Monday, 21 January 2013

Henderson on Alan Blinder's New Book: Corners not craters - A “GDP Fetish”

John P. Cochran quotes David Henderson's book review in the WSJ of Alan Blinder's new book (After the music stopped) on the Mises Economic Blog,
Mr. Blinder is a Keynesian, that is, someone who believes that the federal government should use fiscal policy—changing taxes and government spending—to stabilize the aggregate demand for goods and services. He therefore favored the stimulus policy that President Obama adopted his second month in office. Mr. Obama had the government increase spending in order to create more demand for goods. But Mr. Blinder is relatively unconcerned about whether the money was spent on valuable items. He has what I call the “GDP fetish”—the belief that increases in GDP are good whether or not they represent increased production of things that people actually value. If the government spends $100 billion digging holes and then filling them back up, then GDP can rise by $100 billion or more even if the $100 billion is totally wasted. Some stimulus projects, in fact, are little better than hole-digging. One example I noted on a recent visit to Detroit is the tearing up of sidewalk corners to make them wheelchair-friendly, even though the sidewalks themselves have so many craters that people in wheelchairs use the roads instead. With his faith in government intervention, Mr. Blinder sees the corners but not the craters.
Alan Blinder appears not to understand the Broken-Window Fallacy ("GDP fetish"). But he can comfort himself that he is not alone as he is joined by most politicians and central bankers.


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