He makes many good points. Excerpt:
The
evidence is fuzzy, to be sure, but to me it suggests a multiplier
around one, maybe smaller. Even stimulus cheerleader Paul Krugman only
claims 1.1. If that’s the case, the impact of government spending (say
700b over two years) is barely enough to reverse the decline in GDP we
expect to see over the next two quarters.
Read the whole thing.
There are some recent reports of notable Stimulus Effects from Brisbane. I’m not sure how this would change the multiplier.
Many people, including economists, don’t realize that Keynes himself had doubts about the wisdom of start-stop countercyclical fiscal policy. Certainly in his various popular pieces and Treasury memos in the 1940s this was evident. He worried about getting the timing right. What Keynes was for was the stabilization of investment through government or quasi governmental agencies implementing carefully thought-out long-run infrastructure spending. Both economists Bradley Bateman and Allan Meltzer have written about this.
Bank of America and Mr. Higgins missing $millions, it can happen to you my, fellows Americans
More info at: http://maxhiggins.com/blog/
Backus’ recommendations (if you want to call them that) pale in comparison to his critique, and fail his own criticisms.
What the government should do is be countercyclical. Can they? Apparently not.
This means not only running balanced or surplus budgets, but having bona fide plans ready to go. Good ideas that they sit on.
Locals have apparently been borrowing like crazy to build Taj Mahal shrines to public education.
My university has many building projects underway that were contracted out at the height of the real-estate bubble. They’ve had to mothball many of these projects and finish the ones well underway. At least those builders are still employed. Thank goodness for inefficiency.
Better luck next downturn.
Philosophically, the problem is that we’ve been overspending on junk. Consumer spending declines trailed the housing bubble bust and credit crisis. Now may not be the best time to overspend on junk.
Krugman’s basic argument is, “Doing nothing is a bad idea. We need to spend X just to counteract the predicted drop in GDP. The idea that the best thing for the economy is for it to experience a hangover is an overly moralistic simplification and although it probably won’t fix our problems, it could help.”
Backus is basically saying, “I don’t have all that much faith that it will help. At the very best, all it will do is counteract the predicted drop in GDP, but I can’t really give too good a reason as to why we shouldn’t try, so, if people want to try, go ahead, but I won’t be too enthusiastic about how much it will help.”
Or, if you prefer, both are saying, “Its probably no worse than doing nothing, and it might possibly help so why not?”
That is how I’d interpret their remarks.
And we just went through an administration that doubled the debt. This extra deficit spending won’t be the straw that breaks the camel’s back. The debt is a real issue, but lets tackle that when times are good. Isn’t that the idea anyway? Pay off debt when times are good, and have some saving to spend when times are bad? Just because you don’t have that savings doesn’t mean you shouldn’t spend. Econ 101 sunk cost concept is it not?
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