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Stimulating Discussion

Posted on January 30, 2009 at 3:21 pm

Dr. Martin Kennedy has the con:

Sounds radical these days but it is a worthy question; should the government actively manage the economy? Economists are dueling over the efficacy of a fiscal stimulus and the range of expert opinion is great. Essentially those who are dubious of the power and wisdom of active fiscal policy are humble when it comes to understanding precisely the cause and the solution. Or, they, and I include myself in this group, see the solution as being beyond the reach of government. Perhaps one way to look at it is to say that a fiscal stimulus is an attempt to treat the symptoms of the recession - an attempt to stimulate consumption via borrowing when it was exactly that which contributed to the downturn. It would be better to focus on the things that led to the bubble in housing prices, better to stabilize prices, to prevent a deflation. The role of government should be to provide security, public goods, and to facilitate the smooth functioning of markets.

Comments

7 Responses to “Stimulating Discussion”

  1. Tom Paine writes
    January 30th, 2009 5:13 pm

    This is a great example of “ivory tower” thinking, except that being at MTSU, I suppose Dr. Kennedy would have to remove the “ivory tower” part.

    It’s hard to conceive of an intellectually honest person suggesting that, although lack of adequate government oversight largely created the implosion of the U.S. economy, the wisest course of action would be, in effect, more government inaction.

    No one, even advocates of the stimulus, believes its going to magically turn around the U.S. economy. The theory is that a federal stimulus might create some small successes that might restore confidence leading to greater successes.

    The purpose of the stimulus is not to stimulate consumption via borrowing. It’s to lubricate a system that has seized up due to fear.

    In effect, Dr. Kennedy is arguing what most pure market capitalists argue at times like these: we should let companies fail, let unemployment rise to 12%-15%, let credit grind to a halt, let home prices implode and those that survive will be stronger for having been bloodied by years of Bush neglect. Of course, the civil unrest that will likely result will be an unpleasant by-product of such an approach but hey, we are a free market economy, aren’t we?

    Hey, Doc, why not try running for office on THAT platform, eh?

  2. M Kennedy writes
    January 30th, 2009 5:28 pm

    Dr. Kennedy is arguing…

    No, that’s not what I am arguing. Read the whole post. It certainly isn’t an argument for “pure” free-market capatilism. The suggestion is that intervention ought to address exactly that which makes recessions painful but remain humble with respect to spending bucket loads of borrowed money that… MIGHT create some small successes which in turn MIGHT restore confidence.

  3. Rob writes
    January 30th, 2009 6:45 pm

    I wonder why congress isn’t seeking the advise of any economists on these stimulus bills… maybe because they’ll hear what Dr. Kennedy and others are saying.

    and tom, i dont understand why some people think that a trillion dollars of borrowed money is acceptable to bring about “little” successes. the first stimulus didnt work a year ago. the first half of the bailout hasnt produced anything good. why do we think more will help ANYTHING?!

    i may take this april 15th off in protest.

  4. Tom Paine writes
    January 30th, 2009 7:33 pm

    Let’s face it, the first stimulus was a half hearted measure that grossly underestimated the depth of the problems in this economy. Bush tried to buy consumer confidence on the cheap and like every thing elese he did while president, he “misunderestimated” the impact.

    Hank Paulson pushed a $750 billion dollar bailout bill through Congress, then changed the rules of the game after he got the money.

    I find it hard to lend much credence to deficit hawks when they complain about the stimulus bill when they were all so silent at the time George Bush decided to push for tax cuts at the same time he was going to war in Iraq.

    Remember how you just smiled when Cheney blithely suggested “Reagan proved deficits don’t matter.” Obama’s doing the same thing Reagan did: writing hot checks to pump up the economy. One president is considered dangerous, the other a demi-god.

    Deficit hawks are a little late to the game.

  5. January 30th, 2009 10:03 pm

    The problem, as I see it, is that we have redefined the concept of “public good” to an extent far smaller than it was intended. I do want to give the good Doctor, however, his props for suggesting investments in public transportation were a good thing in an earlier post.

    My belief is that in a situation such as this, public spending must go up to offset the reduction in demand from the collapse of an over-financialized private sector.

  6. Martin Kennedy writes
    January 31st, 2009 7:02 am

    public spending must go up…

    And it will, which will help to support sagging aggregate demand, if you merely focus on helping people adjust to the shock.

  7. Kathy writes
    February 1st, 2009 1:49 pm

    “I consider the foundation of the Constitution as laid on this ground that ‘all powers not delegated to the United States, by the Constitution, nor prohibited by it to the states, are reserved to the states or to the people.’ To take a single step beyond the boundaries thus specially drawn around the powers of Congress is to take possession of a boundless field of power, not longer susceptible of any definition.”
    —Thomas Jefferson (Opinion on the Constitutionality of a National Bank, 15 February 1791)

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