Actually, I don't. I don't think Keynes did either. I'm personally convinced that longer term technological and geo-political realities utterly trump a decade's worth of public policy.

But in the short term, unemployed people are miserable and become … collectively awful. Keep 'em busy! Give them opportunities for personal development according to their effort! Spend a little money on em. When times are good, Keynes would argue, we rein in public spending relative to revenue growth. And the 1990's provides some historical evidence that this can be done, for all the failings of our republican democracy.

Amen! Testify!

Yes.

My suspicion (No guru! No teacher! No method! No data! Pure conjecture!) is that information technology MAY lower search costs and transaction costs to the point that loose, more fluid organizational models can work for industry, and that a broader, portfolio based approach to individual investment can maximize our individual return on savings. But to be “on the safe side” …

A notion in favor of your desired outcome is the idea of the free market as a giant distributed intelligence setting prices and making decisions. If the market works because local nodes have the best local information (and motivation), doesn't an enormous company with far removed upper management resemble the government with a group of central planners?

Actually, I don't. I don't think Keynes did either. I'm personally convinced that longer term technological and geo-political realities utterly trump a decade's worth of public policy.

But in the short term, unemployed people are miserable and become … collectively awful. Keep 'em busy! Give them opportunities for personal development according to their effort! Spend a little money on em. When times are good, Keynes would argue, we rein in public spending relative to revenue growth. And the 1990's provides some historical evidence that this can be done, for all the failings of our republican democracy.

Amen! Testify!

Yes.

My suspicion (No guru! No teacher! No method! No data! Pure conjecture!) is that information technology MAY lower search costs and transaction costs to the point that loose, more fluid organizational models can work for industry, and that a broader, portfolio based approach to individual investment can maximize our individual return on savings. But to be “on the safe side” …

A notion in favor of your desired outcome is the idea of the free market as a giant distributed intelligence setting prices and making decisions. If the market works because local nodes have the best local information (and motivation), doesn't an enormous company with far removed upper management resemble the government with a group of central planners?

I completely agree with you. We should be very humble about what we 'know'. I'd quip that Carlyle was being to complimentary. Economics isn't any kind of science; dismal or otherwise. Too many things can be assumed away. Too many things can't be held constant.

The situation calls for pragmatism. And really. It's only $800 billion …

I'm much more interested in seeing what's to be proposed for the regulatory scheme going ahead. My personal favorite? A redistributive taxation scheme organized in such a way that never again can a business (financial or otherwise) grow 'too big to fail'. Small business is already the engine room of American commerce. But it's utterly beholdent to the vicissitudes of Big Capital. So – get rid of big capital.

Catchy slogan? Bros and hos before CEOs!

I was not referring to Mundell in my original comment and I agree with your assessment there.

My comment refers to those who seem to believe that a) there is a well settled answer to our current predicament and b) it's so well settled that we simply solve for x, increase effective demand and everything is hunky dory.

What's the multiplier for gov spending? No one knows. What's the multiplier's differential between different types of gov spending? No one knows.

What's the multiplier for tax cuts? No one knows. What's the multiplier's differential between the different types of tax cuts? No one knows.

To what degree is “crowding out” an overly vague term that ignores changes in greater worker specialization? Does spending more on healthcare help employ carpenters? Does building bridges help employ mainframe programmers?

No we have hints towards some of these areas but enough to craft effective counter cyclical fiscal policy?

It's one thing to say that we're all Keynesians now. It's another thing to pretend that we're particularly talented Keynesians.

The Oakland Raiders have lots of fans. The web is packed with the testimonies of people who believe aliens abducted them, or that their child's autism was caused by vaccines. One could–and people often do–pack stadiums with those who avow that the world is 6,000 years old or that the Reverend Sun Moon is the second coming of Christ. But relative to the number of people who are NOT Raider fans, UFOlogists, anti-vaccine campaigners, christian literalists or moonies, these people can't be said to represent a 'huge community'. Their existence in sufficient numbers to make up a loud crowd should not lead us to overstate their proportion, nor their influence.

Uncle Milton said it well — “We're all Keynesians now” — meaning that even those who dislike the implications of some of what the Baron of Tilton pulled out of his hat can't help themselves but frame their criticisms using the ropes and pulleys of his apparatus.

Which leads to the second charge; they're not very skeptical. A skeptic understands the position they're arguing against. Mundell clearly doesn't want to engage the argument for stimulus now, just like the anti-vaccine campaigners and Raider's fans don't want to confront the arguments involved in their cases either.

To Mundell, it's all so obvious. GDP = G + C + I. That's domestic production = government spending plus private consumption plus investment/savings. Mundell argues that this accounting identity implies if you increase G, there MUST be a corresponding decrease in I or C, in order to maintain the identity. Therefore, fiscal stimulus can't work.

But the point is that the accounting identity holds post hoc. You'll certainly see, year on year, that GDP = G + C+ I. BUT by increasing G, you change the *behavior *of people. Increase G, and people will have money to spend, to save and invest. (Insert mumble here about velocity of money, as opposed to quantity of money.)

To see why Mundell is peddling nonsense, look at his response to the second question. “Tax breaks for business!”, he says. Holding aside the question of why tax breaks for businesses will change anything when they're all losing money because no one is buying their products, let's examine his argument in the light of his own collection of ropes and pulleys. GDP = G + C + I, right? Mundell says “Drop G! This will increase I!” But applying the ropes and pulleys he assembled in his first answer, this won't have any effect on GDP either (whether or not it's a good idea in the long run, which I tend to think it is).

You can mount all kinds of criticisms of the stimulus package. Using Keynes' ropes and pulleys some (Krugman) argue it's too small. Others (Mankiw) prefer non-spending mechanisms. But none of these folks is arguing against themselves, as Mundell is here.

California is doing the right thing, laying off 20,000 workers, and balancing its budget. Will Wilkinson is absolutely right. What America needs is a balanced budget.

http://firelarrysummersnow.blogspot.com/

I'm a bit confused, Paul. What are you saying here? Are you saying that there aren't a large number of economists skeptical of a Keynesian framework in regards to the government influencing the business cycle?

Here Mundell re-capitulates the infamous “Treasury View”; that any increase in government spending can't work as it will crowd out an equal amount of private investment.

And for the record: Mundell won his Nobel Prize for his work on international exchange rates (not macro anything). Even more ironically his work on exchange rates involved creating the Hicks/Hansen exchange rate model by projecting the IS/LM model (which is the standard undergraduate way of thinking about Keynes' macroeconomic model) into currency prices.

He completed that work in the early 1960s, and overall it stands up fairly well today. Subsequently though he became an advocate of a simple (and occasionally useful) 'supply-side' view of the world. He derives a lot of his reputation for predicting 'stagflation' after the abandonment of fixed exchange rates in the 1970s, but loses some of that (imo) because European economies (with their highly progressive income tax schedules) subsequently recovered quite nicely thank you very much using conventional monetary policy (thank you, Uncle Milton).