Today's Buggy Topic
The question posed in the subject-title is accurate enough, with a slant in prof bug's two replies found in a thread at Economist's View: in particular, though the buggy guy supported President Obama's fiscal-stimulus of slightly over $800 billion that was adopted by Congress in January 2009, he's not certain right now whether we do need a new package. He's not, mind you, outrightly opposed; just faced with too many uncertainties. Click here for the buggy stuff, though you should read the rest of the background that follows before you do so.
The Contending Groups
The pros and cons of a new fiscal stimulus program --- or even the desirability of the original --- have divided the economics' profession into two contending camps New Classicals and Keynesians of different sorts.
(i.). New Classical Macroeconomics
Lots of economists say we don't need or want more federal deficit-spending: the growing federal government's overall debt will require higher taxes, entail higher interest rates, and on both counts slow down future long-term economic growth. On this view, the USA economy --- unusually flexible and dynamic --- has already emerged out of the recession that ended last August (2009) with steady GDP growth greater than that of any other industrially advanced country with Canada not far behind; and though unemployment hasn't come down much, job-creation is always a lagging indicator in the climb out of a recession. And so unemployment will start going down faster if we continue letting market forces now operate without further fiscal stimulus from Washington D.C.
As a general thing, these economists are New Classicals who believe one of two things (or both) about countering recessions:
- The market-economy is self-regulating and self-adjusting, and recessions are signs that old technologies have stopped boosting economic growth, new technologies and sector-reallocation across industries --- say, from overextended housing construction and mortgage finance to new, more promising industrial sectors --- has to be completed before vigorous economic growth returns. Any government programs --- fiscal or monetary --- to try hastening the revival will backfire, either now or over the long run. The one exception: permanent tax-cuts that will raise the rate of long-term GDP growth and stimulate current business investment and hence job-creation.
- Alternatively, some New Classicals believe that a big monetary stimulus in line with Milton Friedman's views are needed to help recover from a serious recession, but they add that is what the Federal Reserve has been doing for the last two years or so, and very few believe that more stimulus is needed in the form of the Federal Reserve buying long-term private-assets, like corporate bonds or mortgages, that would reduce long-term nominal interest rates without having a bad mid- and long-term consequence: raising the rate of inflation and inflationary-expectations.
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