Bryan Caplan  

What A Sensible Keynesian Would Say

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I'm not sure if James Hamilton would call himself a "Keynesian," but this is exactly what sensible Keynesians should say:
I emphasize that I am decidedly not suggesting that either fiscal or monetary policy stimulus are capable of solving all of our problems. Real debt imbalances, both domestic and international, frictions in moving resources out of housing and autos and into other sectors, and the profound problems with our financial system all place important physical constraints on what any stimulus package, monetary or fiscal, is capable of achieving. Once we get to 3% inflation, that to me will be a clear indication that we've accomplished all we can with tools to stimulate aggregate demand.
Alas, I predict that when we hit 3% inflation, Keynesians in power will not proclaim, "We've done what we can do.  The rest is up to the market."  I'm not sure whether sensible Keynesians don't get power, or whether power leads sensible Keynesians to hold their tongues or lose their heads.  All I know is what happens - the underlying model remains a mystery. :-)


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COMMENTS (8 to date)
Les writes:

Is "a sensible Keynesian" an oxymoron?

Parviziyi writes:

I'm disappointed that the Econolog bloggers have nothing to say (as of yet) about the big "quantitative easing" initiative announced by the Fed yesterday. I can count the lame and incoherent post by Bryan Caplan, above, as "nothing to say". Arnold has been interesting betimes over the past six months. He needs to talk about this, si vous plait.

R. Pointer writes:

See the instant effects of Milton's helicopter drop...

http://orderemerges.wordpress.com

I am still thinking through its effects.

gnat writes:

Anyone who believes that the paradox of thrift is explained by this: http://econlog.econlib.org/archives/2009/03/vertical_lm_is.html is likely to regard all Keynesian conclusions as a mystery.

Jay writes:

What a sensible Keynesian would say:

"I no longer consider myself a Keynesian"

Joshua Lyle writes:

Jay,
one who want's to be taken seriously by people that do not consider Keynesianism to by sensible, perhaps?

El Presidente writes:

Alas, I predict that when we hit 3% inflation, Keynesians in power will not proclaim, "We've done what we can do. The rest is up to the market." I'm not sure whether sensible Keynesians don't get power, or whether power leads sensible Keynesians to hold their tongues or lose their heads.

And what prevents a sensible Keynesian from becoming a moderate Marxist at that 3% mark? If we exhaust our ability to ease the situation by bingeing on cash, we might have to finally think about where we put it and why, not just how much we print. Keynes' make-work predilection for purposes of recovery suggests a means of transfer that brings markets back into balance through the orderly movement of money into the hands of those who will spend it to meet their basic needs. You don't have to anticipate violent revolution to take an interest in healthy distribution.

Now you can all shun the evil economist for being "political". Go ahead. I can take it.:-)

Troy Camplin writes:

I'm surprised you're not talking about the fact that the Fed just printed up $1 trillion. Whatever the Fed and Treasury may be led by, it's not "sensible Keynesians." Just Keynesians. I'm really looking forward to the massive inflation coming up.

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