Monday, June 21, 2010

FLG's Theory Of Time Horizons Summed Up In One Sentence

Paul Krugman:
Spend now, while the economy remains depressed; save later, once it has recovered.

There are several questions surrounding this beyond time horizons. For example, one must buy into the idea that the spending now will help the economy recover. More than than, one must buy that it will help the economy recover in a cost effective manner. Proponents of another stimulus point to the consensus among economists that the previous stimulus worked. Even FLG agrees that it boosted the economy, but the question is whether the additional debt was worth it?

Just because something accomplishes what it was set out to do doesn't mean it worked. If a demolition expert is tasked with taking down one building and takes down the one next door with it, then it wasn't a successful day.

What makes this worse is that many of the people in currently in favor of stimulus are simply saying, let's just get people to work. Doesn't matter what they do.

As an example, Matt writes:
People should write laws that involve spending government funds on hiring people to do stuff.

That's right. Hire people to do stuff. Not specifically to do things that will provide a long-term economic return for the taxpayer's money and help the economy grow in the future. No, they just need to do stuff.

That's great economic policy right there. But then again, let's be honest. This isn't about economic policy. This is about the result of short time horizons that see people are out of work and we need to do something, anything to solve the problem. We'll worry about paying for it later.

To be completely honest, FLG cannot deny that Krugman has a point. It would be much better if we could use fiscal policy to get us out of this slump faster. But you know what? Once the economy recovers, and the coffers begin to fill up again, politicians, being politicians, are going to be talking about how to spend it, which they will.

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