists since the 1970s?