Outspoken Anti-Stimulus Economist Robert Barro Takes A Victory Lap
Harvard economist and prominent Hayekian Robert Barro made headlines last summer when he contested the multiplier effect of the stimulus and called it a waste of money.
Now, as the economy falters and governments around the world worry about debt, he is taking a victory lap.
We have entered the age of government crisis, Barro writes in the FT:
The global crises of financial and housing markets are now being superseded by new crises of governments. The fiscal challenges for the weaker members of the eurozone are early warnings, as are analogous problems in American state governments weighed down by unfunded pension and healthcare liabilities. Without action, this new crisis of state competence could soon become just as damaging as its recent financial predecessor.
Barro supports ditching the corporate and estate taxes and adding a value added tax:
Of course, such a new tax would be a two-edged sword: a highly efficient tax, but politically dangerous. To paraphrase Larry Summers from long ago, we don’t have VAT in the US because Democrats think it is regressive, and Republicans think it is a money machine. We will get VAT when Democrats realise it is a money machine, and Republicans realise it is regressive. Obviously, I worry about the money machine property, but I see no serious alternative for raising the revenue needed for an overall next-stage reform package.