Ummm... Gary... Please phone Reality on the white courtesy phone.
Gary Becker wonders:
The Becker-Posner Blog: On the Obama Stimulus Plan-Becker: there appears to have been a huge conversion of economists toward Keynesian deficit spenders, but the evidence that produced such a "conversion" is not apparent (although maybe most economists were closet Keynesians all along). This is a serious recession, but Romer and Bernstein project a peak unemployment rate without the stimulus of about 9%. The 1981-82 recession had a peak unemployment rate of about 10.5%, but there was no apparent major "conversion" of economists at that time. What is so different about the present recession compared to that one, and to other recessions since then, that would greatly raise the estimated stimulating effects of government spending on various types of goods and services?..
The difference between now and 1982 was that back in 1982 the interest rate on Treasury bills was 13.68%--there was a lot of room for the Federal Reserve to cut interest rates and so reduce unemployment via monetary policy. Today the interest rate on Treasury bills is 0.03%--there is no room for the Federal Reserve to cut interest rates, and so monetary policy is reduced to untried "quantitative easing" experiments.
The fact that monetary policy has shot its bolt and has no more room for action is what has driven a lot of people like me who think that monetary policy is a much better stabilization policy tool to endorse the Obama fiscal boost plan.
The fact that Gary Becker does not know that monetary policy has shot its bolt makes me think that the state of economics at the University of Chicago is worse than I expected--but I already knew that, or rather I had thought I already knew that.
