Tuesday, February 3, 2009

Keynesians in Congress need to read Keynes.

Greg Mankiw provides an interesting quote from Keynes about using public works projects in a stimulus package to increase demand in a recession:

Organized public works, at home and abroad, may be the right cure for a
chronic tendency to a deficiency of effective demand. But they are not capable
of sufficiently rapid organisation (and above all cannot be reversed or undone
at a later date), to be the most serviceable instrument for the prevention of
the trade cycle.


Thus, Keynesian theory would seem to oppose the House Democratic stimulus package. The package envisages expenditures that cannot be spent rapidly in this year and that cannot be reversed at a later date. In fact, the package commits most expenditures in outlying years.

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