More armchair macroeconomist blogging
(1) So-called "Treasury view" arguments by famous economists were seriously unconvincing and embarrassing to the profession (I didn't say that, but I think it was implied).
(2) There should be more debate about the merits of vigorous, unconventional monetary policy vis-a-vis fiscal stimulus.
(3) There should be more serious discussion about particular stimulus policies, not just tax-cuts vs. spending, but the particulars of how taxes would be cut and spending would be implemented.
(4) Bank bailouts could be a lot more effective and tax-payer friendly.
I am pleased to report (to myself and a handful of possible followers) that things seem to have improved a bit on points 1-3. Point 4 looks uglier every day, but others are writing about this a lot, so I'll focus on the positive:
Silly arguments along the lines of (1) seem to be dying (slowly).
With regard to (2): Here is Brad Delong, considering the options. While Delong's prolific and supremely intelligent blogging is routinely awe inspiring, somehow I find his argument against printing money a little thin and dismissive. Times are getting desperate. And the Fed can easily reverse its money-printing ways if things get out of hand. Here is Robert Lucas arguing for more vigorous monetary policy--now that's a more sensible position coming from the Chicago School! It's a heck of a lot better than silly perfect-markets story when the economy is losing 5-700,000 jobs a month. Here's Brad Delong responding to Lucas. I'd still like to see what Krugman has to say. He's made a couple oblique references, and he doesn't seem to dislike the idea of unconventional monetary policy. Mostly he seems to prefer not talking about it. Why is that? His recent emphasis on deflation, to me anyway, screams for the printing press.
With regard to (3) we're seeing more discussion of multipliers. Even the senators on the hill seem to be talking about it more seriously. Here is Menzie Chinn giving us the gory details beneath the various ways of estimating multipliers. But there remains a disappointing lack of discussion of finer design issues. My comment to Menzie Chinn was:
I think my gut instincts were right. Menzie replied:
I'm not a macroeconomist but studied some of this stuff once upon a lifetime.
Can/do these models differentiate the way stimulus is implemented? Or is spending just spending and a tax cut just a tax cut?
I ask because I would think the details would matter a lot. Like a tax credit for new investment spending differs from a corporate tax rate cut which differs from an income tax break which differs from a payroll tax break. Or like government spending on infrastructure development differs from extending unemployment benefits which differs from subsidizing car purchases which differs from subsidizing the wages of all new hires by firms.
It does seem, to me anyway, that too much of the discussion is on tax cuts versus spending. It seems more relevant to talk about the details of how these things would be implemented.
Indeed, I can imaging tax-cut/spending alternatives that, in effect, would seem nearly identical.
Don't you think spending and/or tax cuts, if done creatively, might induce much larger multipliers that historical data/models would indicate? Sadly, developing evidence for such creative policies, no matter how conceptually compelling, would seem difficult, given paucity or nonexistent data and the large aggregates used in macro analysis. But please do educate me if I'm wrong and you are so compelled.
Very nice post, by the way.
Some models would make the distinctions you do highlight, but the more formal general equilibrium models would probably not be able to handle these fine distinctions.It's so cool that Jim Hamilton and Menzie Chinn actually reply to comments when their blog gets some 2600 visits per day. Here is Mark Thoma's link to Menzie plus his comments about why we know so little about multipliers.
Anyway, I don't think there is much historical precedent for the current situation, and thus limited evidence to work with. It's going to take some good common-sense thinking combined with historical evidence to achieve the best policy. And under the circumstances, some creative risk taking seems in order, too.
Here at NCSU, we've been told all our grad student funding will be cut off. This makes me sad as we have a remarkably good crop of 25 first-year PhDs and I'd hate to see any of them cut off. I guess that means I'll be writing more grant proposals...
If we're hurting, I hate to think how bad it is in the trenches outside academia. The charts at Calculated Risk sure are ugly.