Economics Quiz of the Day


summers test.jpgMy colleague Sherle Schwenninger occasionally prods our team with a provocative “quiz of the day”. I thought I’d share this interesting one.

Which brilliant economist in early 2008 wrote the following?
“Fiscal stimulus, to be maximally effective, must be clearly and credibly temporary–with no significant adverse impact on the deficit for more than a year or so after implementation. Otherwise it risks being counterproductive by raising the spectre of enlarged future deficits pushing up longer term interest rates and undermining confidence and longer term growth prospects…
How large should a program be? I depends on what else is done to help the economy…But a $50-$74bn package implemented over two to three quarters would provide about 1 percent of gross domestic product in stimulus over the period of its implementation….This seems large enough to take some burden off monetary policy and yet unlikely, if properly implemented, to risk substantial damage if the economy proves stronger than expected.”
The winner of the Quiz of the Day will be announced at 5 PM.

Mankiw? Hubbard? Geithner?
No, Larry Summers.
The quote is from Lawrence Summers’ Financial Times piece on January 6, 2008, entitled “Why America Must Have A Fiscal Stimulus.”
A couple of things jump out at me. First of all, George Soros has often said that if he is right that a “super bubble” burst during the recent financial crisis then the tools and approach deployed by Summers and Geithner — who approached the problem conventionally — would fail.
Secondly, the level of stimulus to move the US economy now seems pathetically trivial compared to the low-economic multiplier drain of $100 billion per year spent on Afghanistan.
— Steve Clemons


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