Greg Mankiw buries the lede

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Feb 15 2009, 12:19 pm by Conor Clarke

Greg Mankiw worries that disagreement over fiscal stimulus will obscure the fact that economists agree about lots of things. There is economic consensus about public policy, and Mankiw reprints a nice table from his own textbook to prove it. But item # 4 on that table suggests that there isn't actually much disagreement over fiscal stimulus:

Fiscal policy (e.g., tax cut and/or government expenditure increase) has a significant stimulative impact on a less than fully employed economy. (90% [of economists agree])

Greg notes that this item doesn't distinguish between taxes and spending, which is fair enough. But many of the stimulus critics to which Mankiw has linked (e.g., Eugene Fama) don't distinguish between taxes and spending either. Mankiw's textbook says these economists are well outside the mainstream.

Comments (1)

Steve Koch February 15, 2009 5:19 PM

Conor,

It is no surprise that most economists think fiscal stimulus (i.e. some combination of government spending/tax reduction) will stimulate an economy with unused resources (high unemployment, for example). My guess is that even most economists who don't want any kind of fiscal stimulus right now still believe that fiscal stimulus will stimulate the economy at some point in the future but doubt that fiscal stimulus is the right medicine at this particular time.

One of the great difficulties with fiscal stimulus via government spending is that it is quite difficult to get the timing right.

A much greater percentage of economists who disagree with this particular stimulus package think that stimulus now is a good idea but don't agree with the specifics of this particular stimulus package. Recent survey indicate that economists are not keen on this particular package (now that they know more details).

Fiscal stimulus via tax reduction has a proven track record in our economy several times in the recent past. Fiscal stimulus via government spending does not have such a great track record.

As Dr. Mankiw has posted previously, fiscal stimulus via government spending (as done in this stimulus package) is an unproven technique. We are doing a trillion dollar science project.

It is pretty cool that you have people like Barro, Krugman, and Mankiw responding to you. BTW, as near as I can tell, Mankiw proposed the "good bank" technique back in October, 2008 (i.e. before Buiter, Stigliz, Soros, or Romer). It would be interesting to know what Krugman thinks of the good bank technique for improving liquidity during the current crisis. It would also be interesting to know Krugman's ideal stimulus package.