Thursday, August 12, 2010

Stimulus Advocates Rewrite History

You can read here the remarkable claim that stimulus advocates HAVE been paying attention to supply, and have been saying, especially in 2009 and 2010, that better work incentives would increase employment.

If that were true, how are we supposed to understand these quotes (emphasis added)?
  • "Traditionally, many economists have been leery of prolonged unemployment benefits because they can reduce the incentive to seek work. But that should not be a concern now because jobs remain so scarce.” (Professor Larry Katz, as quoted by the NYT Aug 1, 2009).
  • "If you cut taxes on labor income, this expands labor supply — which puts downward pressure on wages and leads to expectations of deflation, which increases the real interest rate, which leads to lower output and employment. All of this only applies in a situation of zero interest rates, which wouldn’t be interesting except that that’s the situation we’re in." (Professor Paul Krugman, December 14, 2009)
  • "What’s limiting employment now is lack of demand for the things workers produce. Their incentives to seek work are, for now, irrelevant." (Professor Paul Krugman, March 7, 2010).

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