Robert Barro Quotes

Things would have worked out a lot better if we had bought our first television set a year earlier, in 1950, so that I could have watched DiMaggio while he was still great. Then I could have shared with my father and other people the vision of the eternal baseball star. It might even have helped me to have more appreciation for some of my elders in the economics profession. But maybe I should be worrying instead about what the young hot shots in economics are thinking of me.

Keynesian economics — the go - to theory for those who like government at the controls of the economy — is in the forefront of the ongoing debate on fiscal - stimulus packages. For example, in true Keynesian spirit, Agriculture Secretary Tom Vilsack said recently that food stamps were an "economic stimulus" and that "every dollar of benefits generates $1.84 in the economy in terms of economic activity." Many observers may see how this idea—that one can magically get back more than one puts in — conflicts with what I will call "regular economics." What few know is that there is no meaningful theoretical or empirical support for the Keynesian position.

Summers’s outlook on economic policy can be summarized by the remark that he gave me some years ago: “If I had your views on economics, I would find another profession.” He meant that if free markets usually worked well and the government ought usually to stay out, then he would find economics to be an uninteresting occupation. Fortunately for Summers, he has always believed in the potential benefits from governmental activism, although the strength of this belief may have diminished over time.

The role of expectations is not limited to monetary policy but is crucial in many areas of economics, as Bob showed in his later research on investment, unemployment, taxation, public debt management, and asset pricing. In all of these situations, the appropriate evaluation of policy takes account of the way that expectations would be rationally formed.

Mundell’s models allowed a significant role for fiscal policy, especially under fixed exchange rates. However, the treatment was entirely Keynesian—an increased budget deficit operated solely by raising the aggregate demand for goods. Moreover, increases in government spending and cuts in taxes had pretty much the same effect on the economy.

For me, a key lesson is that Friedman’s influence was achieved mainly through the force of ideas, not by direct participation in the policy process.

In fact, the only person to rival Friedman for policy influence in the twentieth century is John Maynard Keynes, who had a strikingly different view of the role of government. Keynes was influential because he advocated more government intervention into what he perceived as poorly functioning private economies caught up in the Great Depression. In contrast to Keynes, Friedman put the main blame for the Depression on government failures, especially of monetary policy. Hence, the Depression did not make Friedman a fan of big government. He also found in the Federal Reserve’s failure to prevent deflation an argument in favor of monetary rules. As the world evolved— with low inflation becoming the major mission of central banks and free markets and secure property rights becoming the main policies to promote economic growth—Friedman surely won the intellectual battle.

One hypothesis about the delay for the award is that the prize committee realizes that recipients tend to shirk once they get the prize. This consideration was particularly important in Gary’s case because he had continued to exhibit high productivity. Thus, the drop in output caused by an early prize for Gary might have had severe adverse consequences for economic research.

I find it amazing now that my first economics class, taught by Alan Sweezy, used John Maynard Keynes’s General Theory of Income and Employment as the textbook. Although this book is one of the most influential works of the twentieth century, it makes a really lousy textbook. Moreover, since I now regard Keynes’s analysis as seriously flawed, it is surprising that I enjoyed the course so much. As a student, I appreciated the simple way that the Keynesian model explained the workings and failings of the overall economy. Especially appealing were the clever policy remedies, such as increased government spending and tax cuts, that Keynes recommended to combat unemployment. Too bad that I discovered later that the model was theoretically and empirically deficient!

One troublesome aspect is the place of rational expectations macroeconomics in the often political debate over Keynesian economics. At least implicitly, many people feel that what's bad for the rational expectations viewpoint is good for the Keynesian one, and vice versa. But it is hard to see how the problems in using the rational expectations approach to explain monetary nonneutrality can alleviate the theoretical and empirical shortcomings of the Keynesian model.

My recent work on macroeconomics has stressed long-term issues, including the determinants of long-run economic growth. From the standpoint of fighting world poverty, nothing is more important than figuring out which policies differentiate the fast-growing countries from the slow-growing ones.

My views are more akin to the nineteenth-century liberal philosophy espoused by Milton Friedman, especially in his Capitalism and Freedom. In that work, he proposed many policies that are harmonious with free markets and are receiving serious attention in the United States and other countries. This list includes school choice, the flat-rate income tax, rules for monetary stability, privatized social security, and the elimination of affirmative-action programs.

If we look beyond the issue of monetary nonneutrality, then we do find areas of macroeconomics that use rational expectations and in which important recent progress has been made.

In contrast to Smith’s incomplete modeling, his follower, David Ricardo, provides a coherent setting— basically, the first macroeconomic model—that can be tested, modified, and applied. Although Ricardo is surely narrower and less imaginative and insightful than Smith, he is also a lot better organized. That is why Ricardo’s analysis of macroeconomics—for example, of the implications of public debt—is more coherent and useful than Smith’s.

I learned later that economic reasoning was not just mathematics and could be applied to a wide variety of social problems. Now, I think that no forms of social interaction—including religion, love, crime, and fertility choice—are immune from the power of economic reasoning. Hence, even widely held beliefs—for example, that beauty is an illegitimate credential of a worker or that democracy is important for economic growth—are not sacred truths and are subject to analysis.