by Calculated Risk on 9/24/2012 06:18:00 PM
Monday, September 24, 2012
This is an excellent followup to Josh Lehner's post (and the graph I posted) earlier today showing that the US recovery is doing better than most recoveries following a financial crisis.
From Tim Duy at EconomistsView: Excuses Not To Do More. Duy discusses Reinhart and Rogoff and excerpts from a piece by Ezra Klein:
...if you look at the leaked memo that the Obama administration was using when they constructed their stimulus, you’ll find, on page 10 and 11, a list of prominent economists the administration consulted as to the proper size for the stimulus package. And there, on page 11, is Rogoff, with a recommendation of “$1 trillion over two years” — which is actually larger than the American Recovery and Reinvestment Act. So if they’d been following Rogoff’s advice, the initial stimulus would have been even bigger — not nonexistent.Then Duy added this update:
As for Reinhart, I asked her about this for a retrospective I did on the Obama administration’s economic policy. “The initial policy of monetary and fiscal stimulus really made a huge difference,” she told me. “I would tattoo that on my forehead. The output decline we had was peanuts compared to the output decline we would otherwise have had in a crisis like this. That isn’t fully appreciated.”
Update: I notice some Twitter chatter of surprise that Rogoff was not completely opposed to fiscal stimulus (I thought everyone read Ezra Klein).The key point here is that short term stimulus, in a depressed economy, can actually reduce the long term deficit.