Stimulus Dangers

I look forward to reading the longer publication as I didn't think this was very convincing. I'm surprised Don puts so much emphasis on the reported correlation as we are given almost no info about it. Was the difference in policy and bubble quantitatively significant (or statistically for that matter)? Were the countries similar in other ways besides policy regime?

Also, it is under theorized. Taylor's capitalists are so easily fooled by small changes in the fed funds rate. A fed funds rate 1% too low causes both "excessive risk taking" and modeling errors in loan underwritting. I see little justification. Wouldn't it seem strange if such easily fooled agents seemlessly added government debt into their expectations for present value of future taxes? Such myopic agents vastly opens the policy space, if you believe his paradigm.

Russ alluded to what I think most about in this crisis and with regard to such explanations in his econtalk interview with John Cochrane. Government intervention is usually thought of as "a rock in a river" where the free market accepts its constraints and flows around it. When blaming a major crisis on gov't, I think you have to directly confront this paradigm and explain why it didn't hold true. Otherwise, it just sounds like ex post theorizing. Economics is really short on persuasive theories of gov't causing this short of crisis. Hayek had one, but the agents have to be so myopic that they can be consistently fooled, not understanding the differences between real and nominal, that it's been unconvincing to mainstream thus far.

Charlie

Revised: I also now believe, so long as the government is spending money, that there are no costs, only benefits. Of course, this does fall under free lunch but I like the sound of it better.