Fiscal Policy
Question: What can Congress do to stimulate the economy?
The
Great Depression of the 1930s brought to prominence the economic theories and prescriptions
developed by John Maynard Keynes. His predecessors advocated an approach that let
sour economies heal themselves. When told that the economy would return to normal
in the long run, he said, "The long run is a misleading guide to current affairs.
In the long run we are all dead. Economists set themselves too easy, too useless
a task if in tempestuous seasons they can only tell us that when the storm is past
the ocean is flat again."
Fiscal policy is the province of Congress (with the usual approval of the President.) They can set government spending and tax policy. In calmer times economists argue that fiscal policy is a blunt, ill-timed, often poorly designed tool to manage the economy. We are not in calmer times, however, and the general economic consensus is that fiscal policy has a role in correcting our economic woes. We'll explore the theory and the practice behind fiscal policy, including the impact on budget deficits.
Economic Concepts We Will Cover
- Say's Law versus Keynesian economics
- Keynesian multiplier
- Automatic stabilizers
- Federal Budget - surpluses and deficits
- Impact of Federal budget deficit
Resources for More Information
- Wikipedia on Keynes
- A collection of posts in Greg Mankiw's blog about multipliers
- Paul Krugman - a fiscal hawk
- CBO Budget Projections
- Recovery.gov - Administration Web Site on stimulus spending