Another Nobel Prize winner - one who actually understands the difference between the savings equals investment identity and behavioral relationships - for fiscal stimulus. This is slightly dated, it's from October 2008, but it's not stale yet:
Paul Samuelson: Financial crisis work of 'fiendish monsters', by Kiyoshi Okonogi, Asahi Shimbun: With the financial crisis that started in the United States triggering a global recession, Asahi Shimbun Senior Staff Writer Kiyoshi Okonogi interviewed distinguished American economist Paul Samuelson for his insights on what the world can expect in the days and weeks ahead. ... Following are excerpts:
Question: The current global financial crisis is said to be the worst since the Great Depression. What is your view?
Answer: I think it is definitely the worst crisis since the 1929-1939 Great Depression, both in America and globally, and I think it was an unnecessary breakdown as there was no need for America to have a meltdown.
When George W. Bush became president in 2001, he inherited a country with quite sound (fundamentals) from President Bill Clinton with an overbalanced budget.
Now this does not mean that there were not problems ahead ... (there had been problems) ever since 1981 when President Ronald Reagan took office.
He was not a bad movie star but he brought into power a swing to the right. This is what we call "extreme right, supply side economics." And, from 1981 we trace the acceleration of the huge yearly balance-of-payments deficit of the United States, which is still going on ... . If you come back 10 years from now we will still have a very serious problem. ... [S]ome time, whether it is eight years from now or 12 years from now, there will be probably a big run against the dollar and probably a disorderly run against the dollar. ...
Bush worst U.S. president in over 200 years
Q: How much of an impact will the global financial crisis have on the Nov. 4 elections in the United States?
A: ...George Bush will go down in the history books as the worst president that America has had in more than 200 years. And, that couldn't have happened if the voters had not moved to the right.
Now, aside from economics, which is my specialty ... President (Lyndon Baines) Johnson introduced Civil Rights ... equality in the law for black Americans. Immediately, all of the Democrats in the solid South moved to the Republican Party and that's part of the reason that for most of the last 28 years, since Ronald Reagan came to power, the Democrats have been the minority party.
I think after November that will change and it will change for two quite different reasons, both very important.
One is the Iraq war, which is a disaster. It's as bad as the Vietnam War and the Vietnam War entangled four or five presidents and there was no victory...
But the other reason is because people on Main Street in America are hurting. The reason they're hurting goes back to 1995 when Alan Greenspan, as the chairman of the Federal Reserve Board, made no efforts to curb the stock market bubble.
So the American electorate is very unhappy. Free trade and globalization add to world productivity. It also adds to the potential standard of living of many people, but unequally.
So, if Bush had been as wise as Clinton, you still would have from free trade a worsening of the situation of the lower middle-classes compared to the upper middle-classes and the very rich.
Adding to that, we had what Bush called "compassionate conservatism," which is generous to millionaires and helping to make them billionaires. The trouble is, it is ungenerous to people below the middle. ...
Fiendish Frankenstein monsters
Q: What is the major cause of the economic fiasco?
A: The whole history of capitalism has had up-bubbles in real estate and down-bubbles after something different. This time the new fiendish Frankenstein monsters of financial engineering blinded the eyes and the minds of everybody.
The CEOs and the chief financial officers are the most surprised people. Nobody learned any lesson from Long-Term Capital Management. And what happens with this "new financial engineering" is an incredible "super over-leveraging" and you don't even know you're doing it. You know, it's as if you've been blindfolded. And nobody learned any lesson from that. ...
And this all could happen only because Bush, with his "compassionate capitalism" appointed incompetent people. The head of the Securities and Exchange Commission said I'm going to run a "kinder and gentler SEC." What did that mean to everybody? Reach for it. Nobody is going to penalize you.
Q: So you're referring to the situation with less supervisory regulation?
A: Deregulated capitalism is a fragile flower bound to commit self-suicide.
Q: You have experienced and studied the Great Depression. What is the difference between the Great Depression and the current financial crisis?
A: Well, the present one in America is still primarily a Wall Street phenomenon. But right behind that is going to be a Main Street downturn, because all of the swollen population, aged 50 to 65, have lost from these subprime ridiculous mortgages.
They've lost much of what they're going to need to retire. And when I say "lost," it's not something that the government can stuff back in. It's gone. And, it all traces to bad deregulation, to incompetent appointments, to conflict-of-interests appointments.
Harvey Pitt, the first head of the SEC for George W. Bush was a lawyer to the four big accounting firms. The four big accounting firms do not deal from an honest deck of cards. They have tricks to keep things off the balance sheet and so forth. And, these are the new fiendish Frankenstein monsters (laughter).
Q: We saw so many bubbles burst in the 1980s, including the IT bubble, and now the housing bubble has burst. Why do you think the latest one is so serious? Is this a new crisis peculiar to the era of globalization?
A: This is a new crisis because if you look at its bottom it says, "Made in America" (laughter). It's not Thailand. It's not Mexico. It's not Argentina. It's America. And, of course, it spread from there. Could you believe that the whole country of Iceland is bankrupt? Icelanders were the happiest people two years ago. They're the unhappiest people today.
What ended the Great Depression in Germany and in America? Deficit spending. ...
When I was a freshman at the University of Chicago, I was a good student. I got good grades and I had great teachers ... Frank Knight (1885-1972), Paul Douglas (1892-1976) and so forth.
However, everything I was taught and I read disagreed with what I saw outside the window of the university. At least one-third of the population had no jobs at all. It was exactly the same story in Germany. In 1933, Franklin Roosevelt gained power. Herbert Hoover was as unpopular as George W. Bush is.
Adolf Hitler came to power in Germany. Hitler spent money endlessly preparing for a war of revenge and that ended the big unemployment in Germany by 1939. The same thing happened in the United States under Franklin Roosevelt ... through public works expenditures, through the agricultural support programs. ... So it was not the central bank (that helped ease the recession). ...
More deficit spending
Q: I wonder if we will experience a second Great Depression. Or, will we see just a worldwide recession?
A: Rome was not built in one day, and Franklin Roosevelt did not get full employment. It took about seven years. Now I don't say it'll take seven years this time, but it won't be done with a balanced budget and it won't be done with "inflation targeting."
Q: If I understand you correctly, you are saying that in the end spending policy by the U.S. government could help turn the situation around?
A: That's what saved capitalism in the 1930s. It also did in Germany. Franklin Roosevelt brought unemployment down from one-third to less than one-tenth when there was no war or threat.
It was by PWA (Public Works Administration) and WPA (Works Progress Administration). Franklin Roosevelt, for more than seven years helped people ... handouts, rescues.
Q: What should be the appropriate spending policy this time around?
A: ...I don't know whether your roads, whether your railroads are or are not in need of new things. ... If you're very foolish you will spend where the lobbyists want you to, like building bridges to nowhere. But there are plenty of things, from windmills to nuclear plants, that are useful and worth spending money on.
Spending in the direction of the poor part of the population (is important) because those are the people who are most likely to re-spend. If you primarily spend in the direction of your millionaires, that won't make any difference.