Tyler Cowen starts the conversation which is good, because I wanted to go there.

I’ll have much more to say later but wanted to address a few quick things

Still, any given dollar must be spent somehow and “the stimulus model” and “the long-term investment model” are indeed competing visions for the allocation of resources.  Think of it as having to choose a rate of discount for evaluating expenditures.  I say choose the low discount rate, which of course still may justify those forms of stimulus with long-term payoffs.

This keys off a lot of things, including Rajan’s opening suggestion that the prevailing rate of interest was too low and was not providing the right incentives to save.

However, importantly, if the marginal rate of return exceeds the rate of interest there is no limit to how many dollars we can profitably spend. To paraphrase a former Princeton professor, the US government possesses a technology known as the printing press which allows it to produce dollars at essentially zero cost.

What costs us is the use of real resources. Yet, we have real resources sitting on the couch watching daytime talk shows. If we have profitable means of deploying them, then by all means we should. And, we should keep doing so until we run out.

Addendum: As I a side note, I do apologize for flipping out, though if it helps foster a key discussion then I am glad about that.

To explain – though not – justify myself I’ll note that after I finished reading the piece I literally did a search for the word “price.” It came up only twice, both in relation to oil. At that point I hit the roof.

Addendum II: I can’t go deeply into this right now, but just so as not leave the wrong impression, its not immediately clear to me why the long term investment model and the stimulus model are competing visions. My regular readers know that I have an natural affinity towards lower interest rates and tax cuts as stimulus, as they require little to no efforts at central planning. However, I am not utterly adverse to some central plan that Tyler might have in mind.

About these ads