Tuesday, March 19, 2013

Crude Keynesianism

Columbia Professor Jeffrey Sachs wrote a persuasive critique of what he calls "crude Keynesianism" (for a leading example, see NYT columnist Paul Krugman) in the Huffington Post last week.  Sachs goes after four central concepts:

(1) The belief that multipliers on tax cuts and transfers are stable, predictable and large;
(2) The belief that America's employment and growth problems are overwhelmingly cyclical, not structural, and therefore remediable by short-term aggregate demand management;
(3) The belief that a growing debt burden is a minor nuisance as long as the economy is in recession;
(4) The belief that for practical purposes, the most urgent need is to raise aggregate demand rather than to focus on the quality and type of public spending

For each one, he makes a strong case that the government's ability to stimulate the economy through fiscal policy is quite limited.  Not sure I buy into Sachs' ideas on what we should be doing instead (renewable energy??), but the article is well worth a quick read. 

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