Monday, July 5, 2010

Confidence!

Krugman brought up something that has been bothering me for a while. In short, fans of more stimulus (Keynsians/liberals) make their argument in the terms of "people aren't spending money in large part because they don't have any. The Feds can step in and inject money into the economy to make up for a lack in private demand, helping companies recover and start hiring again." The people who are in favor of austerity coach their arguments in terms of what policies will increase or decrease confidence among consumers. I have a dim view of the economic intelligence/rationality of the average American, so unsurprisingly, these arguments don't do much for me.

The argument "give people who are struggling a job/unemployment benefits and they will spend more money" makes more sense to me than "stimulus now creates a specter of higher taxes in the future and people will hoard cash in anticipation of that nebulous date." So I guess you can call me a Keynsian. It's aggregate demand, stupid.

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