Addressing an argument on whether gov’t spending creates growth at all, Tyler Cowen cautions us to beware the trend towards favoring bloggers’ interpretations over the more formal literature, noting that Krugman’s use of Keynesian thinking should be distinguished from Keynesian thought generally.
As for me, I’ll just bang the Rahn curve drum here again, and note that while gov’t spending may buy short-term growth it won’t help us in the long run, and that short-term fiscal candy is how we got into today’s ugly mess.
I’m really starting to think our fiscal policy approximates where monetary policy was around 1979, when Volcker heroically slammed on the economic brakes knowing a sharp recession would follow in the short run but also knowing was necessary to knock down inflation in the long run. (That one worked out pretty well, I think we can all agree, but I wonder how controversial it was among the commentariat at the time.)
Also, don’t miss this hilarious ThinkProgress piece, which tortures the statistics into confessing Texas actually has the worst performance on job creation, while the state with the best job-creation performance is… Michigan (no, seriously) which is good news for Eric, I guess. You just can’t make this stuff up. (Hint to the reality-based TP folks: people move to where the jobs are being created. You know, to find work.)
UPDATE: Looks like President Downgrade is about to become President Double-Dip Recession.
Comments
3 responses to “Cowen and Krugman and Volcker, Oh My!”
Markets seek equilibrium. Regardless of actions by governments and/or central banks. The Keynesian reliance upon the marginal propensity to consume, and its theoretical multiplier effect allows the Keynesian to imply success of fiscal and monetary policies, without regard for shirts in the demand curve.
Why would the demand (income) curve shift?
Because markets seek equilibrium. If GDP = C + I + G, then why would you expect C and I to increase, when GDP remains flat or falls, while government expenditures are increased?
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There are a lot of complications to our present day problems, but I think the short-term long-term angle sums it all up pretty well. And most proposed solutions sound to me like “I need some alcohol to get over this hangover”
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