Menzie Chinn is having a dialogue, or something, with the Heritage Foundation. He pointed out that their arguments against stimulus, aside from being primitive and wrong, would also imply that the fiscal cliff is harmless. They respond in part by claiming that all they’re worried about is the incentive effects — yeah, right — and also by claiming that famous economists made the same arguments.

The latter claim, unfortunately, is completely true. But it doesn’t absolve Heritage; all it shows is that much of macroeconomics, especially but not only at Chicago, has retrogressed intellectually, to such an extent that famous economists repeat 1930-vintage fallacies in perfect ignorance of the hard intellectual work that showed, three generations ago, that they are indeed fallacies.

By the way, Heritage — after totally misrepresenting Keynesian economics (Keynesians never think about investment? Really?) — asks,

When the government borrows a trillion dollars on global financial markets for a stimulus package, does Chinn believe that zero dollars of that is diverted from investment?

I don’t know for sure what Menzie’s answer would be, but mine is, no, I don’t believe that zero dollars are diverted; under current conditions, negative dollars are diverted. That is, stimulus spending would lead to more, not less, private investment. Why? Because we are in a liquidity trap — interest rates won’t rise — and higher sales would induce businesses to invest more, not less.

Oh, and if you go back to what Heritage analysts were writing back in 2009, they were predicting that government borrowing would lead to soaring interest rates. How’s that going, guys?

Meanwhile, Brad DeLong points out that Heritage has company, not just in its intellectual degradation, but in its duplicity:

Four years ago there were quite a number of economists of reputation and thought to be of note who stridently and aggressively argued that the increases in federal spending in the Recovery Act would not boost employment and production … If extra federal spending and reduced tax collections in the Recovery Act could not boost production and employment, the reduced federal spending and increased tax collections from going over the fiscal cliff cannot reduce production and employment and does not risk sending the American economy into renewed recession. Yet not a one–not a single one–of the economists who were so strident in their condemnations of the ineffectiveness of the Recovery Act is out there now saying that the fiscal cliff is not of concern. None of them. Zero. Nada. Shunya. Sifr.

Which prompts Cosma Shalizi to write in comments,

… our gracious host would really _like_ to be just a little bit to the left of a technocratic center, and to debate those just a little bit to his right about optimal policies within a shared objective function, and pretending that it is a technical and not a political discussion. But because [stuff I can’t put in the Grey Lady] and because everyone at all on the right has spent forty years (at least) doing their damndest to _make sure_ [more stuff], even the smallest gesture in that direction is not so much reconciliation as collaboration. And so our host has sads. (So, for that matter, did Uncle Paul, before he learned to relish their hatred.) The realization that this applies to economists — that much of the discipline is not a branch of science or even of dialectic, but merely of rhetoric (and not in an inspirational, D. McCloskey way either) — cannot come too soon.

I wish I had an easy refutation.