COWEN GETS ON BOARD: THE PUBLIC HAS LOST FAITH IN GOVERNMENT i’ve been harping o

http://www.nytimes.com/2012/06/17/business/broken-trust-takes-time-to-mend-economic-view.htmlTYLER COWEN GETS ON BOARD: THE PUBLIC HAS LOST FAITH IN GOVERNMENT

i’ve been harping on this for the past few years, particularly on Krugman’s, Mark Thoma’s and Karl Smith’s blogs (the left). I don’t think it’s going to change any time soon. It’s good to see a prominent economist getting on board.

MY argument has been that the Keynesians are right in that increasing demand will work to stimulate the economy, but that people will not tolerate government spending because of the perceived cost of the expansion of invasive, and often privileged, government.

As such, rather than offer spending solutions (as does Krugman) the answer is to suggest programs in monetary policy, fiscal policy, industrial policy and education policy, so that all sides get what they want without the expansion of the state. Only this method will work. The conservatives (in my view, rightly) will block anything else, and they have the voter support to block spending programs.

As far back as 2006, I suggested that the power grid was the most important structural investment that we could make that would both generate a large number of jobs and provide a reasonable return on the investment. I suggested paying down mortgages directly as the most important vehicle for creating stimulus. I agreed with Karl Smith that we should give an extended tax holiday and borrow at such low rates to pay for it. And among other things, I suggested various forms of industrial policy, particularly technology bonuses for achieving strategic investment objectives. I recommended either privatizing education using a voucher system or eliminating the DofEd and giving principles hire and fire authority and the ability to experiment. These factors would create enough stimulus to move the economy. But more importantly, these kinds of spending do not expand the state, or favor urban voters at the expense of suburban and rural voters.

At the very least the conversation would be productive, commercially and socially engaging.

But the keynesians actually block it by harping on the spending tactic exclusively.