Last Updated Apr 10, 2009 6:12 PM EDT
As I see it, there are four legitimate reasons to fear that undertaking a fiscal boost now will bite us badly later.
- The first is the risk of bottleneck inflation. In this scenario, the fiscal boost increases spending as intended. But we quickly find ourselves back where we were in the 1970s.
- Capital flight and exchange-depreciation-driven inflation will take root, and that as the dollar falls rapidly the dollar prices of imported goods and services will rise -- and we are off to the inflation races again.
- Government borrowing will push up interest rates, discouraging private investment and leaving us with a low productivity-growth recovery dragged down by anemic private investment.
- We will wind up paying high interest rates on the money we borrow to fund the stimulus. The costs of servicing the added debt would then turn out to be a heavy burden.
But if we do, then I will reverse course and become Tyler Cowen's acolyte.
Follow Blog War over the federal stimulus package:
- Monday, April 6, Brad DeLong: The Stimulus Package: Like the Housing Bubble, Only Better
- Monday, April 6, Tyler Cowen: Good Policy, Bad Timing: How the Stimulus Package Could be Smarter
- Tuesday, April 7: Tyler Cowen: Stimulus Won't Help U.S. Industry Restructure Itself
- Tuesday, April 7: Brad DeLong: Arguments Against Fiscal Stimulus Exhibit a "Deep Incoherence"
- Tuesday, April 7: Tyler Cowen: It's Easier For the Government to Print Money Than to Spend It; Or, Monetarism Rulz!
- Tuesday, April 7: Brad DeLong: Fiscal Stimulus Beats Doing Nothing -- By a Lot
- Wednesday, April 8: Brad DeLong: Why the Geithner Plan is Good Medicine for the Banking System
- Wednesday, April 8: Tyler Cowen: The Geithner Plan: An End Run Around Congress
- Thursday, April 9: Tyler Cowen: Coming to Grips With the End of Debt-Fueled Consumption
- Thursday, April 9: Brad DeLong: Yes to Economic Restructuring; No to Universal Bankruptcy
- Friday, April 10: Brad DeLong: Final Thoughts: What Would Turn Me Against Fiscal Stimulus
- Friday, April 10: Tyler Cowen: The Economy is in Too Much Trouble for Stimulus to Help