What might be Robert Barro’s argument?

Paul Krugman, Brad DeLong, Justin Wolfers and others are not sure what is Robert Barro’s argument or model in his recent Op-Ed.  I am puzzled by these responses, because, while I do not pretend to speak for Barro, I see at least one simple answer to these puzzlements.

Consider the following model.  Sometimes growth slows down and afterwards it speeds up again.  Temporary losses tend to be undone in future periods.  For one thing the Solow model implies catch-up growth, furthermore cyclical losses may exhibit mean-reversion.  There is in the meantime some depreciation of labor skills, from unemployment, but long-run output and welfare really does for the most part depend on the forces which govern economic growth.  (Increases in the variance of consumption are not enough to overturn that emphasis.)  That implies lower government spending in most areas of the economy, and it also implies lower taxation of capital, as supported by many empirical papers on growth including some by Barro himself.

That view may not be true (in my TGS book you will find some dissent from it but from another direction), but it’s hardly bizarre or economically illiterate.  If some writers aren’t totally explicit, it could be they don’t have enough words and feel that a large enough part of their audience takes the emphasis on growth and its preconditions for granted.

We are once again witnessing the renaissance of old Keynesian economics as a theory of the long run not just the short run.  The “New Old Keynesians” are of course entitled to their opinions, but given their minority status, it is strange when they find others difficult to comprehend.


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