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Why the Hairshirts Matter


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July 01, 2005

Why the Hairshirts Matter

Michael Mandel

In response to my previous post, Mark Thoma writes

the significance of the distinction between hairshirts and growth proponents in advancing our understanding of economic ideas that is clear to the two of you is still unclear to me...

Mark, let me take a shot at this. The difference between hairshirts and growth proponents matters for policy, and it matters for politics.

The policy is actually the easier part. A hairshirt economist, in general, will hold these policy views:

--The biggest economic problem that the U.S. faces is that we consume too much and don't save enough. The solution is to take measures to consume less (hence, the need to don a painful hairshirt)

--Such painful but necessary measures include raising taxes, restraining "runaway entitlements", and cutting the budget deficit, even if it means putting a cap on nonessential spending, such as R&D and education.

--Monetary and fiscal policy should be based on relatively conservative assumptions about sustainable growth.

A growth proponent is more likely to hold these policy views:

--The biggest economic problem that the U.S. faces is to maintain a rapid rate of innovation. The solution is to take measures which encourage risk-taking and the ability to turn new technologies into real products and real jobs

--Such measures include increased funding for R&D and education, the critical inputs to innovation, even if it means a somewhat higher budget deficit. It may also be important to rejigger the regulatory and tax systems to lower the barriers to innovation

--Monetary and fiscal policy should allow the economy to run 'hot', to encourage risk-taking in the private sector.

That's a pretty big difference. I'll do the politics in the next post.

09:10 AM

Growth

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So, which are you: Hairshirt or growth proponent?

Posted by: Bruce at July 1, 2005 01:26 PM

Mark told me that you were ducking my Angrybear post. I'm for my R&D - but then so was Clinton. I'm for more spending on education. So was Clinton. But your posts suggest it is the tax cutters who are for more R&D without providing a shred of evidence that tax cuts promote more investment in R&D. If you wish to engage in a serious discussion - we are waiting.

Posted by: pgl at July 1, 2005 01:30 PM


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