Am I the New Face of Keynesianism?

Fri, 17 Oct 2008 12:36:52 +0000

Probably not. Nor am I the kid who just likes to pull fire alarms, at least according to the taxonomy of approaches to financial and economic contractions Brad DeLong provided in his excellent commentary in the Guardian yesterday, "From Plan A to Plan G." He traces the steps that the government has taken to stabilize the economy as both financial and real activity have slipped. Plans F and G are defined as:

It was time for Plan F. If the prospect of buying up mortgage-backed securities did not boost asset prices and bring banks enough investment profits to create confidence that they were not all going bankrupt next month, governments could invest public money in the banks whether they liked it or not, thus making them so well-capitalised that their failure would be inconceivable.

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If Plan F fails, we move to Plan G: we pull the Keynesian fire alarm and begin an enormous government infrastructure building programme in the whole North Atlantic to keep away depression.

But can I say that I was Keynesian before Keynesian was cool? Or maybe post-neo-Keynesian before the term was coined? If you've got the time, go back to my Washington Post op-ed from January (and my Ripon Forum article from February) and consider the prescriptions. To paraphrase:

  1. Stop using debt to boost private and public sector consumption of things we don't need.
  2. If you are going to use debt, use it on things we do need, like public infrastructure repair, maintenance, and investment.
  3. Even if you use debt, set up your budget so that those who benefit from the expenditures pay off the debt in a timely manner.

Had we started this 9 months ago, we would be well on our way to Plan G right now. All of the people who were chanting "timely, temporary, and targeted" were suggesting that what DeLong has labeled Plan G wouldn't work then because it would take too long. Guess what? If we had gone to Plan G immediately, the 2nd Quarter might have shown negative growth and we would have declared the recession already. But we wouldn't have wasted $150 billion from the first stimulus package, and right now, we'd have a large number of projects coming on line at -- wait for it -- exactly the moment when the economy most needs them.

So I'll say it again, in a new context. Plan G is a better use of $700 billion than Plan F. Pick the right letter. Buy stuff you need, not stuff you don't. Shop wisely.