Okay, You Can Put It Back on Now

Earlier this month, I posted a mildly critical analysis of a comment Joseph Stiglitz made in a review of Benjamin Friedman's The Moral Consequences of Economic Growth:

This is remarkable primarily for the fact that it’s coming from the pen of a Nobel laureate. And not just any Nobel laureate—if you see someone walking around with a Nobel Peace Prize around his neck, you kind of expect this sort of thing—but a real, live winner of the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel.

Well...maybe not mildly critical. Anyway, David Friedman was good enough to point out that Dr. Stiglitz was probably referring to the principle of Ricardian equivalence, which suggests that under certain assumptions, deficits have no effect on the savings rate. The basic idea is that taxpayers, realizing that deficits now mean higher taxes later, will increase their savings by exactly the same amount that the government is borrowing, so that they can better afford to shoulder the heavier tax burden in the future. This is arguably not a very accurate model of what taxpayers actually do, but Stiglitz never claimed that it was---he said only that a "perfect market economist" would.

My error was due primarily to a misinterpretation of Stiglitz's claim. Nevertheless, I should have been more careful to consider all possible interpretations and give him the benefit of the doubt. I assumed that he was contrasting deficit spending with budget reductions, but I was almost certainly wrong in doing so. He was most likely contrasting deficit spending with tax increases, and in that light his comment was fairly reasonable, although there's still room for disagreement (for example, even a "perfect market economist" would acknowledge that Ricardian equivalence doesn't hold when capital gains and inheritance are taxed). Many thanks to Dr. Friedman for the correction, and deepest apologies to Dr. Stiglitz.

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This: [i]Many thanks to Dr.

[i]Many thanks to Dr. Friedman for the correction, and deepest apologies to Dr. Stiglitz.[/i]
is why I love you guys. Class acts all the way. I can never make dispariging comments comparing all anarcho-capitalists to the LewRockwell-types ever again.

Don't give in so easily.

Don't give in so easily. Stiglitz's review of Friedman's book is riddled with errors. A sample is here.

Because I believe that

Because I believe that intellectual humility is undersupplied (especially in the blogosphere), I'm going to start making a habit of praising people for owning up to errors. So Brandon, you rock.