Friday, November 4, 2011

Austerity vs. Stimulus: The False Dichotomy

This conversation highlights a big problem, well, maybe a couple.

The press promotes the idea of a dichotomy of thinking where I think none exists. Ferguson agrees that some stimulus further stimulus could prove useful (and that it did keep us from going over the cliff), and Krugman acknowledges that in the long-term that we need to get our fiscal house in order by dealing with debt. The press does us a disservice when they promote this either-or thinking. Of course, Ferguson, who seems to relish verbal brawls, may make matters appear more stark than they are. His point, that things could crumble quickly, seems worth heeding, but Krugman's worry of a slow crumble (slow growth, high unemployment) also presents dangers. We're in a tight spot, and sound thinkers need to navigate between the extremes.

I might note that this video piece by Ferguson supports my point, although his endorsement of tax reform as a third way strikes me as misguided at best (more below). Not that we couldn't stand to improve our tax code (see Robert Franks & Richard Thaler for some really innovative ideas), but how does this really help us? On the other hand, putting people into meaningful work--read infrastructure upgrades--seems very doable and worthwhile.

Note to Ferguson: You're right that we're always fighting the last war (see his comments on Milton Friedman and Keynes), but he fails to say that history NEVER repeats itself. Of course, "this depression is different", but how different? I think we are seeing some new wrinkles (as Ferguson notes re inequality). So, he's right to suggest new answers, but I doubt the tax system. Also, corporate taxes may not work in principle, but then they are "persons" (NOT "people"). (Persons is a legal term in this context.) Anyway, new thinking and updated perspective are always needed, but the tax code business seems quite lame.

Ferguson loves to pick a fight, I think.

My motto, Keynes in crisis; Hayek day-to-day.