The Baseline Scenario

I am struck by the degree of consensus among mainstream economists about how to deal with the current recession. Greg Mankiw, Chairman of President Bush’s Council of Economic Advisors from 2003 to 2005, wrote a New York Times op-ed arguing for a Keynesian response to the recession – which is what Summers, Stiglitz, and all the other Democrats are calling for.

It’s also a wonderfully clear exposition of the challenge, considering in order the logical possibilities for increasing aggregate demand. Mankiw doesn’t quite come out and endorse an increase in government spending, although he does say it’s the only component that can plausibly be increased (as opposed to consumption, investment, and net exports). He holds out some hope for expansionary Federal Reserve policy. In any case, it’s a quick read and worth it.