At one of many recent roundtables on “the crisis” a well-known historian called upon economists to abandon the gods of their profession. If only there were still such gods. There are not even clearly defined schools of thought. A typical discussion will consist of a series of overlapping points of view, leaving the innocent listener at best “confused at a higher level”. What follows is an attempt to outline the main issues. It is inevitably subjective and selective.

The first issue is that of an economic stimulus. A recession is usually defined as a period of low spending leading to a decline in output and employment. Thus the case for an offsetting boost to spending, whether of a fiscal or monetary kind, might seem obvious. The main problems would then be how large it should be, and if and when to run it off. But opponents of a stimulus have surpassed themselves in ingenious objections. They say that people will save rather than spend any tax cuts because of justified fears of a later reversal, and that government spending will be too late. Above all they fear ballooning budget deficits on which more anon. On the monetary policy side there are the somewhat contradictory objections that it is impotent once short-term interest rates approach zero and that it stokes up future inflation.