Brad Delong has been an enthusiastic supporter of the Obama stimulus package. Michele Boldrin was a signer of the Cato Institute sponsored NYT advert denouncing the stimulus. A couple of weeks ago I wrote a piece about the stimulus, to which both of them responded. And on March 4 at the University of California-Davis they debated the benefits of the stimulus in the "Stimulus Smackdown." Video of the entire debate is available here.
They were aided in the debate by some lively questioning from Kathryn Russ, Pontus Rendahl, Alan Taylor, Kevin Salyer of the Economics Department here at Davis, and Eric Rauchway of History.
Several key issues emerged. Was the problem a deficiency of demand, that the Government could make up, or was it the continuing financial crisis? In a clash of analogies DeLong insisted that if the patient is bleeding from an artery, first you staunch the blood flow, even if the long term solution requires repair of the artery. Boldrin countered while the patient may be bleeding, DeLong's solution missed the mark: "If the guy has a broken nose, you don't put a band-aid on his butt."
A second issue was whether a general stimulus could reduce unemployment, where that unemployment was concentrated in sectors such as construction and automobiles? Boldrin asserted that you could not quickly convert "hairy-handed construction workers" into the nurses that the Obama package would stimulate demand for. Further the stimulus package was just cover for Obama's long held objective of increasing public expenditures on various pet Democratic programs. DeLong countered that many of the construction workers had been converted quickly from other work into construction in the recent housing boom, and that there was plenty of flexibility in the labor market.
A third issue was the costs of deficit spending. Boldrin asserted that the stimulus effect was small, no greater than the amount spent, while the output was of little social value. DeLong argued that Christina and David Romer had shown much greater multiplier effects within the economy, and that the output was indeed of value.
This nearly two hour long interchange would take pages to adequately summarize. Topics discussed ranged over past financial crisis in Sweden, Japan and Malaysia, the Great Depression, Hitler's stimulus programs, and the trustworthiness of US government statistics.