Grigua's prayer

"Poor Keynes often sits with me at night after a good dinner and we rail against the world and the coming flood. And I tell him that this is the time for Grigua’s prayer (the Lord to come himself and not to send his Son, as this is not a time for children). And then we laugh, and behind the laughter is [Herbert] Hoover’s horrible picture of thirty million people who must die unless there is some great intervention. But then again we think that things are never really as bad as that; and something will turn up, and the worst will never be. And somehow all these phases of feeling are true and right in some sense..."

-South African politician Jan Christian Smuts on the atmosphere at Versailles

as quoted in Robert Skidelsky, John Maynard Keynes

(via DeLong)

It seems that we are at this point again, or nearly so. When we need more economic stimulus, the austerity crowd seems to be carrying the day. Look for a collapse in the economy this fall if this problem is not rectified. It's time to do a minimum of three things:

1. Extend unemployment insurance until unemployment drops to ~5%. Put the unemployment level trigger in the legislation so we don't have to go through this every few months.
2. Shove through a jobs bill for teachers, police, firemen and other state workers.
3. Keep dumping R&D money into renewable energy

These are the three highest return programs in ARRA, and the economic arguments for doing so are very basic and very clear. In concert with the further fiscal programs, the Fed needs to further expand its monetary policy by any means possible. The pain and austerity crowd must not carry the argument and the day, or we are all in for a world of trouble.

More: Ezra Klein lays out the permutations of stimulus now/balanced budgets later, and finds the Alesina case for austerity to be unconvincing.