But the stimulus is being sold, at least to us econobloggers, on the multipler.Â What’s the multiplier on spending or tax refunds in a system where the marginal propensity to save is rapidly rising, and the banks aren’t lending?Â What’s the multiplier on future spending when the relevant companies are capital constrained?
Given that the standard model of the Great Depression has the FDIC and the fixes to the banking system playing a vastly more important role than any FDR spending program, I’d say that the liberal econobloggers bear the burden of proof that fixing the banks is NOT vastly more important than whizzing through green energy spending at the lowest possible level of scrutiny.
This sounds lovely, but I think it glosses over all the crucial questions. Why aren’t the banks lending? I think Megan would be hard pressed to show that the principle reason is something other than a decline in demand for credit and uncertainty over the path of the economy and the ability of potential borrowers to pay. That is, the way to fix the banks is to get the economy going again in order to create profitable lending opportunities for the many solvent banks out there.
That point aside, it’s not clear to me that there’s an obviously better way to handle the banks than what we’re currently doing. There is a case for a Swedish solution — guaranteeing bank liabilities and nationalising where necessary — and I would approve of such a move, but it’s not at all a sure thing that the benefits to such a plan are worth the potential risks. Reasonable people can disagree. The same can be said for other options out there. It’s all well and good to say that fixing the banks is most important. Fine. How? What’s the easy solution that everyone is missing?
I don’t think it’s at all correct to say that the “standard model” of the Great Depression implies a greater role for fixing the banks than for fiscal policy. The banking issues then were quite different. Moreover, there’s ample evidence that fiscal policy was effective when allowed to work, and that monetary policy — and getting off the gold standard — were crucial. Given the circumstances, reasonable people can disagree over whether the most important thing at the moment is to pursue an appropriately sized stimulus, or engage in aggressive quantitative easing, or start guaranteeing bank debts.
And I have no idea why liberal econobloggers should bear the burden of prioritising one thing versus another in any case. Both are obviously important, and both are being addressed simultaneously. It’s not as if the adminstration didn’t do any thinking about the banking crisis while stimulus was moving through Congress. The CBO has had its say on the stimulus, and it’s pretty immediate given its size. Moreover the things that aren’t brilliant stimulus, like the AMT patch, hardly represent Obama, “ram[ming] through his ideological agenda.”
This just looks like Megan trying to find excuses to get off the Obama train. Which is fine; if that’s what she wants to do, then that’s what she’ll do. But saying that she’s not happy with a stimulus that gets pretty good reviews from the CBO, that she’s upset that Obama hasn’t fixed a banking crisis when it’s virtually impossible to say what “fixed” means, and that Obama is ruining his credibility by offering an output forecast that is well within the CBO’s range of estimates and well within the range of forecasts collected by the Wall Street Journal last month, is just reaching, plain and simple.
And again, given the state of the opposition I have a very difficult time understanding why any reasonable person would be having buyer’s remorse.