A good summary of current macroeconomic issues. I suppose for every item on Cochrane’s list of “regulations to remove because they slow growth for no good reason” there is a list of “government projects to undertake that will improve productivity in 10 years.” Surely there must be room for horse-trading in those lists, somewhere in the middle? I am reminded of Janet Currie and co-author’s findings that removing toll plazas and replacing them with EZpass reduced carbon monoxide and particulate matter in the vicinity of the toll plazas, generating significant improvements in likely health and productivity of newborn infants in the vicinity, most of whom are poor.
Here is Cochrane:
Here, of course, Summers thinks multipliers — even multipliers for tax financed notice the Ricardian comment and wasted that’s in the models, the usefulness of the infrastructure has nothing to do with the multiplier is in the range of 4 to 5.To me, this is just magical thinking — that the key to long run prosperity is government spending, even if wasted.But these are old arguments, and I did not write to rehash old controversies. From my point of view, the speech is an eloquent statement of the problem, and the gulf between Summers and people who think like I do is much narrower than the gulf between macroeconomists and the policy establishment which is not even thinking about slow growth anymore. From my point of view, the focus on and evident emptiness of the “demand” solution — its reliance on magic — just emphasizes where the real hard problems are.