Inappropriate Stimulation


by Mario Rizzo


Paul Krugman continues to say on his blog that the fiscal stimulus was too small. After all, unemployment is rising quickly:


“[I]t’s rapidly becoming clear that yes, the plan was too small.”


Brad DeLong has also added his voice to the call for bigger stimulus, again largely because of the deteriorating employment picture. He also instructs those who disagree with him as to which objections to stimulus are reasonable. (The one I raise here is not included.)


However, Krugman and DeLong’s inferences are superficial. If we look more carefully at what is going on we see that macro stimulus is designed to hit precisely the wrong targets. The problem is not size but appropriateness. Continue reading