By Arnold Kling
In my opinion the sophisticated Keynesian view is still that the stimulus won’t work.
Great, great sentence.
Has Jeff Frankel joined the ranks of the deranged? What he writes strikes me as not terribly different from what I said in my talk. I want to say that I wish Jeff Frankel were in the Administration, but actually I don’t think that the problem is a lack of economic talent. With all of the economic luminaries President Obama brought on board, he outsourced his key economic policy to the Democratic Congressional leadership. I repeat that the bar of having 75 percent of the stimulus kick in before 2011 is absurdly low, not to mention rather inconsistent with the high pressure to pass the bill now-now. A better bar would be for 75 percent of the stimulus to kick in before 2010, and none of it to kick in after 2010. Yes, that might prejudice things in favor of tax cuts rather than spending cuts, but so be it. I can remember when Democrats’ idea of a clever stimulus was the investment tax credit. And whatever your views of the relative size of the spending multiplier and the tax cut multiplier, you have to admit that most Keynesian models would show more stimulus from a tax cut in 2009 than a spending increase in 2011.
David Henderson asks readers to name their favorite liberal economist. I’ve only recently come across Simon Johnson (is he a liberal in the contemporary sense? I think so, but I can’t be sure). He is just darn nice. So is Jeff Frankel, for that matter. Simon Johnson’s aversion to bank bailouts is one that I share. It seems that, unlike the stimulus bill, the bank bailout does not sort economists by ideological outlook.
The Washington Post reviews The Lords of Finance, focusing on the role of the gold standard as a policy blunder contributing to the Great Depression. As I’ve said, a great swath of economists (starting with Milton Friedman and moving left) takes this view.