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| The President's Chair of Economic Advisors defends Deficits |
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| Written by Giles Wilkes |
| Thursday, 02 July 2009 13:05 |
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As I commented last week, Christine Romer, key Obama advisor, has defended deficits in a recession and warns against consolidating too soon. You may also be familiar with the work of Greg Mankiw, a conservative economist, now frequently warning in his mildmannered way against public healthcare, but also on the lookout for dangerous fiscal deficits, and sceptical about their ability to boost economic growth. Mark Thoma finds a speech from the Chair of the Council of Economic Advisers to the President, which defends running a deficit when there are strong economic headwinds:
Spot on. But the Chair of the Council in question is Greg Mankiw in 2003, not Keynesian Christine in 2009. Seems that when the deficits come from tax cuts largely enjoyed by the rich, conservative economists can more easily believe in 'very conventional short-run stabilization policy: You can find it in all of the leading textbooks.' If high interest rates were not the problem in 2003, I fail to see how they could be now. The next time we have a major structural deficit, it will probably come from a right-leaning government cutting taxes too far. Things move in cycles - perhaps the next mistake will be overestimating the positive Laffer-effects from cutting high marginal taxes (though, for the record, I agree with this rather good explanation of the elasticity effects of the 50p rate from none other than Fraser Nelson. Scrapping this band will not cost much money. Where I doubt we agree is on replacing it with other forms of wealth tax). |
| Last Updated ( Thursday, 02 July 2009 14:29 ) |



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