The irrationality of “rational expectations”

Robert Frank blows a hole in wingnut macroeconomics.

Wingnut “proofs” that government spending doesn’t actually stimulate the economy have something in common with the aerodynamic analysis that shows a bumblebee can’t fly: when the facts conflict with your theory, it’s the theory that’s supposed to yield. But Robert Frank points out the obvious fallacy in the argument that deficit spending, by raising public sector debt and thereby threatening higher tax rates in the future, will depress consumer and business spending now: getting the economy back to producing at its full potential faster increases future revenues at any given set of tax rates and thereby reduces the tax level required to support any future level of public services.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: Markarkleiman-at-gmail.com