Friday, August 7, 2009

Stiglitz Wants More Stimulus

Apparently to prove he is the ultimate Keynesian, economist Joseph Stiglitz says he wants more economic stimulus:

People are asking: Has Keynesian economics been proven wrong, now that it has been put to the test? The question, however, only makes sense if Keynesian economics had really been tried.

Indeed, what is needed now is another dose of fiscal stimulus
Going on to prove he is hardcore, Stiglitz then turns anti-tax cut and anti-savings:
At the same time, almost one-third of the [current] stimulus was devoted to tax cuts, which Keynesian economics correctly predicted would be relatively ineffective. Households, burdened with debt while their retirement savings wither and job prospects remain dim, have spent only a fraction of the tax cuts.
How does Stiglitz want to pay for his recommended stimulus package? I guess by increasing deficits. He has no concern at all for the increasing U.S. debt load:
Some worry about America's increasing national debt. But if a new stimulus is well designed, with much of the money spent on assets, the fiscal position and future growth can actually be made stronger.
What about the inflationary consequences of the growing debt as the Federal Reserve sops up the debt? No problem, for Stiglitz. He will just have the Fed stop buying the debt (I think), or maybe he means the Fed should print more to battle inflation, as he seemingly equates climbing interest rates, as the cause of inflation:
Nevertheless, there is some concern that growing inflationary expectations might result in rising long-term interest rates, offsetting the benefits of the stimulus. Here, monetary authorities must be vigilant, and continue their “non-standard” interventions, managing both short-term and long-term interest rates.
Bottom line: The Stiglitz formula seems to be more injections at any cost. The last guy to try this formula was Michael Jackson.


  1. It's actually scary, you know - there does not seem to be a single mainstream economist with even half a brain. A colleague recently asked me in exasperation - after I ranted for the umpteenth time Mogambo Guru style - why I would think that all these people are stupid, since they wouldn't have reached their posts if they had been as dumb as I made them out to be. For some reason, I spontaneously answered that being 'intelligent' has nothing to do with it: after all, the Soviet Union was lead by a bunch of people who were pretty smart if one took into account only their raw intellingence. What, I asked, made him think that our political system would be any different?
    Actually, I had never thought about it this way myself, and since that day my sleep has become even less sound than it has been in any case.

  2. Wenzel,

    And if the stimulus isn't spent as Stiglitz intends... does that mean next up on the agenda should be full-blown central planning, just to make sure there won't be any mistakes the third time around?

    I'm just going to call any further government efforts Stigulus, in honor of the great patron saint of economic salvation, St. Stiglitz.

  3. China Russia Japan and Korea all stimulated closer to the degree Stiglitz suggests and all but Russia have seen economic growth substantially better than expected. Maybe there's a reason Stiglitz won a nobel prize.