Fiscal Stimulus, Again

Jim Hamilton's recent post on the stimulus hits the nail right on the head. The point is not that fiscal stimulus cannot work, as some argue. If you could change some textbook G in a continuous fashion like a TV dial it could work in a time of massive unemployment. But that is not the world we live in, so real programs must fill in the spending. But Hamilton's key point is that we need to think of the type of crisis we are in. If the cause of the recession is the piercing of a housing bubble and a credit crisis it is not clear that public works is the answer. We need to get the financial system working properly again.

I also agree with Jim that helping States with budget shortfalls to prevent further layoffs is a good idea.