Greg Mankiw offers a suggestion to Team Obama.

Greg Mankiw suggests that Team Obama institute tax reductions rather than increasing government spending as a way to stimulate the economy. Professor Mankiw cites various studies that show tax reductions as providing a multiplier effect of 3; i.e., for each $1 of tax reduction GDP increases by $3. On the other hand, studies show spending has a multiplier of only 1 or 1.4.

This suggests that tax reductions provide greater "bang for the buck" than spending increases in stimulating the economy. For this reason Mankiw recommends that Obama push for tax reductions rather than spending increases. This violates the textbook Keynsian model which would suggest using increased spending alone to stimulate the economy.

Of course, this would require Obama to turn from the recent conventional wisdom in the Democratic Party that emphsizes government spending and labels tax reductions as the Republican Pary's answer for all economic ills. Hopefully, a President Obama can rise above mere partisanship to implement a program that will provide the greatest multiplier effect in stimulating the economy.