Thursday, February 5, 2009

A Better Stimulus Plan?

I am having an internal debate about stimulus. Though I believe in the traditional stimulus formula, federal spending on public goods, I am quickly loosing faith in the government's ability to pull it off. I am wondering if we would not be better served by a massive liquidity infusion into credit markets. The Treasury could, in essence, continue the monetary policy that have been doing and buy lots and lots of commercial paper, MBS, even fund mortgages at low rates.

I think that in a perfect world this is second best, but the world (especially in Washington) is very flawed. The benefits of this plan are that it can be done almost immediately and quite effectively (well, not the mortgage bit) and though job creation would lag, this could jolt us out of what I think can be best described as a coordination failure - we are all scared to commit to credit on either side.

Thinking this way puts me in the camp of the Chicago school folks, which makes me a bit uncomfortable, but though my support has more to do with my worry about Washington's competence than doubt about the idea of fiscal stimulus, I am beginning to see their view a bit more favorably.

Thoughts?

3 comments:

Oliver said...

Unfortunately, I am with you. It's very disheartening.

Jeff said...

The "Chicago camp" seems unwilling to concede the textbook case for fiscal policy.

Meanwhile, the folks advocating fiscal policy don't take the time to explain it in layman's terms.

In particular, they do not address the (very legitimate) concern: Where the money is going to come from?

People feel like this is the time to tighten their belts, so they think the government should do the same.

Why haven't the pro-fiscal policy people taken the time to address this legitimate concern?

Or, am I reading the wrong news & wrong blogs?

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