Paul responds

Karl Smith, if I understand him, thinks that I should refrain from pointing out how foolish and destructive foolishly destructive ideas have been, and offer the proponents of these ideas a face-saving exit.

Chris Dillow, via Mark Thoma, explains why this is wrong. Dillow points out that Labour is responding with incredible lameness to the Cameron austerity agenda, even as this agenda fails, because it allowed Cameron to shift the Overton Window, so that only varying degrees of austerity are considered “responsible”

I’m trying to shift that window back, both by relegitimizing Keynes and by delivering ridicule where ridicule is due. And I think I’m making progress.

I appreciate the point. I really do. Where we may part ways is on how successful this strategy has been.

A somewhat separate point though: its still not clear to me why a policy of supermassive tax cuts would not have worked. If we care about people this seems like way to get the most bang. Forget the buck, Treasuries have negative real yields.

At the recessions outset I led with: complete suspension of the payroll tax, 100% depreciation in year 1 and open ended loans to state governments. I still don’t see how this wouldn’t have been better than what we got and more politically palatable.

Looking back I would have done even more. I would have probably lopped 50K off of AGI for singles and 100K for couples. And, I would have written it just like that – which though it might have gone unnoticed by the press, every need based formula based on AGI would suddenly get triggered for people much further up the income scale.

As I see it failure to do push this was just as much a failing of Very Serious Syndrome as anything Paul points to.

Larry Summers said, Temporary, Timely and Targeted. But, that is the completely wrong perspective. It should be overwhelmingly huge, indiscriminately flung and completely open ended.

This is because the loss function is not symmetrical. The goal is not to get the right answer but the optimal outcome. Which means you throw as much as you can, as fast as you can in the general vicinity of the problem.

Ironically,  it was Larry who made this click for me when I heard him repeat the aphorism: If you never miss a flight, you’re getting to the airport too early.

With a loss function this asymmetric if you don’t overwhelmingly expect to look back and think “Man, we spent way too much money” then you aren’t spending nearly enough.