Recipes for Recovery
Sam Brittan says something smart:
Sam Brittan’s Recipe for Recovery: Commercial banks certainly worsened the recession by greedily seeking higher returns than those provided by market interest rates; and they can put grit in the recovery by refusing to lend. I can only suggest making Paul Krugman, the radical Keynesian economist, Comptroller of the US Currency with over-reaching powers to take over old banks and initiate new ones, with similar appointments in other countries...
Paul Krugman says "ahem!":
I would... quarrel with designating me a “radical Keynesian.”... A perfectly standard New Keynesian model, with intertemporal optimization and all that — the kind of model that is standard in freshwater courses — says that under current conditions fiscal stimulus should be very strong, much stronger than what we’re actually doing. Ryan Lizza’s piece on the Obama economics team makes it clear that Christina Romer — whom nobody would call radical — reached more or less the same conclusions in her economic analysis that I did. The point is that what passes for “sound” economics these days (and maybe most days) isn’t actually sound economics — it’s economic analysis trimmed and softened to fit political realities/prejudices. Questioning that notion of soundness isn’t being radical; it’s just being intellectually honest.
To put it another way, Milton Friedman and Jacob Viner would fit Brittan's definition of "radical Keynesian" these days.
You gotta get demand up. You can do it by deficit spending. You can do it by convincing banks to lend and businesses to borrow. But you gotta do it somehow, by some means.
