Tuesday, November 11, 2008

Is bigger better?

Paul Krugman thinks so.

My advice to the Obama people is to figure out how much help they think the economy needs, then add 50 percent. ...

I'm not sure we've got the academics to put their finger directly on what the problem is, unless "general economic weakness" is sufficient.

For instance, "the problem" during the 1930s was a broken banking system and a restrictive monetary policy, as much as anything.

Today, we have what imbalances, exactly, that need to be worked through?

So, my completely presumptuous advice to the academics is also simple, but twofold:

For the sake of robust solution prescription, imagine that you are wrong (perhaps because 'the problem', to which you have not specified a particular solution, goes on a LOT longer than you expect at the outset) and that the markets, at their harshest, come to believe all your efforts are limited and temporary.

Then figure out what legacy you would like to have left, in that instance, from your early actions and follow-on actions.

It'd be more than some re-paved roads, re-built bridges, and some relief programs, yes? It'd have to be a lot more than "rebuild the military", right?

It would have to be some "true improvements", measured one way or another, right? I'll leave that open-ended, because I've already voiced some ideas and don't want to end the list with just those.

For the second part:
Consider afterward that you are "wrong" in the other direction, that the 'imbalances' move more quickly than expect to resolution and the market consensus is that your efforts are sufficient and

Then, figure out how to tailor your approach (perhaps involving public-private partnership?), so that you are not over-extended, from the outset, or so that you share the outcome(s) with other stakeholders.
Put another way, the government need not go-it-alone. Risk sharing helps. There may be other ideas about how to scale back projects or work on a list of projects, some of which may be canceled.

Whatever the case, simply throwing money at the problem could be - could be - a recipe to become, as Japan did, the Italy of the East.

Just as a side note: those people who complain about a hidden "big government" in Paul's writings. Paul just proposed a massive, long-term re-investment in capitalism, didn't he?

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