Menzie Chinn at Econbrowser produces more light than heat in the discussion of the efficacy of fiscal policy in boosting the economy, examining five reasons that fiscal policy might be completely ineffective:
- With prices predetermined, the interest sensitivity of money demand is zero, or the income sensitivity of money demand is infinite.
- With prices predetermined, the interest sensitivity of investment or the sensitivity of net exports to interest rates are infinite.
- With prices predetermined, the sensitivity of money demand to wealth is high.
- Output is at full employment levels.
- Neo-Ricardian equivalence, as put forward by Barro, holds.
His post is a productive contribution to the dialogue; I urge you to read it in full.
The one contribution I would have is this: the burden of proof in any argument is on the affirmative. Demands that those who oppose the stimulus plan that’s been proposed prove it won’t work are a classic case of the fallacy of burden shifting.
Specifically, what I’d like to see from those who strongly support the stimulus plan is a prediction of how much growth will be produced in what timeframe by this plan and why.
Ah, how wonderfully French, treating a political initiative as if it were debate theory….