Chicago Has Little to Say...

A correspondent writes:

http://gsbmedia.chicagogsb.edu/GSBMediaSite/Viewer/?peid=439a24a984fa449a8833412955afac45 I found this U. Chicago Panel Discussion on Mankiw's blog. Lucas, as I hear him, advocates the Treasury View without reservation. Fiscal policy can have no real effect. Huizinga claims that all macro models predict an increase in G must reduce national saving, a borderline example of the same erroneous reasoning behind the Treasury View. (ignores IS-LM models in liquidity trap with accelerator effects on investment, but you know that.)

I actually thought Murphy's talk was sensible, although mainly wrong. Wish the equations were visible...

Huizinga simply seems confused. At a minimum, you need (a) business investment to not be a function of current capacity utilization, and (b) government-owned capital to not be productive for his conclusions about national saving to go through. My guess is that the Obama stimulus package will be a very small minus for national saving, but I cannot see how the net effect will be large enough to be a reason for people to be either for or against it.

Lucas appears to be worse than confused. If government decisions to spend do not affect production, then private decisions to spend do not affect production either--the same crowding-out argument applies. If this is the case, then Lucas should renounce his Nobel Memorial Prize. It was given for his analysis of how monetary policy did and did not lead to changes in private spending decisions that boosted or reduced output. Which--according to the Treasury View--does not happen.

Murphy's I have not yet watched...

I am struck, once again, by a big gap between things like this and the stories told of what Stigler and Friedman were like in their prime...