Will stimulus plans lead to disaster?

In this video which was featured on Yahoo! Tech Ticker Peter Schiff of EuroPacific argues that any additional stimulation of the economy or bailout packages will actually exacerbate the situation rather than remedy it. The outcome of the current economy will perhaps decide once and for all who holds the keys to recovery, the Keynesians or the Austrians.

The Keynesian solutions were fine tuned post-fact and this is the first time since the 1930’s that the theory is getting a real life test, in watching the Davos Debates one interesting factor is that Austrian Economics seems to be getting an equal amount of airplay. Stephen S. Roach said at Davos that we need to get on with the ‘heavy lifting’ where the global rebalance occurs, current account deficit nations have to start saving while current account surplus nations need to spend, this is the inverse of what Keynesians would perscribe because under their guide countries like the USA (deficit nation) need to spend their way out of the crisis. Only time will tell which approach is the best.

Comments

  1. Marcus

    You reckon we’ll get much by way of positive spillovers if the stimulus package goes ahead? (assuming the ‘buy american’ thing fails…)

  2. Hi Marcus,

    It’s hard to say, we don’t really manufacture the things needed for the projects in the US – and those we do can be sourced there or in neighbouring countries.

    The upside is that it may well bring a general recovery, it may also bring some impressive inflation too though as the money supply increases, the money supply in the USA has almost doubled in the last year alone!

    on the ‘buy american’ idea it is utterly flawed and the kind of protectionism that is a throwback to the smoot hawley days
    economist has an article here: http://www.economist.com/finance/displaystory.cfm?story_id=12798595 (if that link doesn’t work let me know and i’ll email the story to you)

    Thanks for dropping by!
    karl

  3. Marcus

    Thanks for the link Karl. I thinking more of indirect effects that’d just boost exports (or at least prop them up!). Somehow doubt we’ll be looking at protectionism though – People can’t be trying that hard to make things worse! (Though I can hear the taxi drivers trying from where I sit!)

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