I've long had a side business snarking economists, more so recently. It's not that I claim any significant knowledge of the art - my snarks are usually limited to exploding silly assertions based on misinformation about systems about which I have some knowledge. Garbage in, garbage out. So, it's refreshing to read recent expressions of self doubt, and hard critcism of policy actions. Alex points to some policy criticism.

Practically every day the government launches a massively expensive new initiative to solve the problems that the last day's initiative did not. It is hard to discern any principles behind these actions. The lack of a coherent strategy has increased uncertainty and undermined the public's perception of the government's competence and trustworthiness.

Too true, and I expect that doubts about government competence will increase. Greg expresses some doubt about the principles that economists seem to have abandoned.

Many macroeconomists . . . are skeptical of the Keynesian model. And even among modern Keynesians, there is disagreement about specifics. I think it is fair to say that short-run business cycle theory remains one of least settled parts of economics. Any economist approaching the subject should bring an ample dose of humility. . .

here is the conclusion of Andrew Mountford and Harald Uhlig (a prominent econometrician now at the University of Chicago) in an empirical study called "What are the Effects of Fiscal Policy Shocks?":

Our main results are that

• a surprise deficit-financed tax cut is the best fiscal policy to stimulate the economy
• a deficit[-financed government] spending shock weakly stimulates the economy.
• government spending shocks crowd out both residential and non-residential investment without causing interest rates to rise.

These finding are not consistent with standard Keynesian theory, according to which government spending multipliers are larger than tax multipliers and crowding out occurs through increases in interest rates. . .

I am not sure how convinced I am by these findings. And even if they are correct, I am not sure what model I should use to explain them and to what extent that model would apply to the extraordinary economic circumstances we now face. At the very least, these puzzles should give us reason to pause when using the Keynesian framework for policy analysis. There is still a lot about macroeconomics that remains deeply puzzling.

My untutored expectation is that a surpise tax cut would clearly be the best stimulus. Bleeding society less when it is unwell seems like an obvious best practice. The difficult bit is the deficit-financed part. I would think that government should also shrink at such a time to reduce the deficit, though it isn't clear if this would at least partially undo the stimulus by reducing government purchases and payrolls.

The important bit seems to be that we need to be very suspicious of any grand claims by politicians and their potted economists because they are gamblers feverishly trying to chase back the losses from previous gambles, and we end up having to cover their bets. Their credit is exhausted. Cut them off. Send them to rehab.