The econonoblogosphere is ripe with healthy debate of late over macroeconomic theory and fiscal stimulus. And frankly, sometimes even when economists seem to agree, they still disagree. Over at the Freakonomics blog, Justin Wolfers of Wharton makes an argument that we are relatively unprepared to understand fiscal stimulus because macroeconomic theorizing on the subject has evolved so little over the last half century.
If you took your first economics class 50 years ago, you’ll recognize all this talk about marginal propensities, multipliers, and crowding out. Fifty years later, it’s still the same debate, and it’s still unresolved. Why are we so reliant on mid-century macro for understanding our current predicament? And why haven’t we developed better answers?
Monetary policy, it seems, has been in the driver's seat. Wolfers plugged the numbers and found that since 1970, economic papers published on monetary policy have outpaced papers on fiscal policy 3 to 1.
I’m not sure why fiscal policy is the ugly stepsister. Perhaps the problem is ideology, and pro-market economists don’t like any discussion that gives government a greater role. Or perhaps there are just too many temptations for young economists — monetary policy research pays off because there’s a comfortable career path running from monetary research to the money markets.
Wolfers goes on to suggest that part of the reason for the imbalance is because of funding. With a dozen Fed branches, funding for monetary policy research has many rich uncles, while there are far fewer funders for fiscal policy research. Might we expect some change there given that fiscal policy discussions are now the rage--and for good reason? You can read the full post here.