Axel Leijonhufvud on fiscal stimulus

Here is one bit from a generally interesting article:

Fiscal stimulus will not have much effect as long as the financial system is
deleveraging. Even if that problem were to be more or less solved, the
government deficit would have to offset both the decline in industry investment
and the rise in household saving – a gap that is rising as the recession
deepens. Here, too, the public is sceptical and prone to conclude that a program
that only slows or stops the decline but fails to “jump start” the economy must
have been a waste of tax payers’ money. The most effective composition of such a
program is also a problem.

It is worth noting that Leijonhufvud is generally considered a Keynesian, not a rational expectations theorist.  In my opinion the sophisticated Keynesian view is still that the stimulus won’t work.

Comments

Comments for this post are closed