Tuesday, January 6, 2009
The Free Advice "Speak Out!" Award Goes to Mario Rizzo
Our first Speak Out! award goes to Mario Rizzo. Both on his new blog and in the comments section at other sites, Mario has continually pounded home the message that microeconomics is still relevant, even when there is a recession. The second link above is to an Arnold Kling EconLog post. Kling says he's "firmly" against a big stimulus, but would instead "prefer a small stimulus." (Whoa, you should have warned us to sit down before dropping that bombshell, Arnold!) Rizzo says:
Of course, even Rizzo inexplicably thinks that creating more money out of thin air will help with relative price coordination, but that's why you have me.
Why is there a case for any (fiscal)stimulus at all? If we are simply talking about indulging the public in their fantasies about an easy way out of the economic mess, then I am no expert on this.
However, since so much of the current problem has its roots in the misdirection of resources we must be careful not to frustrate allocative adjustments by renewing the misdirection of resources towards over-expanded sectors. These are not sustainable in terms of the preferences of consumers and investors. The operative resource allocation principle in the political process is toward those areas with the greatest political influence. (BTW, none of this is to be taken as opposing the maintenance of sufficient high powered money to prevent outright deflation.)
Of course, even Rizzo inexplicably thinks that creating more money out of thin air will help with relative price coordination, but that's why you have me.
Comments:
"even Rizzo inexplicably thinks that creating more money out of thin air will help with relative price coordination"
Would you mind explaining this point a bit? Are talking about bringing down the value of assets by creating inflation?
Would you mind explaining this point a bit? Are talking about bringing down the value of assets by creating inflation?
I'm saying: Rizzo correctly notes that during the recession, resources need to get reallocated among sectors; some sectors need to grow and others need to shrink. If the government borrows trillions and throws them at the shrinking sectors, that will hamper the recovery.
But for some reason, Rizzo seems to think that if the Fed prints up trillions of dollars and hands them out to politically connected banks, this will make the recovery smoother.
But for some reason, Rizzo seems to think that if the Fed prints up trillions of dollars and hands them out to politically connected banks, this will make the recovery smoother.
Bob,
I am quite pleased to accept your award (and the check, of course). Seriously, I think this is a critical moment for the American economy, the discipline of economics, and our liberty. As to my btw point: I am talking about the issue of secondary deflation as discussed by Hayek (and also Larry White). I am open to having my mind changed.
I am quite pleased to accept your award (and the check, of course). Seriously, I think this is a critical moment for the American economy, the discipline of economics, and our liberty. As to my btw point: I am talking about the issue of secondary deflation as discussed by Hayek (and also Larry White). I am open to having my mind changed.
# posted by 
: January 7, 2009 at 3:35 PM
: January 7, 2009 at 3:35 PM
Mario,
Before we proceed, I first need to contact the Registrar at NYU and see if you have the power to revoke my PhD.
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Before we proceed, I first need to contact the Registrar at NYU and see if you have the power to revoke my PhD.
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