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Robert J. Barro
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This week in Say More, PS talks with Robert J. Barro, a professor of economics at Harvard, visiting scholar at the American Enterprise Institute, and research associate of the National Bureau of Economic Research.
Project Syndicate: In February, you warned that the US Federal Reserve is squandering the reputational capital that former Fed Chair Paul Volcker bequeathed to it (by maintaining high interest rates despite a recession), noting that, today, “fiscal deficits as a share of GDP are running at unprecedented peacetime levels.” But the coronavirus pandemic has often been compared to a war, in terms of its casualties and economic impact, and maintaining high interest rates during such a crisis would, according to the conventional view, exacerbate the recession. How can policymakers balance the need to keep long-term inflation expectations low with the short-term imperative of fostering economic recovery?
Robert J. Barro: Large fiscal deficits make sense as a way to finance large temporary outlays, such as in a war or to fund major infrastructure projects or emergency transfers. Deficits are also reasonable during a recession, as a means of supplementing government revenue – which would be shrinking, due to declining real GDP – without resorting to a tax hike during a downturn.
The real question is how much government should have spent after the pandemic-induced recession began last year. In the United States, it made sense to help businesses maintain their connections to employees, such as through the paycheck-protection program, and to expand payments to people who had lost their jobs, such as through extended unemployment insurance.
Barro recommends
We ask all our Say More contributors to tell our readers about a few books that have impressed them recently. Here are Barro's picks:
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Principles of Political Economy and Taxation
by David Ricardo
Economics for many decades has been dominated by journal articles, rather than books. But there are a few classics that are undoubtedly worth reading. Beyond the aforementioned Smith and Weber, this 1817 book by Ricardo is effectively the first work on macroeconomics, and thus essential reading.
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Principles of Economics
by Alfred Marshall
Published in 1890, this was the first organized treatment of microeconomics. It is another must-read.
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Capitalism and Freedom
by Milton Friedman
This 1962 work is probably the best book on economics ever written for a general audience. It includes many original ideas that are now familiar: the negative and flat-rate income tax, all-volunteer armed forces, privatized social security, flexible exchange rates, and rules for monetary and fiscal policy. In Getting It Right (1996) and Nothing Is Sacred (2002), I echo and attempt to extend Friedman’s work.
From the PS Archive
In “Popes, Saints, and Religious Competition,” Barro and Rachel McCleary examine the Catholic Church’s strategy for competing with Protestantism. Read more.
In “How US Corporate-Tax Reform Will Boost Growth,” Barro makes the case for a lower corporate tax. Read more.
Around the web
Barro proposes an amendment to the national accounting system to avoid “double-counting” investment, which can lead to an overestimation of the resources available for consumption. Read the article.