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David Brooks and Risk Tolerance

By Anonymous

David Brooks writes:

When investors in New York become gripped by fear, they pull inward. When Washingtonians are gripped by fear, they rush outward, with bigger and more daring plans. The risk tolerance in the financial world has shrunk to zero, but the risk tolerance in the political world has risen to infinity.

No, David. Bigger plans mean that politicians are becoming more risk averse. Fiscal prudence in the face of plummeting aggregate demand is significantly riskier than fiscal expansion. The bigger the fiscal stimulus, the less the economy will suffer in the short-term. And letting the banking system fail is the riskiest strategy of all, as we learned in the 1930s.

And yet Brooks is still regarded as an "intellectual" Republican. Go figure.

Full post as published by Economics of Contempt on December 12, 2008 (boomark / email).