Fiscal Stimulus

Paul Krugman is annoyed at the opposition to fiscal stimulus plans that are couched in bad macro. I have to agree with him. As he notes:

There are certainly legitimate arguments against spending-based fiscal stimulus. You can worry about the burden of debt; you can argue that the government will spend money so badly that the jobs created are not worth having; and I’m sure there are other arguments worth taking seriously.

What’s been disturbing, however, is the parade of first-rate economists making totally non-serious arguments against fiscal expansion. You’ve got John Taylor arguing for permanent tax cuts as a response to temporary shocks, apparently oblivious to the logical problems. You’ve got John Cochrane going all Andrew-Mellon-liquidationist on us. You’ve got Eugene Fama reinventing the long-discredited Treasury View. You’ve got Gary Becker apparently unaware that monetary policy has hit the zero lower bound. And you’ve got Greg Mankiw — well, I don’t know what Greg actually believes, he just seems to be approvingly linking to anyone opposed to stimulus, regardless of the quality of their argument.

It seems very weird that such excellent economists would make such bad arguments. Why not just argue political economy or corruption or debt. But to argue that fiscal stimulus cannot have an impact on aggregate employment in a deep recession when monetary policy is tapped out seems bizarre to me.

Mark Thoma has had some good columns on this too, and Brad DeLong has a nice web paper.