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Apologies if I'm missing it, but I don't get a clear statement of your views on the appropriate reaction to the credit crunch / recession from all those links. Do you advocate:

(a) No discretionary fiscal stimulus
(b) No discretionary fiscal stiumlus and no automatic stabilisers (i.e. automatically more spending and less taxation)
(c) No stimulus, no stabilisers, no quantitative easing, no cut in interest rates
(d) No stimuls, stabilisers, QE, interest rate cuts, or any other kind of monetary policy
(e) Moralising about how 'more of the same' doesn't fix problems
(f) Something else?

Also, do you think, in line with your Barro quote on WW2 defence expenditures, that fiscal stimulus has a 'multiplier' of slightly less than 1, or zero, or what?


Thanks Jim, here's a partial answer to your questions.

I think I've been pretty clear over the last few years that I do not favour fiscal stimuli and that I think we should shift the debate away from monetary policy and towards monetary regimes. I also think it's pretty clear that I favour free markets generally, and see no reason why this shouldn't also apply to banking.


Thanks. On the whole "It's moronic to demand that someone has a Plan B before they criticise Plan A" point, that's not quite what I'm saying. Lots of people are eager to be told things like 'Quantitative easing is a load of bollocks' for various reasons, including those who think it's all about throwing money at bankers and those who just want their political prejudices confirmed. So they like reading that kind of article on CiF. But many readers probably also think that the government should have other policy options to exercise in the face of a credit crunch or sharp economic downturn, such as fiscal stimulus or interest rate cuts. And they might be surprised to hear that your preferred response is, if I've got this right, to more or less do nothing (Again, if you have been this clear somewhere and I've missed it, apologies).

So I'm not saying that you have to be 'for' something to be against something else, but that you should at least be clear what you're against (which seems to be a lot, when it comes to government policy), or else people might draw the wrong conclusions from your critiques of one policy, ie that there is a 'positive' alternative you just don't have space to fill them in on right now.

On a broader point, I've seen a *huge* amount of negative comment from various libertarian / Austrian on all sorts of government policy responses to the recession, but it has largely been of the form 'I hate quantitative easing' or 'I hate fiscal stimulus' or 'I hate fiscal stimulus in the form of spending', and very little of it has been of the form 'Here is what I think government should do or not do, and here is what I think the consequences are likely to be'. In short, if libertarians or Austrians really think that the proper government response to a sharp and deep economic downturn is to sit back, relax and wait for things to sort themselves out (I may be paraphrasing slightly), they should come out and say so.


I've added a bit to that other post to try to explain myself a bit better, but in the main I agree with what you're saying.


Keynes died in 1946.

He never got to comment about how much sense redesigning cars year after year did not make when everyone knew WWII planes could do 400 mph.

Modern economists don't say how much has been lost in Demand Side Depreciation due to planned obsolescence since 1946 so trying to blame Keynes for anything now is totally ridiculous. Don't economists have enough computing power to do the calculations? Keynes never had any electronic help.


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