Monday, February 09, 2009

Becker and Murphy Make Sense

With 100s of academic economists all speaking at once, how is my mom to know who to believe during this stressful time? If she called me, I would suggest that she read this Gary Becker and Kevin Murphy WSJ Piece.

In this piece they present some credible reasons for why the "stimulus plan" may not deliver what the new Administration claims it will deliver. The problem with macro policy of course is that these guys can't run a "pilot program" to demonstrate that whatever treatment in vogue might really work. I'd be happier with the policy thinking if they could be clever enough to run a credible field experiment to demonstrate the likely positive effects of this stimulus plan on "confidence".

Permit me to suggest a new policy to stabilize this economy. For anybody who bought a home after January 1st 2006, the Obama Administration will buy the home at the price the household purchased it for. For anybody who bought a stock after January 2006, the Obama Administration will buy that stock at the price the person paid for it.

The Administration will then give away all of these assets to people whose household income is less than $100,000 per year.

Would this "policy" lead to a return of "confidence"? A one time income redistribution bundled with erasing 3 years of ex-post mistakes?