Ryan Avent Reads Greg Mankiw
I am not sure that "interesting" is the word, Ryan.
Ryan Avent:
Fiscal policy: When does fiscal stimulus work?: Greg Mankiw has produced an interesting assessment of fiscal policy in National Affairs. He is perhaps a little unkind toward last year's stimulus package. Contra his assertion, tax cuts played a significant role in the stimulus package, and the models used by administration economists called for a larger bill than subsequently passed. It also seems odd to knock the Obama Administration for not taking into consideration the negative effects of stimulus on long-term interest rates, when long-term interest rates remain at rock bottom levels...
"But," Ryan goes on to say:
his broader point is one worth thinking about...
Mankiw's broader point is that since we have seen nothing like this before except for the Great Depression, we should be humble and risk averse--and hence have the government stand back and wash its hands of the situation.
However, even a minor and hasty acquaintance with the Great Depression teaches that the belief that the government should stand back and wash its hands because the self-regulating market quickly returns to full-employment equilibrium is the most arrogant belief possible.
And even a minor and hasty acquaintance with the Great Depression teaches that having the government stand back and wash its hands is the most risky strategy conceivable.
