TEMPE – Stephen Happel won’t be cheering when President Obama tells Arizonans how his $787 billion economic stimulus will provide relief to one of the states hit hardest by the recession.
An economics professor at Arizona State University’s W.P. Carey School of Business, Happel says the stimulus, while well intentioned, will do little to resolve the long-term economic problems America is facing.
“It’s heart over mind. It’s hope over reality,” Happel said in an interview. “The only way I can see that the Obama plan works is if it gives vast numbers of people hope that the recession is about to end.”
The president, scheduled to visit Mesa on Wednesday to discuss how his plan will help beleaguered homeowners, maintains that the stimulus is vital to jump-starting the U.S. economy. But Happel said that isn’t a popular argument in the school’s department of economics.
Happel said he prefers a hands-off approach: let the businesses that made bad decisions fail and then lower tax rates for consumers and small businesses and allow the market to right itself. And he opposes taking on debt to pay for the stimulus.
“A lot of it is robbing Peter to pay Paul,” he said. “The younger generation is going to take it in the shorts.”
In Happel’s corner: Edward Prescott, the W.P. Carey Chair of Economics and winner of the 2004 Nobel Prize in economic sciences. Prescott said most anybody trained in macroeconomics, or the study of national or regional economics as a whole, opposes the bill.
“The intellectual support for the stimulus is just not there,” he said in a telephone interview. “Nobody’s coming out here saying there’s a tested theory that has worked.”
Prescott said he just doesn’t believe government intervention can create lasting economic progress and that much of the money could end up being misused.
“The more we have out of Washington and the more it is, the worse it is,” he said. “When things get centralized, they start being used for political reasons rather than economic reasons.”
The difference in opinion between the president and these economists highlights the distinctions between Keynesian theory – economic thought pioneered by 20th-century British economist John Maynard Keynes that stresses government involvement – and free-market economics.
Happel, Prescott and two other ASU economics professors joined more than 40 economists who signed an open letter published last week in newspapers including The New York Times and The Arizona Republic. Sponsored by the Cato Institute, a libertarian think tank, the letter challenges Obama’s suggestion that most economists support the stimulus.
“When Barack said we’re all Keynesians now, I just wanted to get up in my chair and say, ‘I’m not Keynesian,’ ” Happel said. “We’re free-market economists here.”
Still, not everyone at the Carey School is vehemently opposed to the stimulus.
The dean, Robert E. Mittelstaedt Jr., said he supports some government intervention, but he thinks the stimulus is too big and too vague and won’t necessarily help.
“It’s like saying to a drug addict, ‘We’re going to help you by giving you a little drugs,”‘ he said. “All it’s doing is supporting the same habits that got us into this.”
Nevertheless, Mittelstaedt said, a healthy academic debate reinforces the American political system.
“The best part of universities is you are going to have a lot of bright people around and you’re not always agree, but you can never say there’s not good discussion,” he said. “We would do well to listen deeply to why people are for or against something like this.”
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Who signed the letter?
Here are members of the Arizona State University W.P. Carey School of Business faculty who signed an open letter from the Cato Institute objecting to the economic stimulus package pushed by President Obama:
• Edward Prescott, W. P. Carey Chair in Economics
• Stephen Happel, economics professor
• Allan DeSerpa, economics professor
• Nancy Roberts, economics senior lecture