Battlepanda: When all you have is a hammer


Always trying to figure things out with the minimum of bullshit and the maximum of belligerence.

Friday, February 08, 2008

When all you have is a hammer

I'm never completely sure when Alex Tabarrok is being serious, and when he's just trying to be provocative (or as my co-blogger puts it, "an ass"). So maybe the joke is on me for even responding to his recent post, in which he proposes that the best fiscal stimulus available would be - you guessed it - temporary marginal income tax cuts.

Now this completely flies in the face of the conventional view of the causes of recessions, as explained by Paul Krugman in Baby-Sitting the Economy. Recessions are a demand-side problem, which supply-side schemes like Prof. Tabarrok's can't fix.

Jim Henley puts it well in his response to Tabarrok.
First, here’s the thing about recessions: They don’t happen because people don’t feel like workin’. In fact, they create legions of people who would love to be working at all but can’t. For most of those who are still employed, their incomes are at best partially under their control: employer policy on raises, bonuses and overtime hours bulks larger than their immediate intention to earn more. In a recession, employers tighten up on all those things - that’s what makes it a recession.
Now, I'll be the first to admit that everything I've learned about macroeconomics I've learned by reading blogs, so I'd love to see a response from one of the professional macro bloggers out there. How do I activate the knzn signal?