Monday, October 25, 2010

Fiscal Policy: Addendum to "Christina Romer..."

My thought for this morning is that, in recent memory, the United States has not embarked on a fiscal program that asked sacrifice from anyone. Politicians either tell us that we can tax the very rich to solve the problem, so don't worry about it, or we can cut benefits to the very poor, so don't worry about that either. Some economists tell us that there is a Keynesian free lunch that cures recessions, and we don't really need to be concerned with the future consequences of higher deficits today. Maybe we're not very good at marketing pain, or sharing it.


  1. I think the problem is just one: Keynesian solutions are...good for people (you know, fiscal stymulus = more jobs blablabla)...good for people so good for if you wanna be popular, you have to be Keynesian -.-" that's all...

  2. Have you heard anyone say "there is no free lunch?"

  3. Alesina and Drazen had a paper about 20 years ago, called "Why Are Fiscal Stabilizations Delayed"? Roughly, the nature of political institutions is a key determinant in their model. So Britain, with its relatively unified parliamentary system and first-past-the-post elections can act more like a social welfare maximizer. But the US with its more fragmented system and gridlock cannot agree how to share the pain of fiscal stabilization.
    Also, countries with greater fragmentation are more likely to resort to inflation tax.


  4. Anonymous,

    Yes, Canada did a major fiscal reform in the 1990s with a majority government, which is certainly consistent with that.