What Do Economists Say?
The latest issue of BUSINESS WEEK nicely points out that highly respected scholars of the science of Economics famously disagree on how best to deal with the current crisis. Some are opposed to the stimulus package and feel the best and fastest way to get out of the mess is to let failed banks go under, and let market forces put things back in place. Others believe that only a really large stimulus package can get the economy moving again.
Needless to say, those who oppose the simulus package are usually of the Republican persuasion, and those who support it are of the Democratic persuasion.
Those opposed say that FDRs stimulus package actually prolonged the Great Depression. Those in favor say the Depression was prolonged because FDR started reducing the stimulus prematurely around the mid-1930s when he should have continued or enhanced it. They also point out that the Japanese "lost decade," the 1990s, was unnecessarily prolonged for the same reason, the Japanese pulled back on their stimulus package prematurely.
Among the economists who favor big stimulus are Nourani, from NYU, who actually predicted the worldwide collapse in all its detail months before it happened, and Krugman, from Princeton, a recent Nobel laureate, who has said recently that the early signs of a recovery are very weak and should not prompt a pullback in stimulus. In other words, we should not repeat the mistakes made by FDR in 1934-5, or by the Japanese in the mid-1990s.
Krugman has written a book, THE RETURN OF DEPRESSION ECONOMICS & THE CRISIS OF 2008, in which he details the seachanges in the socio-economic system we will undergo in the next decade or two.
I am not familiar in detail with the views of economists who are opposed to the stimulus package. All I know is that, as far as they are concerned, the best course of action is to do nothing. I would appreciate hearing from readers of this post who can say more about the views of economists who are opposed to the stimulus package, and how they see things would evolve if they had their way.