Monday, January 30, 2012

We're All Keynesians Now

The New Yorker Magazine has a great piece on economic policy in the early years of the administration.  It is written by Ryan Lizza and is one terrific piece of journalism.  It is very detailed and nuanced -- which of course means that very few will actually read it.

Part of the article is based on a memo from Larry Summers to the President regarding the fiscal stimulus.  Here is a link (PDF) to the entire article -- which I also recommend you read as it's a fascinating analysis of a very difficult time. 

At this point, it's important to note a big difference in the economic world: there are those who believe that Keynes was correct in his economic analysis, and that Keynes basic ideas have been repeatedly born out by history and data. Then there is the Chicago school of economics who live in a fantasy world where economic models are populated by "rational individuals" and prices aren't sticky (seen a chart of housing prices recently?)   Need I say more?  Simply put, history and data clearly show that targeted government spending boosts economic growth. Hence, note the wide swath of people and organizations who supported the idea of stimulus:
• Robert Reich believes it should be $1.2 trillion over two years, but also indicated it could be larger.
• Joe Stiglitz believes it should be $1 trillion over two years.
• Paul Krugman: at least $600 billion in one year
• Jamie Galbraith: $900 billion in one year
• Institute for America's future (signed by Dean Baker, Andy Stern, Leo Gerard, John
Sweeney, and others): at least $900 billion

Republican Economists

Marty Feldstein was an early proponent of a spending-only package and currently
believes it should be $400 billion in the first year.
• Larry Lindsey, a former Federal Reserve Governor and NEC Director, estimates that
$800 billion to $1 trillion is desirable.
Ken Rogoff (widely respected macroeconomist, former chief economist of the IMF,
former McCain adviser): $1 trillion over two years
• Mark Zandi (widely quoted economist, fom1er McCain adviser): at least $600 billion in one year


• Senior Federal Reserve officials appear to be of the view that a plan that well exceeds
$600 billion would be desirable.
• Adam Posen (Deputy Director of the Peterson Institute): $500 to $700 billion in one year
• Goldman Sachs: $600 billion in one year
• Open Letter signed by 387 economists including Nobel Laureates Robert Solow, George
Akerlof, and Joe Stiglitz on November 19th [note that most economists, including Stiglitz,
support higher stimulus numbers today than they did a month ago]: $300 to $400 billion
per year
Put another way, it's not if we should do this, but how much we should spend.

I should add, I would fully expect some Republicans to now argue that none of the Republicans quoted are in fact "real Republicans" but merely RINOs.

Again, this is not rocket science.  In fact, it's simple addition.