Eric Rasmusen On The Stimulus Package

Frum Forum has asked a group of free market economists to assess the stimulus ideas working their way through Congress. Which should Republicans favor? Which could we live with? Which should be opposed absolutely?

We will be posting replies as they come in.

Today we hear from Bruce Bartlett, Gregory Mankiw and Eric Rasmusen - affiliations listed at the end of each author's posting.

What the American economy urgently needs is not Keynesian stimulus, but reform of the capital and housing markets, particularly in the rating agencies, bank portfolios, and government encouragement of reckless lending. That is where the problem started, and where it might have remained-- with the mild recession of the first half of 2008-- if Presidents Bush and Obama had reassured the American public rather than predicting doom. Whether Keynesian stimulus works is an open question in economics, but it is fairly well settled that what governments implement is not the nonpolitical stimulus that professors recommend. The various Congressional proposals so far are not stimulus bills at all. They are a mix of special- interest tax cuts and pork barrel spending with a general-interest layer of tax cutting on top. It would be better not to try to use fiscal stimulus at all.

Eric B. Rasmusen is the Dan R. and Catherine M. Dalton Professor at the Kelley School of Business, Indiana University.