He praises a European deal which he characterizes as fiscal hawkishness and monetary dovishness. I'm much more of a deficit hawk than I think a lot of people realize - it's simply that the full extent of my blogging career has occurred during a terrible depression where hawkishness is unnecessary at best and untenable at worst.
But there is one part of Mankiw's logic that I really don't like. He writes: "My more liberal friends argue, based on Keynesian principles, that we need dovish fiscal policy as well. They sometimes argue for short-run fiscal expansion coupled with long-run fiscal contraction. The problem is that fiscal policymakers cannot bind their future selves. It is hard to make commitments to future fiscal contraction credible, especially as short-run actions expand the budget deficit."
This is true, but any short-run fiscal expansion is not what's going to threaten the long-run situation. If we learned ANYTHING from early 2009 it's that fiscal stimulus is not something that Congress gets addicted to. What Congress gets addicted to is long-term, creeping imbalances. That's the hard thing to ween Congress off of, not big $750 billion packages. The $750 billion packages are easily lambasted on the campaign trail, so politicians don't like them. The subtle imbalances that grow debt over long periods of time do not raise as many hackles on the campaign trail (and the blame for these imbalances can be pawned off on someone else).
Mankiw is too skiddish about short-run stimulus. We should be pushing Congress as hard as we possibly can to do this because if we succeed it's not like they're going to get an appetite for it again. Three years after the $750 billion stimulus it's like pulling teeth to get them to pass a $450 billion jobs bill, half of which is composed of stuff that was already planned! They are not going to get addicted to these short-run packages, so the risks to our fiscal position are minor.
What you need is to give politicians cover on the campaign trail, which is why the sensible thing for Obama to have done over the summer is precisely what Christina Romer suggested he do: propose entitlement reform that addresses the long-term budget problem along with more short-term fiscal stimulus. I'm no politician - I don't know how this would work out exactly. One would hope entitlement reform would give conservatives cover on the stimulus and fiscal stimulus would give liberals cover on Medicare and Social Security. Maybe it sours the pot for both of them and nobody will bite. What I do know is that it's at least worth trying. It's far better than what we're doing now - nothing on the short-term fiscal stimulus front and nothing on the long-term debt problem.
Multipliers: What We Should Have Known
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