I don’t expect you to be convinced – I’m just stating a point of view 😉

Unemployment is rising sharply true, and that is a concern – as it suggests that the labour market isn’t clearing.

On the inflation side this is cooling – but not to the degree you would expect with the GIANT output gap that is being suggested.

Furthermore, of course I believe a situation exists where government should come in and just try to stimulate activity. If the output gap is that massive – then there is a ton of spare capacity that the government could use cheaply, and private industry is scared to use. But, is that the case?

“What’s the worst-case scenario for implementing a fiscal stimulus now really?”

The fact that it misallocates resources reducing social welfare – the goal of policy is to maximise social welfare overtime isn’t it, not GDP in the next quarter …

Just because output is falling doesn’t mean the government needs to do something – that is not the default position. If output is falling we need to identify why, and whether government can actually help in the situation. Doing this requires a lot of faith in potential output forecasts – forecasts I don’t believe.

The best econometric evidence seems to suggest that you get a more than 1 for 1 bang out of fiscal stimulus. What’s the worst-case scenario for implementing a fiscal stimulus now really? Inflation would be a boon in the current environment.

I wouldn’t call that the conclusion – if you had listened to the advice on my blog you probably would have lost some money over the past year 🙁

However, I find the paradox of thrift story just a bit fishy – I think it misses the point of what is the “appropriate” counter-factual. Of course, I could easily be completely wrong again 😉