The American Spectator

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Re: Predicting Stiglitz

By Joseph Lawler on 12.14.09 @ 5:14PM

Wlady -- regarding Stiglitz advocating more stimulus spending: in fact left-wing economists have been after this from the very beginning. The stimulus that was passed was intended to mitigate the recession's impact. But if you believe Keynes, the recession could be avoided altogether if you simply enacted a stimulus equal to the output gap. The output gap is the difference between potential GDP, the goods and services that could have been produced assuming full employmen and normal productivity, and actual GDP. When the administration was putting the stimulus together, the output gap looked like it was going to be about $2 trillion, which, given the hypothesized spending "multipliers," would indicate a stimulus package of at least $1.3 trillion. Instead they only got $787 billion. For a typical argument along these lines, here's Paul Krugman.

I think that as long as the Fed keeps rates near zero, Stiglitz et al. will continue to advocate more spending.

To be fair, though, I think that a $1.2 trillion short-term deficit is much less troubling than adding giant new long-term health care entitlements. Then again, it's not clear at all that the $787 billion they got will be a one-time deal.