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What Would Happen if We Canceled the Remainder of the Stimulus?

I am not trying to be snarky here. This is a genuine question. Suppose, by assumption (as some reports have it) that a recovery is now getting underway - this might be true or false, take it as true by assumption. Unemployment, let us also take by assumption, will continue to rise as a lagging indicator. The recovery as currently projected will be weak. But a vast amount of the stimulus money has not yet gone out the door. I also understand that a large part of that has not even been committed, at least not in a firm way (I'm being squishy here, I realize: do I mean legally committed by contract, committed by legislation or earmark or something similar, what is 'committed' or 'spent' exactly?).

My non-snarky, technocratic policy question is - suppose we concluded that the recovery is actually starting, and we decided to not spend any more money on stimulus that was, in principle, aimed at classic demand-side stimulus? What would be the likely consequences?

Would an explicit, upfront decision, for example, not to spend more tank the incipient (and for purposes here, assumed) recovery because, for example, everyone's plans were premised on this continued spending? Or because the recovery at this point just is stimulus spending and the anticipation of more of it; it is not actually the private economy auto-generating its own profits but instead effectively merely recycling government recovery funds? And the effect on monetary policy - deflationary pressures, for example? Other monetary effects, good or bad?

Or, alternatively, would canceling the rest of the stimulus rev up the private economic sector, currently fearful of tax increases and interest rate hikes down the road and all the long term drag on private economic activity created by the stimulus itself? Unleash the 'animal spirits' and all that?

Or would the effect be something altogether different?

Finally, what would happen if we decided to slash stimulus spending drastically, but still use a chunk of it in the ways that some proposed back when the stimulus was being debated: Fund greater and longer term unemployment benefits and subsidize COBRA or related health insurance protection for individuals and families, but not undertake vast new government spending on infrastructure, etc.?

My interest here is in trying to puzzle out where alternatives might lead. It is not an invitation to rant or make merely political speeches. Please give me reasoned arguments, preferably looking to upsides and downsides to each of these policy alternatives.

EJ (mail):

Or, alternatively, would canceling the rest of the stimulus rev up the private economic sector, currently fearful of tax increases and interest rate hikes down the road and all the long term drag on private economic activity created by the stimulus itself


My initial thought on this one point is that people worried about such things (and I wonder how many private sector actors/investors really do change present behavior based on speculation about tax increases years down the road) are probably much more focused on how the climate change/health care debates turn out. Those will have a much larger effect (for good or ill—trying to keep this non-partisan) on the future debt than the one-time hit of the stimulus.
8.3.2009 2:15pm
Kenneth Anderson:
EJ - excellent point, thanks.
8.3.2009 2:18pm
James Gibson (mail):
According to one economist (who "predicted" the recession) the present recovery will actually occur in the fall to then be followed by a second recession in late 2010 caused by inflation due to public debt and fuel prices. Thus, if the remaining stimulus, which would add to the public debt (in large scale), is reduced or stopped then the public debt will not be as great and the inflation more limited. The Dems can still claim to have saved the economy, but if they require that the stimulus be used as written and not allow any flexibility the result will be the same "Asleep at the Switch" situation that occurred under Greenspan that led us to this situation.
8.3.2009 2:25pm
Thorley Winston (mail) (www):
I think EJ's correct in that the concern seems to be more about the effects of Cap and Tax, Obamacare, and other tax increases and regulatory changes being proposed by Congress and the administration. The GTA while certainly large is mostly seen as a one-off whereas the other changes could be with us for a long time.
8.3.2009 2:28pm
ShelbyC:

What Would Happen if We Canceled the Remainder of the Stimulus?


The congresscritters wouldn't get to spend alot of money they want to spend, and it would hurt their chances for re-election.
8.3.2009 2:34pm
luagha:

Cancelling the stimulus would make that oft-seen deficit chart look a zillion times nicer. The stock market would immediately skyrocket and Obama would be hailed as a genius for putting down those nasty pork-stealing congresscritters.
8.3.2009 2:35pm
geokstr (mail):
It will never happen. It encompasses every liberal wet dream that they've drooled over for years, and they didn't even have to take any flak for all those earmarks.

The "stimulus" was deliberately backloaded to kick in next year in order to buy lots of votes in the 2010 elections. It will provide a temporary and artificial downward spike in unemployment, for which the MSM will pile on the congratulary coverage about how Obamanomics saved the economy. Obama will probably set a personal best for number of angelic covers of news magazines.
8.3.2009 2:35pm
Bruce Hayden (mail):
I think canceling the rest of the "stimulus" bill might stimulate the economy just a little. But much of the damage has already been done.

I agree with those other posters - ObamaCare, Cap and Trade, and the budget are now more important, and if passed as is, more likely to impede the recovery.
8.3.2009 2:36pm
Allan Walstad (mail):
I suggest it's not so much what would happen if the stimulus were canceled, but what would NOT happen. The dollar would not be further undermined by this reckless borrowing, printing, and spending. Future generations would not be on the hook to pay it back. Finite resources would not have been misallocated toward politically selected projects rather than market selected ones. Distortions in labor and capital markets, requiring future liquidations and therefore future recessions/depressions, would not be further aggravated.
8.3.2009 2:41pm
mcbain:
if we cancelled the stimulus we could afford to fund 10, no scratch that, 15 new circuses
8.3.2009 2:41pm
Aaron Bergman (mail):
The economists who study the great depression say that the recovery there was stalled by pulling back on the fiscal stimulus much too soon. In that the stimulus is not part of a structural deficit, I don't think it has too many consequences for long term inflation and the like. Given that just a few months ago (how soon people seem to forget) we were worrying that we could be on the cusp of another great depression, I'd rather err on the side of too much stimulus than too little. This is especially true given that it is difficult to disentangle the extent to which the current recovery bottoming-out is already an effect of the stimulus we have and the anticipation of future stimulus.
8.3.2009 2:56pm
sonicfrog (mail) (www):

What Would Happen if We Canceled the Remainder of the Stimulus?


I would stand up, cheer, and do a double back flip, then, grow a foot taller, and become instantly filthy rich. I think the odds of the last two (OK three) items happening are more likely to happen than the Congress canceling the rest of the stimulus..
8.3.2009 2:59pm
lance.cahill (mail):
If the stimulus were cancelled, it would probably, on net, be a worse thing.

State and local governments would either have to raise taxes, or cut certain services (education is often immune to these cuts due to constitutional provisions, and education often constitutes a sizable plurality of state and local budgets) that are vital, or that provide support to the destitute.

Also, such a radical departure from policy would induce all the fears we faced back in January and December--uncertainty over government policy. Look back to March and September 2008 where the Fed, without sufficient authorization from Congress, had to draw up ad hoc policies to resolve systemically important financial institutions. The result was enormous uncertainty (look at LIBOR rates).

Furthermore, our fiscal picture could potentially look worse. Due to the uncertainty, businesses would easily pare back investment at a greater rate than they are now, cutting job and wage growth, contributing to the shortfall in tax revenue, along with continued payments to automatic stabilizers.

In addition, inflation fears are currently non-existent. The market, using the TIPS spread, expects around 1% inflation. The $787 billion expenditure is hardly enough to stoke inflation fears, especially if the Fed has a credible committment in not monetizing the debt due to TARP and ARRA.

This committment could easily erode without the fiscal stimulus. The Fed might be pressured, or see it as necessary, to provide enough QE to soak up the excess government securities, and spur quantitative growth.

Discretionary central bank policy is certainly necessary, and sometimes sufficient, but it should not be the only countervailing force against such a large recession as the current one. Policymakers need to show they are committed towards exercising all sensible options in fighting the pressures of deflation--revoking the current stimulus program after the release of current growth figures would be very premature.

NB: For all the talk of the Q2 growth figures being less worse than thought, that's not true. The WSJ expected a larger drop sure, but the Bloomberg Consensus forecast expected only a .-6% drop.

The growth figures were mainly buffeted by a 13% increase in defense spending and a drop in imports. That's hardly sustainable for the next quarter, especially as the trade balance improves and the procurement process slows.
8.3.2009 3:02pm
Today's Tom Sawyer:
More than likely, Obama could swing a great victory on both stimulus and healthcare accounts if he were to shunt stimulus funding into the overhaul since both are seen as "one shot" deals to get the economy and America on track. It would certainly go a long way toward creating a Democrat consensus by eliminating Blue Dog worries. Additionally, any resistance towards this idea could easily be construed as defending pork, crushing any opposition, D or R or otherwise.

From my personal opinion, this would still be a bad idea, but thankfully the reality is that it won't happen. The current Administration along with Congressional Democrat leadership want to eat their cake and have it too in the form of increase spending for all their plans. I must say that I infinitely prefer Randian looters with no organization to Orwellian superorganization, because although both lose in the end, the Randian process is much easier on individuals.
8.3.2009 3:05pm
Parared:
<blockquote>
State and local governments would either have to raise taxes, or cut certain services
</blockquote>

As opposed to how we are going to pay for this junk otherwise? Or do you think that money their spending doesn't come from our pockets?
8.3.2009 3:25pm
SeaDrive:
Whatever is going on the economy now is in the context of the expectation that the stimulus will be continued. There are people employed now in that expectation who would lose their jobs immediately.

People plan ahead you know. Even governments.

Just by the way, I'd like to know how much of the stimulus is effectively moving debt from the states (constitutionally forbidden to run deficits for the most part) to the federal government.
8.3.2009 3:26pm
hillbilly habeus:
Looks like Geo missed the last two sentences of the post. Perhaps busy working on his darts game?

Also, I wonder if there were a lot of entities who took out growth loans based on being reimbursed via stimulus cash or related tax breaks? They would be heavily impacted by a withdrawal of stimulus. I think SeaDrive has a great question in moving state debt to become fed debt.
8.3.2009 3:38pm
Recovering Law Grad:
Bruce &Thorley -

Do you realize that, when you use phrases like "ObamaCare," you are immediately tuned out by the other side? Are you interested in talking or not?
8.3.2009 3:44pm
Ano (mail):
If the remainder of the stimulus were canceled, the recession would last longer, during which unemployment would be a little higher.

There are two arguments for why the recession would last longer without fiscal stimulus. I have taken both from Paul Krugman's public comments on this stuff, including his Robbins Lectures at the London School of Economics about a month ago (available on the LSE website and on iTunes under the LSE podcast).

1) Without fiscal stimulus, the probability of a deflationary spiral goes up. We can always use monetary policy to put the breaks on inflation, but we can't use monetary policy to stop deflation once interest rates are at their lower bound (as they are now).

2) Without fiscal stimulus, it will take businesses and households longer to "straighten up their balance sheets," that is, save enough to feel comfortable spending again. When everyone realizes at once that they've borrowed too much, and that they want to save more, the paradox of thrift kicks in: everyone saving a greater percentage of their income at once results in LESS savings in the economy overall in the short run because demand drops off so much that people lose their jobs. The stimulus package goes some way toward stopping the paradox of thrift, thus allowing households and businesses to save faster than they would have otherwise.

So, two reasons it will shorten the recession, plus the argument that unemployment will be 1-2 percentage points lower while the recession is still on.
8.3.2009 4:04pm
ChrisIowa (mail):
SeaDrive

Just by the way, I'd like to know how much of the stimulus is effectively moving debt from the states (constitutionally forbidden to run deficits for the most part) to the federal government.

I am involved in 4 projects that include approximately $2.3 million in stimulus funds. Of that, $1.6 million would have been spent without the stimulus, with City funds rather than Federal funds.
8.3.2009 4:11pm
MartyA:
Never happen! The main objective of everything the Kenyan has done or will do is the destruction of the middle class in America. That is what his owners put him in the White House for. A reversal, even now, of the "stimulus" would drive the stock market up another 1000 points, build public confidence and strengthen the middle class against future obamanations.
Of course, reversal of the "stimulus" now, might also give the kleptocrats a shot at retaining the Congress next year, so, it might happen.
8.3.2009 4:12pm
Nunzio:
Unfortunately, it doesn't seem as if macro-economics is developed enough to answer these questions.
8.3.2009 4:12pm
egd:
SeaDrive:

Whatever is going on the economy now is in the context of the expectation that the stimulus will be continued. There are people employed now in that expectation who would lose their jobs immediately.

The problem with this assumption is that much of the "stimulus" has yet to be dedicated to one position or another. This isn't the CARS program - where private industry finances a government end to be reimbursed by the government - this is direct government spending.

No contractors hire temporary workers with the hope that their quote is accepted; they wait until they get a commitment from the government, THEN start hiring.

Aaron Bergman:

The economists who study the great depression say that the recovery there was stalled by pulling back on the fiscal stimulus much too soon.

There's a competing school of thought that says the post-depression recovery was stalled because of fiscal stimulus. Given that economic position, retracting the stimulus might be the better option.

And for partisan's sake...remember the Obama Administration's jobs graph, showing unemployment with and without the stimulus? An astute observer might recognize that we're operating outside of both lines right now.

(Whether that's due to the economy being worse than initially expected or due to the policies of the Obama Administration, is above my pay grade.)
8.3.2009 4:13pm
lance.cahill (mail):
Ano (4:04 pm),

I think Krugman is wrong in regards to #1, or at least your understanding of his comments.

Krugman has said that conventional monetary policy has shot its last bolt due to the zero-bound of nominal interest rates. Unconventional monetary policy, which the Fed has been conducting for the past several months, is not muted by the zero-bound, as it is not exchanging dollar bills for 0% interest bearing bonds, but other forms of securities. This is line with most of the literature concerning monetary policy.

Krugman has not denied the efficacy of unconventional monetary policy (look at his writings regarding Japan), only that it is an untested policy option and that he is more comfortable using additional fiscal stimulus. In addition, I think Krugman has stated the amount of quantitative easing necessary to stave off inflation is not politically attainable.
8.3.2009 4:30pm
CJColucci:
My interest here is in trying to puzzle out where alternatives might lead. It is not an invitation to rant or make merely political speeches. Please give me reasoned arguments, preferably looking to upsides and downsides to each of these policy alternatives.

Not from around here, are you?
8.3.2009 4:33pm
lance.cahill (mail):
necessary to stave off deflation*
8.3.2009 4:33pm
Bruce Hayden (mail):
Do you realize that, when you use phrases like "ObamaCare," you are immediately tuned out by the other side? Are you interested in talking or not?
Not quite sure what to call it then. As currently structured, it isn't reforming health care, so can't be health care reform. Maybe health care insurance reform, but even that is a stretch.
8.3.2009 4:39pm
Bruce Hayden (mail):
1) Without fiscal stimulus, the probability of a deflationary spiral goes up. We can always use monetary policy to put the breaks on inflation, but we can't use monetary policy to stop deflation once interest rates are at their lower bound (as they are now).
I am not sure if I buy his definition of monetary policy. Or, ra6ther, it seems more likely that he learned his monetary economics prior to the discovery that what was causing the inflation of the 1970s was runaway money supply growth.

So, instead of finding ourselves in a deflationary spiral, there is a chance that once the banks start lending again, with all the money pumped into the money supply, and all the borrowing that has gone on, that we may instead find our selves in an inflationary spiral.
2) Without fiscal stimulus, it will take businesses and households longer to "straighten up their balance sheets," that is, save enough to feel comfortable spending again. When everyone realizes at once that they've borrowed too much, and that they want to save more, the paradox of thrift kicks in: everyone saving a greater percentage of their income at once results in LESS savings in the economy overall in the short run because demand drops off so much that people lose their jobs. The stimulus package goes some way toward stopping the paradox of thrift, thus allowing households and businesses to save faster than they would have otherwise.
Then, again, they can't borrow right now if they want to. One problem right now is that companies that want to borrow, whether for continuing operations, or for expansion, aren't able to.

I think that the idea that people have to save in order for there to be investment in plants, equipment, and people, may be valid when the banks are willing to lend. But there are still a lot of shell shocked banks out there that aren't lending even what they can. Also, I don't think that Kruggernomics adequately takes into effect the crowding out that the current level of deficit borrowing by our country is doing to the credit markets.
8.3.2009 4:51pm
Bruce Hayden (mail):
Part of the problem all along with this "stimulus" bill was that it failed to deliver on "shovel ready" projects, simply because the government cannot award infrastructure projects that quickly any more. All that money scheduled to be spent in 2010, 2011, through 2019 or so is likely to be spent counter-cyclically. And that is one reason why canceling right now might be a good idea.
8.3.2009 4:55pm
SuperSkeptic (mail):
"Quantitative Easing" hahaha gotta love that NewsSpeak.

Look, whatever you call it, the true economic results are bad long-term and short-term for the average american as inflation has a deleterious effect on savings. The only effects that will be "calculable" will be the political effects, meaning that each party will claim that it had the opposite effect on "the people" or "main street." Then, depending on how close we are to the election, history will be written by the victor. Hence, we are still debating the merits/effects of the New Deal on the great depression (let alone the effect that it had in the long-term on our government's structure). There will always be a krugman on each side to write that story, too.
8.3.2009 4:59pm
Thorley Winston (mail) (www):
Do you realize that, when you use phrases like "ObamaCare," you are immediately tuned out by the other side? Are you interested in talking or not?


Not quite sure what to call it then. As currently structured, it isn't reforming health care, so can't be health care reform. Maybe health care insurance reform, but even that is a stretch.


Agreed, also I don't think that the term "public option" is accurate either since the bill would force private insurance plans to essentially duplicate the new government plan within five years. Telling someone they can "keep their private health insurance" but only so long as their private health insurance plan mirrors what's in the government insurance plan is a little bit like going to a restaurant and saying you have the "option" of ordering anything on the menu so long as it's frank and beans.

Except that under ObamaCare there will no longer be the option of going to a different restaurant with a different menu.

Unless you're the POTUS, a member of Congress or a close friend or family member that is.
8.3.2009 5:00pm
Allan Walstad (mail):
A number of the comments here clearly take for granted the validity of modern mainstream macroecon, including the notions that the Fed really has a positive role to play (and generally plays a positive role), that deflation must be a disaster, that we can achieve prosperity by government's virtually unlimited printing and borrowing of money, etc. If this is all quackery, as the Austrian school has long argued (convincingly in my opinion), then the massive market interventions underway threaten us with the prospect of causing as great a disaster as they caused with the Great Depression.
8.3.2009 5:18pm
DangerMouse:
The dollar would not be further undermined by this reckless borrowing, printing, and spending.

It's too late for that, I'm afraid. They've already printed billions, if not trillions, of new dollars.
8.3.2009 5:26pm
Floridan:
Suppose your employer, somewhat chagrined that his employee lived in cramped quarters and drove a ten-year-old clunker, gave you a $1000 a month raise.

You then went out and immediately purchased a new house and car.

Would it be legitimate for the employer to then rescind the raise, since you had already achieved what he intended?
8.3.2009 5:28pm
James Gibson (mail):
Every time I hear Krugman's name I ask myself if there has ever been a case of a nobel prize ever being revoked. Krugaman's problem is that by putting money into people's hands directly doesn't in turn get them to buy something with said money.

Look at Cash for Clunkers. People with an old car that maybe worth only a 1,000 dollars don't want to get rid of it because they will get so little for it and a new vehicle still costs more per year in loan costs then a couple of major repairs. The Clunkers bill gives that extra trade-in value, making the new car less of a monthly burden. Thus we see a frenzy of car sales connected to this bill.

The reverse is the early stimulus money were people were given a specific amount of cash back from the government. Did the money go to actually buying anything: NO. Most people kept the money and put it to savings. As their purchasing, they still will be only buying those items they need.

Krugman's premise that you can counter the thrift response to an economic downturn by passing out money is invalid since you can't get the money distributed until the thrift response has fully taken root.
8.3.2009 5:41pm
one of many:
It's really a judgement call, there is one question that has to answered: does the stimulus increase or decrease investor confidence in the economy? There is evidence both ways, so it is no certain answer. If stimulus is decreasing investor confidence then ending the program will shorten the recession - if it is increasing then ending the stimulus will prolong the recession. Take you chances, pick a side and go with it, there is no clear favorite. Regardless, EJ is right that more important for investor confidence is the uncertainty caused by the other policies.
8.3.2009 5:46pm
Thorley Winston (mail) (www):
Suppose your employer, somewhat chagrined that his employee lived in cramped quarters and drove a ten-year-old clunker, gave you a $1000 a month raise.

You then went out and immediately purchased a new house and car.

Would it be legitimate for the employer to then rescind the raise, since you had already achieved what he intended?


Unless you are suggesting that the "stimulus" is or should be perpetual rather than a one-off like many of us were lead to believe, I really don't think that this analogy is apt.

Now if you replace the word "raise" with "bonus" in your example, I think we have a situation closer to what we have today. In which case, no I don't think (absent evidence of fraud or self-dealing) it would be legitimate for your employer to rescind the bonus that you were already paid. But (absent a contract or quasi-contract to the contrary) that doesn't entitle you to expect future bonuses and it would be pretty unwise of you to make plans that depend on getting a future bonus.

Which is one reason why I and others favored no stimulus rather than "do something" for the sake of "doing something" particularly what was ultimately done. Rather than getting their financial houses in order, a lot of States are using the "stimulus" money to tide themselves over until the economy recovers and they can resume taxing and spending at the current levels. And a lot of people, rather than deleveraging their personal debt, are going to find themselves in the same boat that they were in before.

Which will probably lead to calls for a new "stimulus" or at least portions of it. Rinse and repeat. Rinse and repeat.
8.3.2009 5:48pm
Peter Namtvedt (mail) (www):
On the one hand, Obama would have a large outstanding debt to repay: auto dealers, banks, hospitals, schools, etc. who made large donations to his campaign. In general, there are more votes to be bought.

On the other hand, the economy might recover faster.
8.3.2009 5:48pm
mobile:
According to Scott Sumner (whose blog you referenced in an earlier post), if Congress can make a credible promise to inject money into the economy with a back-loaded stimulus package, then the effect would be more or less the same as with a front-loaded stimulus because of the effect on everyone's future expectations about the state of the economy. I don't know if I buy that (I don't even know if Sumner buys it), but it sure would be an interesting experiment to do.
8.3.2009 6:04pm
Ano (mail):
lance.cahil @4:30 - you're right; I agree that unconventional monetary policy is another weapon against deflation. I agree that Krugman doesn't trust unconventional monetary policy alone and wants fiscal stimulus too.

Bruce Hayden @ 4:51 -
Regarding your point about inflation: My understanding is that there is an active debate about whether inflation or deflation is the bigger risk now, but that most experts are more worried about deflation at the moment. (It is possible that I've been reading too many liberal economists, and that I'm wrong about this.)

Regarding your point about companies not being able to borrow right now and federal borrowing crowding out private investment: right now a LOT more people and companies want to save than want to borrow and invest, which is one reason why GDP is falling (savings taken out of consupmption, consumption NOT being replaced by investment). My understanding is that your story of crowding out works very well in normal and booming times, but does not really describe the "paradox of thrift" world we are currently in.
8.3.2009 6:08pm
seadrive:
>No contractors hire temporary workers with the hope that their quote is accepted; they wait until they get a commitment from the government, THEN start hiring.

I was thinking mostly of public employees, teachers and cops, who would have lost their jobs without stimulus money going to the states.
8.3.2009 6:37pm
Bruce Hayden (mail):
Regarding your point about companies not being able to borrow right now and federal borrowing crowding out private investment: right now a LOT more people and companies want to save than want to borrow and invest, which is one reason why GDP is falling (savings taken out of consupmption, consumption NOT being replaced by investment). My understanding is that your story of crowding out works very well in normal and booming times, but does not really describe the "paradox of thrift" world we are currently in.
Except that I have talked to a number of people over the last six months who did want to borrow and couldn't. A typical story is a guy who has had a credit line for 20 years for his business, and now has had it canceled, despite always having paid it off.

Yes, that is all anecdotal. But there does seem to be (or at least has been) a borrowing problem, possibly resulting from the banking problem that we faced last fall, that seems to be lingering. And this is why standard economic policies may not be as useful this time around as compared to before.
8.3.2009 8:41pm
Bruce Hayden (mail):
Regarding your point about inflation: My understanding is that there is an active debate about whether inflation or deflation is the bigger risk now, but that most experts are more worried about deflation at the moment. (It is possible that I've been reading too many liberal economists, and that I'm wrong about this.)
We shall see. I think a lot of monetary economists would argue that a big cause of the deflation during the Great Depression was the Banking Holiday, which effectively made a major cut in the money supply (at a time when that was counter productive). But now we have the FDIC, etc...

One argument in favor of inflation is that MV=PQ, where M=Money Supply, V=Velocity of Money, P=Price Level, and Q=Quantity of goods and services, and thus, PQ=GDP. V is down because of the banking problems, compensated by a significant rise in M by the Fed. But when V recovers, the Fed may not be able to suck enough M out of the economy to compensate, esp. given the level of borrowing going on right now by our government.

My view is that the deflationary prediction is based on losing sight of the basics of monetary economics, and that in the long run, money is a veil. And, of course, more traditional monetary economics would probably suggest just the opposite of some of the actions being taken right now to counter the recession, and that would be inconvenient for those running this country right now.

Of course, I am not a monetary economist, and don't play one on TV either.

We shall see.
8.3.2009 8:53pm
Bruce Hayden (mail):
lance.cahil @4:30 - you're right; I agree that unconventional monetary policy is another weapon against deflation. I agree that Krugman doesn't trust unconventional monetary policy alone and wants fiscal stimulus too.
Actually, I don't think that Krugman likes monetary economics at all, and doesn't seem to really accept it, since it tends to run counter to the massive Keynesian stimulus that he seems to love so much.
8.3.2009 8:55pm
NoahDavidSimon (mail) (www):
it is possible to do, but it would take more then just flipping the switch. a whole infrastructure would have to be rewritten and planned. as much as the proportion of this "stimulus" bothered me, I'm not sure it would be wise to turn off the switch arbitrarily. let's remember that the end game that got us here was government parties acting out of character. Democrats are organized for spending. I'm not sure they know or are educated in making tough decisions on what to kill. In the same respect when the GOP was asking for regulation do you remember how unconvincing they were?
8.3.2009 9:18pm
lance.cahill (mail):
Bruce,

The banking holiday actually resolved some of the intermediation problems caused by the decreasing money supply, as it resolved some of the issues involving insolvent banks.

Also, it's important to consider the banking holiday in its full context, not just the vacuum of the thousands of banks that were permeanently closed. FDR got the power to declare a bank holiday through the Emergency Banking Act, which also included provisions for the Fed to provide emergency currency--essentially granting the Fed to act as lender-of-last resort.

This restored confidence in the integrity of American institutions, making sure banks were not only solvent, but liquid.
8.4.2009 3:10am
Brian G (mail) (www):
Q: What Would Happen if We Canceled the Remainder of the Stimulus?

A: Democrat interest groups wouldn't get that fat payday they are looking forward to.
8.4.2009 4:01pm
Leo Marvin (mail):

It is not an invitation to rant or make merely political speeches.

Imagine what geokstr, MartyA and Brian G might have said if it was.
8.4.2009 4:27pm
Seattle Law Student:
test post
8.7.2009 2:02am

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Comment Policy: We reserve the right to edit or delete comments, and in extreme cases to ban commenters, at our discretion. Comments must be relevant and civil (and, especially, free of name-calling). We think of comment threads like dinner parties at our homes. If you make the party unpleasant for us or for others, we'd rather you went elsewhere. We're happy to see a wide range of viewpoints, but we want all of them to be expressed as politely as possible.

We realize that such a comment policy can never be evenly enforced, because we can't possibly monitor every comment equally well. Hundreds of comments are posted every day here, and we don't read them all. Those we read, we read with different degrees of attention, and in different moods. We try to be fair, but we make no promises.

And remember, it's a big Internet. If you think we were mistaken in removing your post (or, in extreme cases, in removing you) -- or if you prefer a more free-for-all approach -- there are surely plenty of ways you can still get your views out.