I’ve been enjoying Brad Delong’s agro for a while. Luigi Zingale is a very smart guy with some interesting proposals. I’m reading an excellent article of his right now on “The Future of Securities Regulation“. But Delong is not impressed with his line that ‘we have a banking crisis, so we should be fixing that, rather than expanding demand’. Delong’s argument has been to agree that we have a banking crisis, indeed in an earlier post the crisis took four of his five points, with falling spending being the fifth one – the one that brought the need for stimulus into play.
Anyway, in a long and (so it seems to me) accurately argued subsequent post, Delong concludes. . .
Thus, as best as I can tell, Luigi Zingales’s argument comes in four steps:
- Our problem is in the banking system.
- Keynesian deficit spending will not fix the banking system.
- Keynesians say that even though Keynesian deficit spending will not fix the banking system, it will keep unemployment from rising much higher while we do other things to fix the banking system.
- The weakness of this Keynesian argument is–LOOK!! THERE IS HALLEY’S COMET!!!!