Four Reasons To Believe In Keynesian Models

A correspondent asks a good question: what evidence makes me believe that Keynesian economics is broadly right, given the relative absence of experience with large fiscal stimulus programs?

I’d answer that question with several points.

First, we’re talking about a model, not just a prediction about the impact of spending increases. So you can ask about the ancillary predictions of that model as opposed to rival models. Anti-Keynesians assured us that budget deficits would send interest rates soaring; Keynesian analysis said they’d stay low as long as the economy remained far from full employment. Guess who was right?

Also, there are some features of the approach that can be tested separately. Keynesianism isn’t just about sticky prices, but it does generally assume sticky prices — and there is overwhelming evidence, from a variety of sources, that prices are indeed sticky.

Also also: there’s plenty of evidence that monetary policy can move output and employment — and it’s very hard to devise a model in which that is true that doesn’t also say that fiscal policy can be effective, especially when you’re up against the zero lower bound.

Second, while we don’t have a lot of postwar experience with fiscal stimulus, we do have a lot of experience with anti-stimulus, that is, austerity — and that turns out to be reliably contractionary. Again, it’s hard to think of a model in which austerity is contractionary but stimulus isn’t expansionary.

Finally, there is evidence from fiscal expansions in the 1930s, which actually did lead to economic expansion too.

Mainly I’d stress the first point. We have a model of the way the world works, and the world does indeed seem to work that way. And an implication of that model is that fiscal stimulus will work under conditions like those we face now. If interest rates had soared, if the rise in base money had led to rising GDP and/or soaring prices despite the zero lower bound, I would have sat down to reconsider what I thought I knew about macroeconomics. In fact, however, my preferred model has passed the test of events with flying colors, while the other guys’ models have been totally wrong.

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Believe It Or Not, White Students Receive A Disproportionate 76% Of All College Scholarships

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White students receive 76% of all university funding -- including need-based grants and merit scholarships -- despite representing only 62% of those attending college, reports GOOD Magazine.

Citing the research of Mark Kantrowitz, publisher of Fastweb.com and FinAid.com, Liz Dwyer writes that whites can thank the biases of college-specific scholarship requirements for this gap. Kantrowitz looked into the topic in response to a new scholarship from the Texas nonprofit Former Majority for Equality available only to white males.

Kantrowitz writes:

While there are very few private scholarships that are explicitly targeted at Caucasian students as a category, Caucasian students receive a disproportionately greater share of private scholarships and merit- based grants. Caucasian students receive more than three times as much in merit-based grant and private scholarship funding as minority students. These 'Whites Only' scholarships are usually created by students who are frustrated at their own inability to find and win scholarships.

This story follows closely on another report from GOOD's Cord Jefferson that poked holes in Ivy League schools' claims to diversity. Jefferson found that of the storied colleges' black student populations, 41% were first- or second-generation immigrants--a group that makes up less than one percent of the U.S. population.

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If You Believe You Have Unlimited Willpower, You Do

Image: Stanford University

We have more power than we think.

In Willpower: Discovering The Greatest Human Strength, New York Times columnist John Tierney and psychology professor Roy F. Baumeister look at the phenomenon of willpower and why some people seem to have more of it than others. They first determined that:

The most major problems, personal and social, center on failure of self-control: compulsive spending and borrowing, impulsive violence, underachievement at school, procrastination at work, alcohol and drug abuse, unhealthy diet, lack of exercise, chronic anxiety, explosive anger.

And:

When psychologists isolate the personal qualities that predict "positive outcomes" in life, they consistently find two traits: intelligence and self-control. ... We think research into willpower and self-control is psychology's best hope for contributing to human welfare. Willpower lets us change ourselves and our society in small and large ways. As Charles Darwin wrote in The Descent of Man, "The highest possible stage in moral culture is when we recognize that we ought to control our own thoughts." 

The Wall Street Journal recently took a look at this report and others on willpower, and advised readers not to take coffee breaks if they were feeling stressed -- because it'll just make their predicament worse -- among other things, on the subject of productivity.

The Journal also looked at Ego Depletion -- Is It All In Your Head? Implicit Theories About Willpower Affect Self-Regulation, where Stanford University researchers found that, after delivering three series of tests to students, "people who believe they have an unlimited amount of willpower were able to work longer -- without performing worse -- than people who believe that they have only limited willpower."

In the first experiment, researchers tested 60 students and found that those with a "limited resource theory" (i.e., they believed willpower was a limited resource) began making more mistakes as the test went on, following the "usual ego-depletion pattern." On the other hand, students with a "nonlimited resource theory" maintained their level of accuracy as the test went on (see chart; depleting condtitions involve more exhausting tasks, known as "Stroop tasks").

Veronika Job, one of the study's authors, told the Journal that the message "is that you can power through a period of high concentration, such as a final exam, if you believe you have unlimited willpower."

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