Economic journalism and the stimulus

Steve Pierson over at the Standard is criticising National’s stimulus package, and the quality of economic journalism. Now, although I’m always happy to criticise things too I feel that some of his critiques are a bit harsh.

I’ll go through the two harshest criticisms below:

1) “In the greatest economic crisis in a lifetime, we remain the only country in the world whose government has done nothing to try to stimulate the economy”

I’m not so sure about this. Just recently there was a post on Dani Rodrik’s blog that, when talking about the G20, stated:

There have been a relatively small number of stimulus packages thus far and they don’t amount to much

We hear alot about stimulus packages around the world – and I’m not sure that NZ’s tax cuts and infrastructure spending are that small in comparison …

2) “Many (economic journalists) are so economically illiterate that they think running an economy is like running a household budget”

I’m not sure this is really economically illiterate – expect for the bit about “running the economy”. The government doesn’t so much run the economy – it is a sector in the economy, a sector that is focused on redistributing and setting up a broad framework to improve outcomes in the market economy.

Now, the “household budget” analogy is apt – because things in the government budget do eventually have to add up. The main difference is that, if there is a whole lot of spare (under-utilised) resources, the government may be in a position to put them to use – because it is such a big sector of the economy.

The problem with the “naive Keynesian” view that is often used to blanket justify stimulus is that it makes output appear from nowhere, it doesn’t have a supply side. In the current situation, a government stimulus may increase output if we have underutilised resources – however the focus should be on “what is under-utilised” and “why is the market failing to change prices to get it working” rather than comparing who has the biggest stimulus.

I has seen Steve discuss the supply side a lot when talking about peak oil and the such – as a result, I am uncertain why he thinks the household budget analogy is economically illiterate. Maybe there is some implicit disagreement between him and other economic journalists as to the scope for the under-utilisation of resources? However, disagreements surrounding value judgments don’t make people “economically illiterate” – hence why I think the critique is a bit harsh.