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Thoughts Online Magazine
Collected Articles on Culture & Politics
What Happens When You Learn You're Not Right? 
14th-Dec-2009 07:27 am
Inspiration
In a fascinating article in the New York Times, N. Gregory Mankiw points out why the "stimulus bill" has failed so signally to help the economy recover: it's the wrong tool.

The results are striking. Successful stimulus relies almost entirely on cuts in business and income taxes. Failed stimulus relies mostly on increases in government spending.

All these findings suggest that conventional models leave something out. A clue as to what that might be can be found in a 2002 study by Olivier Blanchard and Roberto Perotti. (Mr. Perotti is a professor at Bocconi University in Milano, Italy; Mr. Blanchard is now chief economist at the International Monetary Fund.) They report that “both increases in taxes and increases in government spending have a strong negative effect on private investment spending. This effect is difficult to reconcile with Keynesian theory.”


Supply-siders, though, might be quick to pick up the justification offered, and investigate the academic and statistical underpinnings linked to in the article.

UPDATE: Corrected spelling of Bocconi University, added link to their website, thanks to fpb for pointing it out.
Comments 
14th-Dec-2009 04:13 pm (UTC)
It’s all in Hayek, all in Hayek: bless me, what do they teach them at these schools!
14th-Dec-2009 06:53 pm (UTC)
Why did the stimulus fail?

“...both increases in taxes and increases in government spending have a strong negative effect on private investment spending."

Duh!

I can't believe people still don't realize how things work or if they do that they continue behaving as if they didn't.
15th-Dec-2009 09:41 am (UTC)
BocciOni University, please.
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