Lynne Kiesling
Two excellent economists offer advice well worth considering to Senator Obama.
Tyler Cowen’s New York Times column stresses the importance of restoring confidence initially. Tyler makes a persuasive argument, although he does not offer any specific suggestions on how to do so; my fear is that the primary tactic will be to go into overdrive with bailout and stimulus spending. Yes, this may “restore confidence” in the short run, but at what cost in deficits, in taxpayer obligations, and in the persistence of inefficient transactions and business models?
Greg Mankiw’s suggestions fall under four general categories: listen to your economists, embrace some Republican ideas, pay attention to the government’s budget constraint, and recognize your past mistakes. Yes, all good ideas, for the reasons that Greg describes. I would expand Greg’s notion of “Republican ideas” to a more pluralist conception of “non-Democrat ideas”, to falsify the myth of the right-left political spectrum, but I do think his advice is sound.
Conversely, Paul Krugman had some unsound advice for the next president (link below) today. In his column he urges Obama to act with as swift and heavy-handed an approach as possible, drawing comparisons to the New Deal. He rebukes the idea that FDR inflicted any damage on the economy in the 1930s and asserts that the only thing insufficient with Roosevelt’s reaction to the depression was that he didnt toy with the economy enough–especially on the fiscal end. Accordingly he recommends the Obama people “figure out how much help they think the economy needs, then add 50 percent” (in terms of spending). it seems a little whimsical for my taste. to say the least, it is in stark contrast with the two excellent economists you cited above. the scariest thing, however, is that one-party government and economic crisis will streamline Obama’s proposals. In the end, we can do little more than hope the new president is more prudent than FDR as long as he’s still on his honeymoon.
http://www.nytimes.com/2008/11/10/opinion/10krugman.html?hp