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Julia Wilson

Barry Eichengreen’s “Confronting the Fiscal Bogeyman” demonstrates how fiscal and monetary policy are both necessary for our economy. Though we have discussed that in the long-run, the economy can self-correct, Keynes points out that “in the long run, we are all dead” which demonstrates the need for stabilization policy to expedite the correction back to the point of potential output. Eichengreen points out that monetary policy was initially used to correct the sinking world economy by decreasing interest rates. This would hopefully lead to more investment spending, the key to long-term growth, and also open up more jobs (which could lead to more consumer spending). As Eichengreen explains, interest rates could not fall much further without hurting banks; therefore, fiscal policy is necessary too. Government could choose to borrow for investments in society (such as education), or the government could choose to cut taxes in order to increase consumer spending. Although as we have mentioned in class, while a tax cut would mean more money for consumers, they could chose to use the money to pay off debts, rather than spend it. Either way, I think this article does a great job of arguing why both monetary and fiscal policy are necessary for the well-being of our economy.

Additionally, this article brings up an interesting psychological point: Why is that budget deficits have such a negative connotation? Budget deficits occur when government spending exceeds tax revenue. Government spending may stimulate the economy, so it interesting that the Germans, for example, have such an aversion to running a deficit. I found this quote from the article particularly interesting: “Adherence to this doctrine prevented postwar German policymakers from being tempted by excesses like those of Hitler and Stalin... The ordoliberal emphasis on personal responsibility fostered an unreasoning hostility to the idea that actions that are individually responsible do not automatically produce desirable aggregate outcomes. In other words, it rendered Germans allergic to macroeconomics.” This suggests that aggregate demand is not always positively affected by individual decisions… Sometimes the government may need to step in with policy in order to get the economy back to potential output.

Devin Kearns

I once watched a TED talk about government spending and its impact on the market. Essentially, the TED talk deduced that the government is the by far the number one investor in education and technology for both the private and public sector. The government has financially backed multiple ventures that brought jobs and innovation to society so I find it interesting that some economist believe the government should spend more. In order for the deficit to decrease the government needs to either generate more revenue from taxes, spend less, or spend frugally. I recommend the third option. This article offers suggestions on how to fix the financial problems of the country but in my amateur opinion I think the author is wrong. I think the government effectively supports the market as much as it should for a free market economy. However, the government could allocate money in a way that is conducive to long-run growth and stability.

I would like to know how and who the government borrows money from. I know China is a huge investor in our economy but where else does the government borrow money and are there ways for the government to generate more cash globally?

Jack Boyce

In his article “Confronting the Fiscal Boogeyman”, Barry Eichengreen discusses the world economy and how it is slowly fading in to an abyss of failure and approaching ways to find a solution. According to the article, fiscal policy is all that is left as the last line of defense and central banks are the key to getting out of the decline. While this is may be the case, these banks have lowered interest rates are at all-time lows and foreign banks have negative rates, yet the economy is still not expanding the way it was supposed to. These negative rates, which were supposed to implement growth in the economy, have begun to negatively affect the banking industry, as they can no longer make a profit or pass off their debts with the prolonged negative interest rates. Eichengreen believe that the answer to the problem is straightforward and involved an increase in governmental spending on the public sector, and invest in research, education, and infrastructure. This would lead to the private sector’s willingness to invest, as they would be making a profit and could take on additional projects, as Eichengreen describes. He follows this idea with opinion of how it is disturbing that world governments are unwilling to attempt this and refers to the interesting concept of “ordoliberalism” as a reason why. A concept used by the Germans and Russians after World War II that limited governmental influence on the economy to enforce contracts and keeping a competitive market, “ordoliberalism” was used to stop excesses, like those of Hitler and Stalin. This concept led to major costs and hyperinflation, which is why it is not logical to follow this concept in society today. The world economy is in peril and with the slowed economies in the United States and Europe and economic failures in Asia, the world needs to find a solutions to its issues, and these solutions may be found in fiscal policy and pubic spending.

Alex Shields

Barry Eichengreen argues in his article "Confronting the Fiscal Bogeyman" that the United States should look to fiscal policy in order to address the present sluggish economy. He states that monetary policy options have since been exhausted and it will take an increase in government spending in order to see an improvement in both the US and the world economy. Brad DeLong may have been correct in his Huffington Post article "Future Economists Will Probably Call This Decade the 'Longest Depression'" in saying that the potential solution may be found in "politics and ideology" rather than in economics. As much as that may be true, the problems preventing that solution also can be found within politics and ideology.

Eichengreen is correct in stating that government spending must be investment spending, such as education, infrastructure or technology. However, there are significant concerns as well that can go with this policy. Eichengreen complains about fiscal responsibility and while there are politicians that are over-protective of any federal spending increase (the author was correct to name Ted Cruz as an example), the majority of concerns about fiscal responsibility do not lie in objections over investment spending; most people would agree that spending on technology, infrastructure, and education are very important. The concern lies in the ever-growing amount of mandatory spending, spending that generally cannot be considered investment spending compared to discretionary spending which is where important government spending can be found. With this trend continuing, the government is faced with three options: a) Maintain discretionary spending and allow an already massive deficit to continue to grow, b) cut discretionary spending at the amount that mandatory spending is growing so to maintain the present deficit, or c) control or cut down on mandatory spending to allow discretionary spending to grow. Unfortunately, the political arguments between the left and the right only seem to favor arguments a or b, with Republicans supporting option b and democrats supporting option a, simply because option c is viewed as too difficult or, more likely, too dangerous for the longevity of politician’s political careers. The results are negative in both cases with option a seeing an increasingly ballooning federal deficit and option b seeing a deep cut in important investment spending. This is creating a gridlock that is preventing true, impactful fiscal policy from being implemented. In order to see impactful fiscal policy, the government and politicians must look to cut down on mandatory spending in order to pass increased discretionary spending all while maintaining a safe federal deficit.

Caroline Birdrow

As did the article by Professor DeLong, “Confronting the Fiscal Bogeyman” touches upon the controversy between political ideology and logical economic policy and upon the issue of monetary vs. fiscal policy. Before reading this article, I had not known that Germany also faces this ideological struggle, and I found this to be very interesting. However, it did seem that Germans may have had more of a reason to reject fiscal policy: past hyperinflation. Americans, on the other hand, never experienced hyperinflation, but many still oppose heavy government interference with the economy. This again sparks my interest in learning more about why political ideology often is not compatible with economy theories. Eichengreen did point to a partial answer when he described Southern resistance to government intervention during Lyndon B. Johnson’s presidency. Perhaps, Eichengreen claims, Southerners wanted to protect their rights to segregation and, in turn, rejected opposing government policies.

Eichengreen also touches about the fine line between expectation and reality when he provides background on the lowering of the interest rates which was intended to increase consumer demand and spending. The policy did not have the desired effect, as consumers easily could save their money at home and likely would, given the dismal state of the economy (also demonstrating the paradox of thrift). So while Eichengreen is arguing for increased government spending, one does have to wonder if this actually would help the economy or if another issue would surface, as in the case of the lowered interest rates.

Guilherme Baldresca

Barry Eichengreen's article advocates for a shift in world governments' efforts to restart the global economy away from a loose monetary policy and toward the more traditional countercyclical government deficit spending policy. Writing about the G-20's meeting, he says: "...all that emerged from the meeting was an anodyne statement about pursuing structural reforms and avoiding beggar-thy-neighbor policies." I disagree with his dismissal of the importance of structural reforms to restart the global economy. Several countries, in Europe and in emerging markets, are in dire need of deep structural reforms to strengthen the financial system and ease trade and business-doing. The only way a countercyclical measure by the government to expand the economy would have the long-lasting effects he hopes for "Productive public investment would also enhance the returns on private investment, encouraging firms to undertake additional projects.", would be if those structural reforms are made to facilitate private firms's investment. Latin American countries, for example, suffer from excessive bureaucracy and terrible property rights. European countries, on the other hand, suffer in many cases from excessive, unnecessary regulation and excessive taxation. The type of expanded government investment that Eichengreen is advocating for can only be effective, without simply creating a plethora of "white elephants", if those structural reforms he mocks in the beginning of his article are made.

John Broderick

I think that the idea of pushing money towards education and other public goods will definitely do good for the economy. As we have spoken in multiple classes the public works jobs during the "Great Recession"helped a great deal. This will put more money into the economy while giving many people jobs. Public works projects are very good for the economy in the short term. In the long term I think that the push for education would be a great idea because it is also an investment in human capital, that will allow for greater returns to the economy in the future. With this all of this spending it is quite possible that a good amount of it may go to waste so I believe that here must be careful eye placed on where the money is going.

The negative rates in banking have do have potential to stir up the market and force people to invest in different things. However, this could lead to risky trades being done, and lead to more complex problems. Therefore I think that the author definitely has some credibility when he talks about how the simple solution is public spending. From our formula for the GDP government plays a large role. With the capability of putting hundreds of billions of dollars into the economy, it would enable it to get back on its feet again and spur some growth. This would then be followed by the positive effects of the investment in education, providing much more human capital to the economy, again causing it to grow.

Andrew Agrippina

Barry Eichengreen explains that with the world economy shrinking, everyone is focusing on monetary policy. So much so, that they've nearly exhausted the extent to what they can do - interest rates are going lower and lower, and negative interest rates are becoming more common. This may help in a pinch, but is detrimental to the banking system as a whole. This leaves the economic world at a bit of an impasse. Eichengreen, however, proposes the solution of increasing public spending. Putting money towards research, education, and infrastructure. This would boost returns on private investment, and improve human capital.
However, the U.S. and Germany don't even consider this option, largely due to ideological conflicts.
I was surprised that there not more legitimate reasons the U.S. was not undertaking increased public spending. As Prof. Casey pointed out in class, many psychological/sociological studies have proven incredible returns on investment for improving a child's Pre-K education. How can the government not see the fiscal benefits to this, if anything?
I hope to see our country move in this direction.

Jim Grant

Eichengreen in his article, “Confronting the Fiscal Bogeyman” argues firmly that in order for the economy stabilize banks need to stop saving and boost public spending. Since the interest rates are so low and are approaching negative quantities, Eichengreen believes the best option to pursue would be for the government to borrow money to invest in research, education, and infrastructure. This economic situation mirrors the conditions in Japan that we looked at earlier this year. The German government however sticks to “ordoliberalism” and refuses to interfere too much in the workings of the economy. Eichengreen’s arguments points out the problem that countries like the USA and Germany have with depending too much on history and personal bias to make economic decisions. The last time the German government took on a huge boost to public spending was when Hitler was in power. The German economy had experienced one of the, if not the worst case, of inflation seen by a developed country in the modern era. They focused on the improvements this article mentioned: education, infrastructure, research and more. As a result, Germany over the course of a couple years dropped from 6 million unemployed to merely 1 million. Hitler put the country back on its feet by creating jobs and increasing spending. Germany today most likely fears repeating the mistakes of the past so they are hesitant to repeat the policies of an almost totalitarian state (when these policies were put into place it wasn’t quite totalitarian yet). I believe Eichengreen is correct that Germany (and the USA) should invest in public spending in order to create jobs. Unemployment as we have proven is cyclical and the government can help that process by creating jobs and spurring the economy.


Eichengreen comments that with the failure of monetary policy and a low aggregate demand, a raise in government spending will help bring the demand curve back up. He also states that governments should invest in infrastructure, education, and private investment. This could be effective and wouldn’t be very expensive because interest rates are very low so the government would be able to take this investment. Also, by investing in education, this will not only bring the aggregate demand curve back to potential output in the short run, but it will also push the long run aggregate supply curve outward, thus increasing potential output which will benefit society. Eichengreen shows how fiscal policy can be necessary for the economy depending on the current state of the economy. He also comments on how deficits have such a negative connotation within citizens. If the economy is in a recessionary gap, then wouldn’t a budget deficit be beneficial since that would result in the increase of government spending so as to bring the aggregate demand curve back up? On another note, if the government does decide to invest as Eichengreen suggests, where do they borrow their money from? China? The Federal Reserve Bank?

Jack Miller

Ryan McDonnell

I think that although there are other ways to attempt to stimulate the economy, as shown by the stimulus plan of 2009, the best way is indeed to execute public spending on research, education, and infrastructure, as Eichengreen states. It is just important that the money actually produces results, because these days it seems like many projects to improve those three economic factors fail even with a lot of money at hand. WE must be diligent about researching the best ways to spend the money, because while it is bad to fear economic intervention from the government, we must also be able to put our trust in the government to invest in research, education, and infrastructure in a way that optimizes the benefit of society. I think that the collective input of unbiased leaders of education, infrastructures, and research is an important ingredient for the process, and will help reduce all of the political noise and bias surrounding those facets of the economy.

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