In an op-ed in the Washington Post Lawrence Summers make the case for a Keynesian fiscal stimulus of the economy:
Indeed, in the current circumstances the case for fiscal stimulus — policy actions that increase short-term deficits — is stronger than ever before in my professional lifetime. Unemployment is almost certain to increase — probably to the highest levels in a generation. Monetary policy has little scope to stimulate the economy given how low interest rates already are and the problems in the financial system. Global experience with economic downturns caused by financial distress suggests that while they are of uncertain depth, they are almost always of long duration.
My concern about this is along much same lines as I’ve mentioned in my previous post this morning. Doesn’t a Keynesian approach require us to run more surpluses than we have? In the absence of running surpluses in fat times we just increase the size of the debt and run the risk that debt service eats an ever-increasing proportion of the federal budget.
