Very few days pass here in upstate NY without me marveling at the internet. In addition to video-conferencing with the in-laws on the other side of the planet, and publishing my musings to inquiring minds around the world (whether they are inquiring if I've lost my marbles or something more salutatory, I don't know) I can read the lecture notes of Professors around the world (for how much longer will the Ivy covered halls, such as those at my alma mater, Cornell, be able to charge such a high price I won't hazard a guess).
John Taylor, of Taylor Rule fame and Brad Delong are two professors who, to my great delight, publish lecture notes and other insights into their teaching process.
Today, I find a most timely lecture from Mr. DeLong, about the virtues of stimulus. If I was a student in his class I would ask him if he had read Kevin Phillips' American Theocracy, as the economics therein is quite germane to the debate.
As I recently argued in Even Macro-Economics Suffers from Diminishing Returns, assuming that all economies are the same exposes one to potential error. To wit, Mr. Delong uses the BoE's simulative policies during the crisis of 1825 as model to critique the "liquidationist" policies of the Hoover administration in the 30s and argue for more forceful stimulus today.
With the benefit of hindsight, the extremely simulative policies of the BoE in 1825 were wise, not as a general proposition, but because the model of capital stock development was still in the early days of profitability. In early 19th Century Britain, coal was moved either by ship or by horse. Canals were under consideration as a means to reduce transport costs but the 1821 and 1823 passage of Railway Bills allowed the use of locomotive powered rail for goods and passengers. Markets got ahead of themselves, thus the crisis, but the profits were still out there to be generated. Stimulus under those conditions, was, as noted, quite wise and the multiplier effects, spectacular.
Would stimulus applied earlier in the 30s have been successful? My sense is, perhaps not. We were an export nation with few credit-worthy consumers. It has been well said that WWII brought us out of the depression by putting the factories to use. Blowing up lots of Europe and Asia created lots of new consumers and extending them credit kept the war machine humming in peace time during re-building. Eisenhower's Interstate Highways extended the growth period...but this is all in the past.
Enter Kevin Phillips. Mr. Phillips compares America of the current day to Britain at the end of the coal era and Holland at the end of the "wind and water" era. In brief, he argues that over time the wildly profitable capital stock of a nation ends up in the hands of a small elite who are reluctant to allow innovation. Britain, in his view, was slow to jump on the oil bandwagon because their elite owned coal centered capital stock. We, he argues, will be slow to adopt newer, more efficient technologies because our elite own an oil centered capital stock.
I tend to agree with Mr. Phillips. Our capital stock is old, yet new technologies challenging the old ways, despite vast amounts of cash earning next to nothing, find it difficult to get off the ground. Stimulus which flows through the old conduits may, if it props up the current elite, do more harm than good. Sadly, stimulus which aims to create a new elite may not be passed.
Repeating my old mantra about stimulus debates, "it's the capital, stupid!"
Oops, Mr. Delong just kicked me out of class. "Hey, don't tase me, Bro!"
p.s. sad thing is, I often read Mr. Delong's notes for just such capital stock outlines as I offered today on 1825 Britain- a subject about which he no doubt knows far more than I....ah the perils of pre-approving one's own conclusions (something I've done myself not infrequently- Human, all too Human as Mr. Nietzsche might say)