A reply on the Freefall

I personally appreciate Stiglitz's work and ideas but I think there is a fundamental logical flaw in his reasoning. I haven't read the book yet, so please forgive me if I am commenting based on Matteo's comment and review.

As a Keynesian, Stiglitz believes in public stimulus and governments, but then his book demolishes two government's work by saying that it was ineffective and blatantly wrong. Note that I perfectly share his analysis. But then, for me this is enough of an argument to claim that there should be less stimulus. Or in other words, because I do not trust governments, if we cannot get a good package of public policies (aimed at alleviating the sufferings of the poorest and unemployed) then better save the money (BTW where the hell is this money (800 billion) gone?).

The problem is that Stiglitz's premise is that we should have more stimulus (because, honey, if G increases we know that Y will go up and U go down). So basically what should become a conclusion, is in his reasoning an assumption (we need a stimulus to avoid unemployment to surge). I guess he is perfectly aware of this logical inconsistency, but in assence of a counterfactual (what would have happened without the stimulus), he and Obama are both safe.

So let me argue that the wrong stimulus has even more detrimental macro effects. According to John Taylor the stimulus didn't work and the small rebound at the end of 2009 was mainly due to private (not public!) investments. Well, assuming that monetary policy works as people at the FED and ECB think it should, I trust Scott Sumner when he argues that monetary policy will most likely crowd-out or off-set fiscal policy. We now have an extraordinary combination of expansionary fiscal and monetary policy, two policies which are both likely to fuel inflation expectations. Because monetary policy is all about taming inflation expectations, central banks will strongly react and increase interest rates. So much for forecasts.

Be it as it may, I am more of a new-keynesian than a new-classical. But as you know, there is new-keynesian (http://gregmankiw.blogspot.com/) and new-keynesian (http://krugman.blogs.nytimes.com/).
A. B.