Borrow and Hope

Posted by Deepish Thinker on July 25, 2009

Brad DeLong has come up with an interesting fiscal policy proposal (emphasis mine):

The fact is that the appropriate fiscal policy for the U.S, right now is to pass: (a) a bigger stimulus over the next two years, (b) a standby tax increase to return the federal budget to primary surplus by 2012, and (c) devout and lengthy prayers that confidence in the dollar doesn’t collapse and send interest rates on U.S. Treasuries above the economy’s growth rate–in which case the situation changes from its current value of “dire” to “catastrophic.”

I suspect we should be a little suspicious of any policy prescription that includes “devout and lengthy prayers” as a key component.  Particularly when the other components seem designed to create the problem that the devout and lengthy prayer is intended to prevent.

If I understand Brad’s view correctly, the government appears to have two options:

  1. Continue on the current path and endure an extended, painful recession.
  2. Spend like a drunk sailor on shore leave, in which case things will either get better or confidence in the dollar will collapse, interest rates will shoot up and the economy will fall apart (those of us with limited faith in the power of prayer to influence economic trends would call this gambling).

I don’t know about you, but I need a drink.