quinta-feira, 29 de novembro de 2012

O que fazer para fomentar o desenvolvimento?

Gostei muito da séries de posts do Mansueto Almeida
Vejam abaixo:
Quem acompanha a literatura econômica pode ter certeza de uma coisa. Apesar do progresso na área de desenvolvimento econômico nas últimas três décadas e do maior conhecimento que hoje se tem sobre o que funciona e o que não funciona, os grandes economistas que estudam o assunto não conseguem ainda concordar no que fazer. Assim, como esperar que governos consigam avançar no fomento ao desenvolvimento se nem mesmo os melhores acadêmicos conseguem chegar a um consenso mínimo do que deve ser feito? Vamos ver como algumas das estrelas da ciência econômica e formadores de opinião na área de desenvolvimento econômico responderiam a pergunta acima. 1) Jeffrey Sachs (Columbia University) Os países são pobres porque estão mergulhados em uma armadilha da pobreza – investem pouco em educação porque o retorno do capital humano é baixo. E o retorno do capital humano é baixo porque falta oportunidade de emprego. Tudo isso leva a um circulo vicioso (baixo retorno do capital e baixos incentivos à educação e inovação) que poderia ser quebrado com a ajuda externa de organismos internacionais e países desenvolvidos. O problema de combater a pobreza e do estímulo ao crescimento seria resolvido com um “Big Push” – depois pensamos em incentivos. Instituições seriam secundárias e poderiam ser criadas ao longo do processo de crescimento, uma vez que a “armadilha da pobreza” seja quebrada. A pobreza existe porque a comunidade internacional aplica “pouco” dinheiro para combatê-la. Programas como as metas de desenvolvimento do milênio são bons e precisamos aumentar o compromisso com esse tipo de política. 2) William Easterly (New York University e ex-Banco Mundial) Os homens brancos vivem com um sentimento de culpa pela pobreza do mundo. Assim, eles tentam planejar como resolver os problemas dos pobres e dos países pobres, mas fazem um bocado de tolices ao tentar “planejar o desenvolvimento” e distorcem incentivos. No final, ditadores de países pobres recebem dinheiro da comunidade internacional, ficam mais ricos e a distribuição de redes para proteger crianças do mosquito transmissor da malária terminam como rede de pescar no barco de algum pescador no mar. A solução é reduzir os programas internacionais de combate à pobreza, aprimorar incentivos de mercados em cada país e avançar na abertura comercial para que cada país possa usufruir das vantagens comparativas. Crescimento é um processo complexo e não há receita única. Os burocratas mais atrapalham do que ajudam e Jeffrey Sachs é um grande utopista que deveria criticar a politica de proteção comercial e de subbsídos dos EUA ao invés de “ajudar os pobres”. O que devemos fazer para ajudar os mais pobres é incentivar abertura comercial, aprimorar os mecanimos de mercado e defender o término dos subsídio agrícolas dos EUA e da União Européia. A forma de combater pobreza é por meio do livro comércio com a inclusão de produtores de países pobres que hoje são prejudicados pelos subsídiso de países ricos. Essa é a única forma de combater a pobreza de forma sustentável: “more trade and less aid“. 3) Daron Acemoglu (MIT) e James Robinson (Harvard) Professor Daron Acemoglu (MIT) O que determina o crescimento de um país no longo-prazo são as instituições. Os países sabem exatamente o que fazer e o que não fazer, mas adotam politicas extrativas (e não inclusivas) porque há uma elite que se beneficia do crescimento concentrado (ou mesmo da falta dele). O governo não pode fazer muita coisa porque “o governo” faz parte desse equilíbrio, que é um equilíbrio estável – instituições politicas e econômicas extrativas se reforçam mutuamente e levam a um equilíbrio dinâmico estável. Professor James Robinson Como então os países fogem da armadilha de estar preso a um equilíbrio ruim: instituições extrativas, políticos corruptos, baixo incentivo à inovação, etc.? não há receita de bolo. Há janelas de oportunidades, como recentemente ocorreu com a primavera árabe, que trazem para o cenário político novos atores que podem alterar a correlação de forças em uma sociedade, dando inicio à formação de instituições políticas e econômicas mais inclusivas. O Brasil seria um bom exemplo dessa dinâmica de criar instituicões inclusivas não por uma revolução, mas de forma mais gradual com os avanços que o país logrou desde o fim do regime militar (isso está livro deles why nations fail). Crescimento de longo-prazo é um processo demorado e boas instituições não serão criadas de fora para dentro. Por mais bem intencionado que seja Jeffrey Sachs, tudo o que ele propõe é “wishful thinking” e não entendeu nada do que escrevemos no nosso livro “why nations fail”.
4) Abhijit Banerjee (MIT) e Esther Duflo (MIT). Nossos colegas são muito radicais. Eles todos podem contribuir com a solução para reduzir a pobreza e promover o crescimento, mas é preciso qualificar as teses deles com a metodologia de Randomized Evaluations-RE que os pesquisadores do “Poverty Action Lab” utilizam. Para melhorar as INSTITUIÇÕES (as regras do jogo de uma sociedade) tão destacadas pelo Daron Acemoglu, precisamos entender melhor as “instituições” no âmbito microeconômico, por exemplo, os programas de microcrédito, transferência de renda condicionada, programas de melhoria das escolas em comunidades pobres, projetos de esclarecimento nas vilas pobres para melhorar a governança local, programas de esclarecimento à população sobre os recursos transferidos para escola local, etc. Esses vários programas no âmbito microeconômico podem ser testados em várias regiões e países pobres e, se adequadamente avaliados (via Randomized Evaluations-RE), poderiam nos ensinar o que funciona e em quais condições. Esses programas locais são em geral baratos e os estudos que fazemos mostram que muitos deles melhoram o bem estar de comunidades pobres e, esse tipo de programa, se adotado em escala maior depois de adequadamente testado como se faz na indústria farmacêutica com novas drogas, poderiam melhorar as INSTITUIÇÕES. Neste caso, a solução macro do crescimento de longo prazo viria de projetos locais no qual a comunidade internacional poderia ajudar com recursos e avaliação (Sachs poderia ajudar). Mas incentivos são importantes e o desenho desses programas micro precisam levar em conta os incentivos de mercado (Easterly poderia ajudar). Por fim, podemos melhorar as INSTITUIÇÕES no âmbito macro a partir de projetos micro (instituições com letra minúscula) (Acemoglu e Robinson concordamos com vocês, mas janelas de oportunidades podem ser criadas). 5) Joseph Stiglitz (Columbia University) e Paul Krugman (Princeton University) Professor Joseph Stiglitz O mundo é uma droga com politicas erradas de países desenvolvidos que foram capturados pela elite do sistema financeiro. Os países em desenvolvimento confiaram demais no “Consenso de Washington” e adotaram politicas que dificultam o crescimento de longo prazo. A solução para o problema do crescimento passa, necessariamente, por políticas governamentais mais ativas que promovam o crescimento, fortaleça o papel dos sindicatos dos trabalhadores, aumentem a tributação sobre os mais ricos, aumente a rede de bem estar social, aumente a regulação do sistema financeiro, adoção de politicas industriais e fomento à inovação. Professor Paul Krugman O governo tem a força e precisamos apenas trazer para o poder as pessoas certas, aquela que estão dispostas a promover o crescimento inclusivo e não cair na armadilha do pessimismo dos economistas de Chicago. No caso dos EUA, se voltarmos ao mix de politicas que tinhamos no pós-guerra, podemos voltar a crescer novamente e pagar nosso imensa dívida. O problema do baixo crescimento dos EUA, por exemplo, é um problema político que resultou da captura do governo pelas elites e baixa mobilização dos trabalhadores. A crise decorreu da falta de regulação do governo e da perda de poder do eleitor mediano, um processo que teve início na primeira metade da década de 1970. 6) Dani Rodrik (Harvard) e Ricardo Hausmann (Harvard) professor Dani Rodrik Os países precisam experimentar e descobrir suas vantagens comparativas. Vantagens comparativas podem ser criadas e o governo tem um papel importante nesse processo de estimulo à descoberta do que pode ser produzido de forma eficiente em um país. O foco não é dar incentivos para o que já existe, mas incentivos para que novos empreendedores possam investir em novos setores ou produtos, com o Estado compartilhando o custo do fracasso. Esse processo de descoberta precisa ser subsidiado porque o retorno social é muito maior que o retorno privado e, assim, se não for subsidiado a sociedade vai investir pouco nesse processo de descoberta de novas atividades. Essa estratégia que advogamos pode complementar a estratégia do Banerjee e da sua turma do Poverty Action Lab – não são estratégias excludentes e espero que eles entendam dessa forma. professor Ricardo Hausmann Instituições são importantes. mas os países melhoram, gradualmente, suas instituições ao longo do processo de crescimento e “boas instituições” dependem do estágio de desenvolvimento de cada país. A China seria um bom exemplo desse processo de descoberta e melhoria institucional patrocinado pelo governo.O importante quando se fala de políticas de fomento ao crescimento e a setores produtivos é ter monitoramento, avaliação e regras de saída. Há espaço para “boas políticas industriais”. Mas o fato de defendermos politicas industriais não significa que sejamos a favor das loucuras que muitos países fazem e chamam de politica industrial. No caso específico do Brasil, já publiquei texto (Hausmann), em 2008, onde defendo que o Brasil já tem uma estrutura industrial diversificada e que o problema maior de vocês seria a baixa taxa de poupança doméstica.
É claro que a lista abaixo dos dois post anteriores não é exaustiva e apenas coloquei aqueles professores que mais aparecem no debate de desenvolvimento. Há um outro grupo grande de economistas que defenderia o básico: governo deve se preocupar com educação, segurança e direitos de propriedade. Para esses economistas, o que o governo pode fazer para promover o desenvolvimento é não atrapalhar o funcionamento do livre mercado, deixar o país explorar as vantagens comparativas que já tem, investir em educação e até dar incentivos para inovação. Mas nada de política industrial ou de programas voltados para “planejar o desenvolvimento”. Na visão desse grupo, desenvolvimento não pode ser planejado e quem tentou fazer isso se deu mal. Os exemplos de países que planejaram o desenvolvimento e tiveram sucesso são exceções que confirmam a regra (Easterly tem um bom texto sobre isso). O que fazer? Bom, todos os dias alguém me pergunta o que o governo deve fazer. Como é que vou saber se nem os economistas famosos concordam no que fazer e cada um fala mal do livro do outro? Para cada um dos economistas citados acima há uma legião de professores e profissionais em diversos órgãos internacionais que divulgam suas ideias e todos acham que têm a última solução para o problema do desenvolvimento. Pelo menos a turma do RE (Banerjee, Duflo e seguidores) tem uma vantagem: não sofrem do problema de megalomania apesar da tentação de alguns dos seus seguidores em generalizar experimentos que não podem ser generalizados – essa turma vai ainda suar muito para convencer que a metolodologia deles não sofre dos mesmos problemas tão criticados dos estudos de caso: vale apenas para o caso ou os casos analisados. Quer um conselho? Pergunte ao seu professor de economia favorito quem tem razão neste debate. Eu mesmo vou começar a perguntar aos meus amigos que estão na academia o que fazer para promover o crescimento. O problema é que já fiz isso uma vez e não houve consenso. Enquanto isso dois economistas velhinhos devem estar pensando…… Professor Albert O. Hirschman “Solow, muita gente me criticou por que não formalizei minhas ideias sobre desenvolvimento econômico e que sempre fui muito otimista com a América Latina. Mas depois de quase meio século de avanço na teoria, até que ponto esses jovens de fato avançaram na proposição de políticas públicas? e alguns deles continuam com essa fixação nos “obstáculos ao crescimento” que tanto critiquei na década de 60.” Professor Robert Solow “Hirschman, apesar de nossas diferenças de metodologia para estudar crescimento econômico, sempre houve um respeito mútuo. Sofri também várias criticas porque me acusaram de desenvolver um modelo no qual não conseguia explicar o principal fator por trás do crescimento de longo-prazo: o crescimento da produtividade que no meu modelo é um resíduo. Mas quando vejo a briga desses caras e as propostas deles me pergunto: no que extamente eles avançaram em relação ao meu modelo? É verdade que Lucas e Romer mostraram na década de 1980 que investimento em capital humano e inovação são importantes. “And so what”? como transformar essas descobertas em politicas públicas? Como o Estado deve fomentar inovação e de que forma inovação se tranforma em crescimento da produtividade total dos fatores (PTF) e crescimento de longo prazo? A relação causal é de inovação (variável exógena) para PTF ou que o aumento da taxa de investimento levaria a mais inovação (endógena) via learning-by-doing que afeta o progresso técnico?

sexta-feira, 16 de novembro de 2012

John B. Taylor: Monetary Policy and the Next Crisis

At its annual meeting of the world's central bankers in Switzerland last week, the Bank for International Settlements—the central bank of central banks—warned about the harmful "side effects" of current monetary policies "in the major advanced economies" where "policy rates remain very low and central bank balance sheets continue to expand." These policies "have been fueling credit and asset price booms in some emerging economies," the BIS reported, noting the "significant negative repercussions" unwinding these booms will have on advanced economies. The BIS emphasizes the view that international capital flows stirred up by monetary policy were a primary factor leading to the preceding crisis and that these flows would lead to the next one. This is in stark contrast to the "global saving glut" hypothesis—which says that the funds pouring into the U.S. in the previous decade originated largely from the surplus of exports over imports in emerging market economies. The BIS should be taken seriously. It warned long in advance about the monetary excesses that led to the financial crisis of 2008. The capital-flow story starts during extended periods of low interest rates, as in the U.S. Federal Reserve's low rates from 2003 to 2005 and its current near-zero interest rate policy, which began in 2008 and is expected to last to 2014. These low interest rates cause investors to search elsewhere for yield, and they buy foreign securities—corporate as well as sovereign—for that reason. Global bond funds in the U.S. thus shift their portfolios to these higher-yielding foreign securities and investors move to funds that specialize in such securities. Low U.S. interest rates also encourage foreign firms to borrow in dollars rather than in local currency. U.S. branch offices of foreign banks play a key part in this process: As of 2009, U.S. branches of over 150 foreign banks had raised $645 billion to make loans in their home countries, making special use of U.S. money-market funds, where about one half of these funds' assets are liabilities of foreign banks. This increased flow of funds abroad—whether through direct securities purchases or through bank lending—puts upward pressure on the exchange rate in these countries, as the foreign firms sell their borrowed dollars and buy local currency to expand their operations and pay workers. That's when foreign central banks enter the story. Concerned about the negative impact of the appreciating currency on their country's exports or with the risky dollar borrowing of their firms, they respond in several ways. First, they impose restrictions on their firms' overseas borrowing or on foreigners investing in their country. But the differences in yield provide strong incentives for market participants to circumvent the restrictions. Second, central banks buy dollar assets, including mortgage-backed securities and U.S. Treasurys, to keep the value of their local currency from rising too much as against the dollar. One consequence of these purchases is a foreign government-induced bubble in U.S. securities markets, as we saw in mortgage markets leading up to the recent crisis, and as we may now be seeing in U.S. Treasurys. The flow of loans from the U.S. to foreign borrowers is effectively matched by a flow of funds by central banks back into the U.S. There is no change in the current account, and no role for the so-called savings glut. Third, in order to discourage the inflow of funds seeking higher yields—which would drive up the exchange rate of their own currency—foreign central banks hold their interest rates lower than would be appropriate for domestic economic stability. There is much statistical evidence for this policy response, and, when you roam the halls of the BIS and talk to central bankers, as I did last week, you get even more convincing anecdotal evidence. Call it the lemming effect: Central banks tend to follow each other's interest rates down. This is what happened in the lead up to the 2008 financial crisis, and it has helped fuel Europe's current debt crisis. In the 2003-2005 period, low interest rates led to a flow of funds into U.S. mortgage markets as foreign central banks bought dollars, aggravating the housing boom and the subsequent bust. Moreover, the European Central Bank's interest rate moves during 2003-2005 were influenced by the Fed's low rates. By my estimates, the interest rate set by the ECB was as much as two percentage points too low, which also had the effect of spurring housing booms in Greece, Ireland and Spain. Ironically, the European debt crisis, which originated in the booms and busts in Greece, Ireland and Spain, now has come around to threaten the U.S. economy. The Fed's current near-zero interest rate policy, designed to stimulate the U.S. economy, has made it harder for other central banks to combat credit and asset price booms. A group of 18 emerging market central banks—including Brazil, China, India, Mexico and Turkey—held their interest rates on average as much as five percentage points below widely used policy benchmarks—and global commodity prices doubled from 2009 to 2011, a boom rivaling the excesses leading up to the 2008 financial crisis. This global, loose monetary policy was likely a big factor pushing up commodity prices. The current sharp slowdown in most emerging markets coincides with an inevitable bust of this easy-money induced boom, and the decline of foreign demand for American goods is now feeding back to the U.S. economy. The Fed needs to pay closer attention to global capital flows and the reactions of other central banks to its decision to set interest rates very low for long periods of time. This does not mean taking one's eye off the U.S. economy, but rather preventing booms and busts abroad from slowing growth at home precisely when we need it most. Mr. Taylor, a professor of economics at Stanford University and a senior fellow at the Hoover Institution, is the author of "First Principles: Five Keys to Restoring America's Prosperity (Norton, 2012).

quarta-feira, 14 de novembro de 2012

Barro on Keynesian Economics vs. Regular Economics

Readers of this blog may have guessed by now that I am not a fan of The Wall Street Journal editorial page. (Actually that is not entirely true. The Journal editorial page is my go-to source of material whenever I am looking for something to write about on the blog. So the truth is that I am deeply indebted and eternally grateful to the Journal.) But I have to admit that even I was not quite prepared for Robert Barro’s offering in today’s Journal. You don’t have to be a Keynesian economist – and I have never counted myself as one – to find Barro’s piece, well, let’s just say, strange. Barro is certainly more sophisticated than Stephen Moore who, having discovered, 75 years after Keynes wrote the General Theory, that Keynesian economics defies common sense, tried and failed to apply the coup de grace to Keynesian economics. Employing a variation on Moore’s theme, Barro, with a good deal more sophistication than Moore, draws the contrast not between Keynesian economics and common sense but between Keynesian economics and regular economics. Regular economics is the economics of scarcity and tradeoffs in which there is no such thing as a free lunch, in which to get something you have to give up something else. Keynesian economics on the other hand is the economics of the multiplier in which government spending not only doesn’t come at the expense of private sector spending, amazingly it increases private sector spending. Barro throws up his hands in astonishment: If [the Keynesian multiplier were] valid, this result would be truly miraculous. The recipients of food stamps get, say, $1 billion but they are not the only ones who benefit. Another $1 billion appears that can make the rest of society better off. Unlike the trade-off in regular economics, that extra $1 billion is the ultimate free lunch. Quickly composing himself, Barro continues: How can it be right? Where was the market failure that allowed the government to improve things just by borrowing money and giving it to people? Keynes in his “General Theory” (1936), was not so good at explaining why this worked, and subsequent generations of Keynesian economists (including my own youthful efforts) have not been more successful. Nice rhetorical touch, that bit of faux self-deprecation, referring to his own fruitless youthful efforts. But the real message is: “I’m older and wiser now, so trust me, the multiplier is a scam.” But wait a second. What does Barro mean by his query: “Where was the market failure that allowed the government to improve things just by borrowing money and giving it to people?” Where is the market failure? Hello. Real GDP is at least 10% below its long-run growth trend, the unemployment rate has been hovering between 9 and 10% for over two years, and Professor Barro can’t identify any market failure? Or does Professor Barro, like many real-business cycle theorists (say, Charles Plosser, for instance?), believe that fluctuations in output and employment are optimal adjustments to productivity shocks involving intertemporal substitution of leisure for labor during periods of relatively low productivity? Perhaps that is what Barro thinks now, which would be interesting to know if it were the case, but about two and a half years ago, writing another op-ed piece for the Journal, Barro had a slightly different take on what is going on during a depression. [A] simple Keynesian macroeconomic model implicitly assumes that the government is better than the private market at marshalling idle resources to produce useful stuff. Unemployed labor and capital can be utilized at essentially zero social cost, but the private market is somehow unable to figure any of this out. In other words, there is something wrong with the price system. John Maynard Keynes thought that the problem lay with wages and prices that were stuck at excessive levels. But this problem could be readily fixed by expansionary monetary policy, enough of which will mean that wages and prices do not have to fall. So in January 2009, Barro was at least willing to entertain the possibility that some kind of obstacle to necessary price and wage reductions might be responsible for the failure of markets to generate a spontaneous recovery from a recession, so that a sufficient monetary expansion could provide a cure for this problem by making wage-and-price reductions unnecessary. But if that is what Barro believed (and perhaps still believes), it would be interesting to know if he thinks that monetary expansion, which, after all, can be accomplished at very little cost in terms of resources or foregone output is not somehow inconsistent with his conception of regular economics. I mean you print up worthless peices of paper and, poof, all of a sudden all that output that private markets couldn’t produce gets produced, and all those workers that private markets couldn’t employ get employed. In Professor Barro’s own words, How can that be right? But let us assume that Professor Barro, obviously a very, very clever fellow, has an answer to that question, so that trying to increase output and employment by printing up and distributing worthless pieces of paper is not at odds with regular economics, while trying to do so by government spending – quintessential Keynesian economics – must therefore contradict regular economics. Well, then, let’s ask ourselves how is it that monetary expansion works according to regular economics? People get additional pieces of paper; they have already been holding pieces of paper, and don’t want to hold any more paper. Instead they start spending to get rid of the the extra pieces of paper, but what one person spends another person receives, so in the aggregate they cannot reduce their holdings of paper as intended until the total amount of spending has increased sufficiently to raise prices or incomes to the point where everyone is content to hold the amount of paper in existence. So the mechanism by which monetary expansion works is by creating an excess supply of money over the demand. Well, let’s now think about how government spending works. What happens when the government spends money in a depression? It borrows money from people who are holding a lot money but are willing to part with it for a bond promising a very low interest rate. When the interest rate is that low, people with a lot cash are essentially indifferent between holding cash and holding government bonds. The government turns around and spends the money buying stuff from or just giving it to people. As opposed to the people from whom the government borrowed the money, a lot of the people who now receive the money will not want to just hold the money. So the government borrowing and spending can be thought of as a way to take cash from people who were willing to hold all the money that they held (or more) giving the money to people already holding as much money as they want and would spend any additional money that they received. In other words, i.e., in terms of the demand to hold money versus the supply of money, the government is cleverly shifting money away from people who are indifferent between holding money and bonds and giving the money to people who are already holding as much money as they want to. So without actually printing additional money, the government is creating an excess supply of money, thereby increasing spending, a process that continues until income and spending rise to a level at which the public is once again willing to hold the amount of money in existence. Now I am not saying that the two approaches, monetary expansion via printing money and government spending by borrowing, are exactly equivalent. But I am saying that they are close enough so that if restoring full employment by printing money does not contradict regular economics, I have trouble seeing why restoring full employment by borrowing and government spending does contradict regular economics. But I am sure that Professor Barro, very, very clever fellow that he is, will clear all this up for us in due course, perhaps in a future op-ed in my go-to paper.

Government Spending Is No Free Lunch - By Robert Barro

Back in the 1980s, many commentators ridiculed as voodoo economics the extreme supply-side view that across-the-board cuts in income-tax rates might raise overall tax revenues. Now we have the extreme demand-side view that the so-called "multiplier" effect of government spending on economic output is greater than one -- Team Obama is reportedly using a number around 1.5. To think about what this means, first assume that the multiplier was 1.0. In this case, an increase by one unit in government purchases and, thereby, in the aggregate demand for goods would lead to an increase by one unit in real gross domestic product (GDP). Thus, the added public goods are essentially free to society. If the government buys another airplane or bridge, the economy's total output expands by enough to create the airplane or bridge without requiring a cut in anyone's consumption or investment. The explanation for this magic is that idle resources -- unemployed labor and capital -- are put to work to produce the added goods and services. If the multiplier is greater than 1.0, as is apparently assumed by Team Obama, the process is even more wonderful. In this case, real GDP rises by more than the increase in government purchases. Thus, in addition to the free airplane or bridge, we also have more goods and services left over to raise private consumption or investment. In this scenario, the added government spending is a good idea even if the bridge goes to nowhere, or if public employees are just filling useless holes. Of course, if this mechanism is genuine, one might ask why the government should stop with only $1 trillion of added purchases. What's the flaw? The theory (a simple Keynesian macroeconomic model) implicitly assumes that the government is better than the private market at marshaling idle resources to produce useful stuff. Unemployed labor and capital can be utilized at essentially zero social cost, but the private market is somehow unable to figure any of this out. In other words, there is something wrong with the price system. John Maynard Keynes thought that the problem lay with wages and prices that were stuck at excessive levels. But this problem could be readily fixed by expansionary monetary policy, enough of which will mean that wages and prices do not have to fall. So, something deeper must be involved -- but economists have not come up with explanations, such as incomplete information, for multipliers above one. A much more plausible starting point is a multiplier of zero. In this case, the GDP is given, and a rise in government purchases requires an equal fall in the total of other parts of GDP -- consumption, investment and net exports. In other words, the social cost of one unit of additional government purchases is one. This approach is the one usually applied to cost-benefit analyses of public projects. In particular, the value of the project (counting, say, the whole flow of future benefits from a bridge or a road) has to justify the social cost. I think this perspective, not the supposed macroeconomic benefits from fiscal stimulus, is the right one to apply to the many new and expanded government programs that we are likely to see this year and next. What do the data show about multipliers? Because it is not easy to separate movements in government purchases from overall business fluctuations, the best evidence comes from large changes in military purchases that are driven by shifts in war and peace. A particularly good experiment is the massive expansion of U.S. defense expenditures during World War II. The usual Keynesian view is that the World War II fiscal expansion provided the stimulus that finally got us out of the Great Depression. Thus, I think that most macroeconomists would regard this case as a fair one for seeing whether a large multiplier ever exists. I have estimated that World War II raised U.S. defense expenditures by $540 billion (1996 dollars) per year at the peak in 1943-44, amounting to 44% of real GDP. I also estimated that the war raised real GDP by $430 billion per year in 1943-44. Thus, the multiplier was 0.8 (430/540). The other way to put this is that the war lowered components of GDP aside from military purchases. The main declines were in private investment, nonmilitary parts of government purchases, and net exports -- personal consumer expenditure changed little. Wartime production siphoned off resources from other economic uses -- there was a dampener, rather than a multiplier. We can consider similarly three other U.S. wartime experiences -- World War I, the Korean War, and the Vietnam War -- although the magnitudes of the added defense expenditures were much smaller in comparison to GDP. Combining the evidence with that of World War II (which gets a lot of the weight because the added government spending is so large in that case) yields an overall estimate of the multiplier of 0.8 -- the same value as before. (These estimates were published last year in my book, "Macroeconomics, a Modern Approach.") There are reasons to believe that the war-based multiplier of 0.8 substantially overstates the multiplier that applies to peacetime government purchases. For one thing, people would expect the added wartime outlays to be partly temporary (so that consumer demand would not fall a lot). Second, the use of the military draft in wartime has a direct, coercive effect on total employment. Finally, the U.S. economy was already growing rapidly after 1933 (aside from the 1938 recession), and it is probably unfair to ascribe all of the rapid GDP growth from 1941 to 1945 to the added military outlays. In any event, when I attempted to estimate directly the multiplier associated with peacetime government purchases, I got a number insignificantly different from zero. As we all know, we are in the middle of what will likely be the worst U.S. economic contraction since the 1930s. In this context and from the history of the Great Depression, I can understand various attempts to prop up the financial system. These efforts, akin to avoiding bank runs in prior periods, recognize that the social consequences of credit-market decisions extend well beyond the individuals and businesses making the decisions. But, in terms of fiscal-stimulus proposals, it would be unfortunate if the best Team Obama can offer is an unvarnished version of Keynes's 1936 "General Theory of Employment, Interest and Money." The financial crisis and possible depression do not invalidate everything we have learned about macroeconomics since 1936. Much more focus should be on incentives for people and businesses to invest, produce and work. On the tax side, we should avoid programs that throw money at people and emphasize instead reductions in marginal income-tax rates -- especially where these rates are already high and fall on capital income. Eliminating the federal corporate income tax would be brilliant. On the spending side, the main point is that we should not be considering massive public-works programs that do not pass muster from the perspective of cost-benefit analysis. Just as in the 1980s, when extreme supply-side views on tax cuts were unjustified, it is wrong now to think that added government spending is free.