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.