Greg Mankiw delivers his policy recommendations. They include a payroll tax cut! Here's Mankiw on tax-cuts versus spending:
Some traditional Keynesians would object that government spending has a larger multiplier than tax cuts. Even though that is the prediction of standard Keynesian models, the evidence is not completely consistent with that conclusion, as I have discussed here in previous posts. In addition, given the lags inherent in large spending projects, and the risks inherent in hasty spending at the federal level, the case for taxes over spending as the fiscal instrument of choice is compelling. To me, at least.
And here's the takeaway:
None of this should be viewed as a substitute for fixing the banking system and trying to come up with a better process for homeowners and banks to work out mortgage loans in default. Housing and finance are the real sources of the macro problem. Any fiscal stimulus, such as the one I propose above, is only an attempt to mitigate the symptoms. Those symptoms are severe, so mitigation is fully appropriate. But fiscal policy is not a panacea for what now ails the economy.
Secretary Geithner is expected to announce the details of the Obama administration's bank rescue plan on Monday. The cost will be hundreds of billions of dollars. That is on top of what has been spent already in TARP money, on top of the stimulus package, and on top of the FY 2010 federal budget that the Obama administration has yet to deliver to Congress. We are talking trillions of dollars in spending at a time when federal revenues are sinking like a stone. Something's gotta give, no?