Sunday, June 27, 2010

Greg Mankiw on Stimulus

Greg Mankiw has a good article on clinical economics and the stimulus package. It summarizes all the point he's made on his blog in the past year and a half.

WARNING: Mankiw is a Republican and it's probably best to keep that in mind when his writing leans toward politically charged issues.

While I think most people would benefit from a careful reading, I think one of his take-aways will be missed. Mankiw thinks economists should have more humility, yet he goes through the trouble of citing a few papers on why his favorite remedies might be best. A lot of people (maybe including Mankiw) put too much weight on those studies.

He also points out that maybe people won't spend because they fear future tax cuts, reviving Ricardian equivalence, an idea with even less empirical support than a large government-spending multiplier. He then suggests that long-term interest rates may rise, choking off investing spending, without noting that this never happened. Brad DeLong has flogged that point like a dead horse, and Mankiw could have done reader a favor by pointing it out.

Still, I like Greg Mankiw. Along with Oliver Blanchard, Ben Bernanke, and perhaps Nouriel Rubini he is one of the best macroeconomist commenting on the crisis.

Update: Brad DeLong with a counter point.

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