Advancing a Free Society

Fiscal Stimulus camps

Monday, June 28, 2010

I am going to try to group the different fiscal stimulus arguments into camps:

  1. Rules over discretion — Stanford economist John Taylor argues that discretionary monetary and fiscal policy have been counterproductive.  He argues that monetary policy should follow a rule (like the Taylor rule).  He further argues that both the 2008 (Bush/Pelosi/Boehner) fiscal stimulus and the 2009 (Obama/Pelosi/Reid) fiscal stimulus were ineffective at best and counterproductive at worst.
  2. Yes on monetary discretion, no on fiscal stimulus — Many conservatives like to complain about the Fed’s recent actions but would not advocate a wholesale change in how we approach monetary policy.  They are basically OK with the Fed Chair and the Federal Open Market Committee using their best judgment, although they wish the recent financial crisis didn’t necessitate such aggressive use of that judgment.  Members of this camp argue against all forms of fiscal stimulus.  They think the 2008 and 2009 fiscal stimulus laws were both mistakes.  Their arguments fall into three categories:  (a) fiscal stimulus doesn’t work; (b) even if in theory it could work, it’s almost impossible in a real world of legislation to get the timing right; and (c) the deficit increase isn’t worth the possible short-term growth benefit.  Membership in this camp means you oppose both increasing spending and cutting taxes to accelerate short-term GDP growth.  Most Congressional Republicans would tell you they are in this camp.
  3. It depends on the kind of fiscal stimulus (R) — OK with discretionary monetary policy, OK with tax cuts as short-term fiscal stimulus (but would prefer permanent tax cuts offset by spending cuts), but opposed to increased government spending as short-term fiscal stimulus. …

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