Friday, December 5, 2008

Economists Debate Stimulus Plan

Le Monde solicits the reactions of economists to Sarko's stimulus plan. Jean-Paul Fitoussi is generally pleased. Philippe Aghion is more critical. He thinks the boost to firms to encourage investment will not do the job in the absence of a boost to households to push consumption. He neglects, however, the problem that households may choose to save rather than spend, or may choose to spend on foreign-produced goods, which does nothing to help French employment. He also ignores the accelerated funding of public-works projects, which will channel wages to households that may then spend. Still, the implicit basis of his critique, that the size of the stimulus to investment is probably too small to compensate the anticipated fall in output, is echoed by other economists cited in the piece, one of whom suggests that there had better be a stimulus plan B already in the works.

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