Reading the Keynesian bloggers, one gets the feeling that it is only an inexplicable weakness, cowardice, stupidity, whatever, that stops policies to drive a more robust recovery. The Keynesians have no good theory of why their advice isn't being followed...
Romer, Geithner, Summers, et.al. know all the same economics that Krugman and DeLong and Thoma do. If a bigger AD stimulus would set so many things right, they'd gladly lay tons of political capital on the line to see it through and proclaim triumph at the end of the road.
Except they expect it would bring only a marginal improvement. And for that marginal improvement they have only a marginal desire to:
1. Raise the long-term national debt (if it's fiscal stimulus)
2. Put their reputations behind policies which might backfire or irritate Congress,
3. Put additional pressure on the independence of the Fed (if it's more aggressive monetary policy)
4. Wreck the current term spread of interest rates, which is a) making the short-term debt easy to finance, and b) restoring major banks to profitability rather quickly.
That's Tyler Cowen at Marginal Revolution. It's important to note that he advocates for stabilizing AD, and though he prefers monetary means, he doesn't totally rule out fiscal ones.
Even so, he is skeptical that countercyclical AD policies will ultimately be the source of long term economic recovery.
I'd say this is a relatively convincing case for the inaction that so distresses DeLong and others.
2 comments:
It would be REALLY exceptional if "countercyclical" were operative.
That is, paying down national debt as fast as possible when times are good...
"Even so, he is skeptical that countercyclical AD policies will ultimately be the source of long term economic recovery."
And Delong, Thoma and Krugman don't think so either. They have gone to great lengths to stress that these AD policies fit our current economic environment. Instituting some sort of PAYGO system and debt/GDP stabilization are essential thereafter.
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