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.