The Taylor Rule

by Jonathan Chait | August 12, 2011

Jackie Calmes has a good story in today's New York Times describing the near-consensus among economists that we should be increasing short-term deficits in order to stimulate (or at least not deflate) consumer demand, while reducing long-term deficits. This prescription runs directly against the grain of the policies advanced by House Republicans:

The boasts of Congressional Republicans about their cost-cutting victories are ringing hollow to some well-known economists, financial analysts and corporate leaders, including some Republicans, who are expressing increasing alarm over Washington’s new austerity. ...
macroeconomists and private sector forecasters were warning that the direction in which the new House Republican majority had pushed the White House and Congress this year — for immediate spending cuts, no further stimulus measures and no tax increases, ever — was the wrong one for addressing the nation’s two main ills, a weak economy now and projections of unsustainably high federal debt in coming years.
Instead, these critics say, Washington should be focusing on stimulating the economy in the near term to induce people to spend money and create jobs, while simultaneously settling on a long-term plan for spending reductions and tax increases to take effect only after the economy recovers.

Calmes proceeds to note, correctly, that the consensus is not absolute:

Of course, Republicans can point to support among some conservative economists.

When I read that sentence, I thought to myself, "John Taylor." John Taylor, as I've written, is the GOP's go-to economist, the man who will lend his prestige to whatever position they hold, and he's been willing to do this even as the Republican position has changed dramatically. And sure enough:

John B. Taylor, a professor at Stanford and an adviser to Republicans presidents and presidential candidates, said in an interview that temporary stimulus measures were counterproductive, and for long-term debt reduction, “I would try very hard to make it work without revenues.”

Let me make a prediction: If Republicans win the White House, they will discover the need to run up short-term deficits in order to boost demand. They won't do it the way Democrats would -- there will be a lot of goodies for rich people -- but they'll do it. And John Taylor will be there to support them.

Source URL: http://www.newrepublic.com//blog/jonathan-chait/93588/the-taylor-rule