Corners not craters: A “GDP Fetish” In today’s WSJ the ever insightful David Henderson reviews Keynesian Alan Blinder’s new book on the financial crisis After the Music Stopped. A highlight:
Mr. Blinder is a strong believer in the ability of government regulation to solve problems and even prevent them in the first place. He sees the private sector as mainly to blame for the housing and financial crises and criticizes "laissez-faire" economic policies adopted by the Clinton and Bush administrations that supposedly contributed. But I do not think that term means what he thinks it means. Laissez-faire has traditionally meant that the government keeps its hands off the economy and allows for economic freedom. But at times, Mr. Blinder applies the term to cases in which the government, once its hands were already all over the economy, didn't take the additional steps he favored.
His conclusion:
Mr. Blinder is a Keynesian, that is, someone who believes that the federal government should use fiscal policy—changing taxes and government spending—to stabilize the aggregate demand for goods and services. He therefore favored the stimulus policy that President Obama adopted his second month in office. Mr. Obama had the government increase spending in order to create more demand for goods. But Mr. Blinder is relatively unconcerned about whether the money was spent on valuable items. He has what I call the "GDP fetish"—the belief that increases in GDP are good whether or not they represent increased production of things that people actually value. If the government spends $100 billion digging holes and then filling them back up, then GDP can rise by $100 billion or more even if the $100 billion is totally wasted. Some stimulus projects, in fact, are little better than hole-digging. One example I noted on a recent visit to Detroit is the tearing up of sidewalk corners to make them wheelchair-friendly, even though the sidewalks themselves have so many craters that people in wheelchairs use the roads instead. With his faith in government intervention, Mr. Blinder sees the corners but not the craters.
The whole review, but perhaps not the book, is worth a read.
