I was invited to contribute to an Economist symposium on Olivier Blanchard's guest essay.  My piece is here and here is my bottom line:

Here is the complete set of essays, featuring Shiller, Caballero, Alesina, Thoma, and others.  Here is Bryan Caplan making a similar point about placebos.

I'm sure you've reading or hearing reports of the $4 trillion bailout.  I still don't know what this figure is supposed to mean, but it is incorrect to respond with something like the following: "that's really expensive, I guess we do need to nationalize the banks."  As one commentator on CR responded (approximately): "If Uncle Sam bails out the banks, who will bail out Uncle Sam?"

Bank nationalization is (possibly) cheaper when the banks have upside profit potential, which is then captured in whole or in part by the government.  But say that banks are in the red by $2 trillion for ever and all eternity.  Taking over the banks simply means that the government picks up these losses as owner.  Government ownership makes it less likely, not more likely, that bank creditors will "take a haircut."

Nationalization isn't going to solve this kind of cost problem. 

New appointee Jeremy Stein says yes:

Simply put, the government should force the banks to suspend all dividend payments," he told The Wall Street Journal in October.  "It makes absolutely no sense for the government to put money into the banks, only to see a significant fraction of it flow out again as dividends to shareholders, and in many cases, bank executives with large equity stakes."

I haven't seen much discussion of this issue.  Dividends are in general poorly understood by economists, in part because they continue to be paid when they face a significant tax disadvantage.  Surely there are cheaper ways to signal the quality of the firm.  One way of thinking about dividends is as a way to take advantage of bondholders.  Start a new firm, borrow $50, issue $50 in equity, and on day one pay $100 in dividends and by 4 p.m. declare bankruptcy.  Not a bad business model but of course neither the government nor the bondholders will let you.  This same strategy is also a way to take advantage of government subsidies and recapitalizations, even if you can't get the dividend up to one hundred percent.  So yes, I do see a case for following Stein's suggestion, at least for banks receiving government assistance above some threshold measure.

Stein, by the way, also favors this:

He advocated aggressive government audits of banks, aimed at separating
solvent ones from insolvent ones. Once that was done, insolvent banks
would be forced into closure or sale while solvent ones would be pushed
to raise more private capital. In addition to dealing with the bad bank
problem, putting the plan in place would remove much of the uncertainty
in financial markets that the government’s ad hoc approach to banks
thus far has helped instill.

A few of them are cute.

But they are starting to be asked more and more often:

Moreover, will we have the guts to impose similarly large percentage
reductions in budgets when the stimulus is supposed to end in two
years? Or will we simply add to a long-term budget problem that is
already horrendous?

Here is more.

The Fed is ready to do more, namely:

Two points are worth making.  First, defenders of large-scale stimulus point out that such measures may well not work.  That is true, but what are the conditions under which unorthodox monetary policy maybe will not work?  Low confidence and zombie banks, which are more or less the same conditions under which fiscal policy may not work either.  In that sense unorthodox monetary policy doesn't face a separate problem.

Second, cash and T-Bills have a broadly similar risk profile but cash and these other assets do not.  At some point monetary policy becomes fiscal policy too, as a quick look at the Fed's balance sheet will indicate.  So it's fiscal policy based on Treasury borrowing vs. fiscal policy based on Bernanke and money creation.  In a time of deflationary pressures, and a bad fiscal future, usually I would prefer Fed-led fiscal policy.  I do recognize that we are placing more weight on the Fed than it can bear, but of course at this point there are no good options.

This was from a story in The Washington Post:

In testimony before the House Budget Committee yesterday, Alice M.
Rivlin, who was President Bill Clinton's budget director, suggested
splitting the plan, implementing its immediate stimulus components now
and taking more time to plan the longer-term transformative spending to
make sure it is done right.

"Such a long-term investment program should not be put together
hastily and lumped in with the anti-recession package. The elements of
the investment program must be carefully planned and will not create
many jobs right away," said Rivlin, a fellow at the Brookings
Institution. The risk, she said, is that "money will be wasted because
the investment elements were not carefully crafted."

It's not a puffin, but here is a good post on the stimulus from Arnold Kling.  And read Marc Ambinder on which parts of the bill will take how long.