STEVE INSKEEP: It's Morning Edition from NPR News. I'm Steve Inskeep. Experts disagree on how to fix the economy, so this morning, we're going to let them fight it out. And if you think the phrase "fight it out" is just some figure of speech, wait until you hear what's about to happen. Advisers to President-elect Barack Obama are assembling a huge plan to stimulate the economy. Some experts doubt this is a good idea. So, our Planet Money team, which covers the economy, organized a bare-knuckle fight to see who's right. In the center of the ring as referee, NPR's David Kestenbaum.
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DAVID KESTENBAUM: Since these are economists, this will be, of course, a fight with words. But the metaphor is helpful. In one corner wearing - he wants it to be blood-red shorts - Russell Roberts.
KESTENBAUM: I'm an economist at George Mason University.
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KESTENBAUM: Russell Roberts is a particular kind of economist. He describes himself as Austrian-school, Chicago supply-sider. Basically he's a free-market guy, believes the economy works best when the government doesn't go messing around with it.
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KESTENBAUM: In the other corner in, say, blue shorts, is Steve Fazzari.
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KESTENBAUM: I'm professor of economics at Washington University, and I'm happy to describe myself as a Keynesian macro-economist.
KESTENBAUM: After the economist John Maynard Keynes. We've set up this boxing match because each side scores some good hits. Let's start with Steve Fazzari. He thinks we need a big stimulus package now. Millions of very talented people are out of work, just sitting idle, not helping the economy; it's a total waste. In order to get people working again and get the economy going again, someone somewhere has to step in and spend.
KESTENBAUM: So, where's the spending going to come from? For a long time, it came from consumers. When the economy got in trouble over the last 20 or 30 years, we seemed to rely on the consumer to start spending again. But now, that source of spending has run out of gas.
KESTENBAUM: Companies aren't really spending, either, and other countries? They aren't buying our stuff because the crisis is global.
KESTENBAUM: And about the only source that's left is the government.
KESTENBAUM: Now, that may seem pretty convincing, but it is not to the guy in the blood-red shorts, Russell Roberts.
KESTENBAUM: I find it horrifying, personally. The idea that the government is going to decide where a trillion dollars of our economy is spent rather than the rest of us deciding it is not, to me, a good sign.
KESTENBAUM: Now, the folks on President-elect Obama's team are working on a big stimulus plan, big enough, they say, to create 3 million new jobs - people repairing bridges, improving the educational system, developing green technology - 3 million new jobs. But Russell Roberts doesn't buy that number because the government has to get all that money from somewhere, and every dollar the government spends is a dollar not available for the rest of us to spend on new cars or starting up new businesses, which would also create jobs.
KESTENBAUM: We're a $14 trillion economy, roughly, and the government spends about 3 trillion of that right now and climbing. So, as the share of the government gets larger and larger, the real productive stuff that we do gets decided by people in Washington rather than the rest of us. I hope they do a good job. They tend to be under political pressure to do things that are politically wise, not always the stuff that's economically wise.
KESTENBAUM: Like ethanol subsidies. The stimulus package, he says, it's unnecessary. There are people with plenty of money out there. They will have to invest it. It might take awhile, but it's inevitable: The economy will recover. So, who is right? Unfortunately, these two schools of thought have only had one proper fight, one contest, and that was the Great Depression. And both sides claim it as a victory. The Keynesians say government spending got us out of the Great Depression; all that World War II money spent making bombs, all those military salaries, got the economy on its feet again. But the free market folks argue the exact opposite: that the war spending held the economy back, and the country only really recovered after when the government left the economy alone. Russell Roberts says, to be fair, if this were a boxing match, it would be hard to pick a winner.
KESTENBAUM: In general, we're flying by the seat of our pants, and anybody who says otherwise is just whistling in the dark.
KESTENBAUM: Will we know in the end who's right, years from now?
KESTENBAUM: I don't think so.
KESTENBAUM: Oh, come on. That's a terrible answer.
KESTENBAUM: Yeah, I know. I think it's the truth, though. But I don't think we have a very good idea of what ended the Great Depression. We still have a bunch of people on different sides of that debate yelling and screaming about it today.
KESTENBAUM: Steve Fazzari, on the other hand, is pretty sure he and his Keynesian friends are right, that a massive stimulus plan is needed. But he agrees it's hard to know for sure.
KESTENBAUM: So, unlike physicists and chemists who do controlled experiments, economists have to infer based on a mix of logic and sometimes anecdotal historical evidence, sometimes tighter statistical evidence, and try to muddle their way to an answer.
KESTENBAUM: Does it ever unnerve you?
KESTENBAUM: Yes, I am concerned about how we're going to recover from this problem. The problem looks bigger than anything I've seen during my professional career. So yes, I do find it scary.
KESTENBAUM: The sparring over how and whether the government should spend what could be a trillion extra dollars will be moving to a venue famous for sparring: Congress. David Kestenbaum, NPR News.
INSKEEP: If you just can't get enough of 2008, you can check out a year-end slide show of the recession. Just go the Planet Money blog, which is npr.org/money.