Debate of the Century (The Hip-Hop Version)

Bernstein cemented his case for a Keynesian stimulus program with two additional visuals: one showing consumer spending falling by a smaller than expected amount (given the lost household wealth) after the Recovery Act’s passage, followed by an uptick in spending; and a second showing the Congressional Budget Office’s projected unemployment rate in January 2012 (11%) minus the stimulus; and actual rate (8.5%) with the stimulus.

Case closed? Russell Roberts, the session’s second speaker, wasn’t buying it.  A professor of economics at George Mason University in Fairfax, Va., Roberts represented Keynes’ opponent in the music video: Friedrich August von Hayek, an economist and philosopher best known for his defense of classical liberalism and free-market, laissez-faire capitalism.

Roberts questioned whether economists can gauge the impact of government spending in a “useful and measurable way.” In respect to the CBO projection cited by Bernstein, for example, Roberts observed the estimate pegged the number of jobs to be created by the 2009 stimulus package at between 400,000 and 2.4 million—a six-fold difference that renders the determining of cause and effect an exercise in imprecision.

More troublesome, said Roberts, is economists’ inability to isolate the effect of a change in fiscal policy from other variables impacting the economy. To do so scientifically, he added, would require the impossible: observing two parallel economies, one with the change and, all else being equal, one without. Thus, Russell concluded, projections like the CBO’s rely on “fake science” and cannot be taken seriously.

Underpinning Roberts’ skepticism about Keynesianism is the belief that expansionary fiscal policies can do as much harm as good. When, for example, the government spends more money on steel and concrete to build out infrastructure (or, as during World War II, ships, aircraft and tanks), the funds channel limited resources into projects that could otherwise be used—potentially more efficiently—by the private sector.

Roberts makes valid points. Certainly economics is, if not a fake science, then an inexact one. But I reject his view that fiscal policy, in so far as pitting the public against the private sector, is a zero-sum proposition.

As Bernstein noted, the federal government has a constructive role to play precisely when consumption and investment—not to mention outlays by cash-strapped state are local governments—are in free-fall. How can the federal government be competing for scarce resources when consumers and businesses, whether out of fear or other reasons, are hoarding cash?

Bernstein was right: The best economy is a hybrid, one that leverages fiscal tools to moderate the economy’s cyclical peaks and valleys, stabilize markets and generate economic growth through appropriate financial incentives. All of which, I think, is worth rapping—or rhapsodizing—about.