Politics and Economic Crisis

Here is an interesting argument posted by Nick Rowe in his blog. He is advocating automatic stablizers over an expansionary fiscal policy. I enjoy this bit:

It is hard to change things in politics, and people know this. If we need a temporary deficit, the right will argue for lower taxes, hoping that it might become permanent. The left will argue for higher government spending, hoping that it might become permanent. But then decisions about short-run fiscal policy get confused with decisions about long-run fiscal policy. What is best for short-run stabilisation might be very different from what is best for long-run fiscal policy. There is nothing inconsistent, for example, in a right-winger wanting low taxes and government expenditure on average, but arguing that government expenditure should be increased in a recession (to take advantage of good deals). Nor is there anything inconsistent in a left-winger wanting higher taxes and government expenditure on average, but arguing that taxes should be cut in a recession (because you can do it more quickly). But, if we are talking about discretionary changes in fiscal policy, which should be temporary but won't be, you won't hear either side making those arguments. Both sides want to work the political ratchet in their preferred long-run direction. When discussing automatic stabilisers, however, both sides would be forced to consider booms, as well as recessions. The right-winger who advocates tax cuts in recessions would be forced to advocate tax increases in booms. The left-winger who advocates spending increases in recessions would be forced to advocate spending cuts in booms....

At the very least, thinking of fiscal policy in terms of automatic stabilisers forces us to think symmetrically, and recognise the long-run government budget constraint. What is done in a recession must be undone in a boom. So don't argue for lower taxes as a cure for the current recession, unless you swear a solemn promise that you will argue for higher taxes when the economy is in a boom. And don't argue for higher government spending as a cure for the current recession, unless you swear a solemn promise that you will argue for lower government spending when the economy is in a boom.