Tuesday, October 11, 2011

Quotes of the day

Two notable quotes from Thomas Sargent, co-recipient of the Nobel prize in economics awarded yesterday. The first addressing the 2009 stimulus package:
I agreed with [Stanford economist John Taylor] that the [Obama administration's Council of Economic Advisers] calculations were surprisingly naive for 2009. They were not informed by what we learned after 1945….In early 2009, President Obama’s economic advisers seem to have understated the substantial professional uncertainty and disagreement about the wisdom of implementing a large fiscal stimulus.  
In early 2009, I recall President Obama as having said that while there was ample disagreement among economists about the appropriate monetary policy and regulatory responses to the financial crisis, there was widespread agreement in favor of a big fiscal stimulus among the vast majority of informed economists. His advisers surely knew that was not an accurate description of the full range of professional opinion. President Obama should have been told that there are respectable reasons for doubting that fiscal stimulus packages promote prosperity, and that there are serious economic researchers who remain unconvinced.
The second about unemployment and the European welfare state:
Europe’s generous unemployment compensation system has made an important contribution to sustained high European unemployment….Our models imply that people in Europe, especially older workers, are suffering from long-term unemployment because of the adverse incentives brought about by a generous social safety net when it interacts with these human capital dynamics….if, in the United States, we create a system where unemployment and disability benefits are permanently extended in their generosity and their duration, we will inadvertently put ourselves into the situation that much of Europe has suffered for three decades.
Writing in today's Wall Street Journal, meanwhile, David Henderson says that the work done by both Sargent and co-winner Chris Sims has put "a sizable chink in the Keynesian armor." Related thoughts from Phil Levy here.

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