Saturday, December 12, 2009

Sumner on Macro Double Standards

Scott Sumner, who has quickly filled the void left by Willem Buiter as my favorite macro blogger, is angry about the terms in which the economics community has been framing the potential benefits of monetary and fiscal policies. The idea here is that no one (until lately) has seriously considered the potential for expansionary monetary policy. This is largely due to the fact that the Fed has had interest rates near the zero bound. I don't follow all of Sumner's views, such as his insistence that the Fed target NGDP, but the idea that monetary policy has no potential seems spurious. As Sumner points out, long as interest is being charged on deposits at the central bank, there is still some wiggle-room. Charging negative interest on these deposits is a start.

I find the left's attraction to a second fiscal stimulus weird. I recently read (I think on Delong's blog, of all places) that only about 50% of the previous stimulus' funds have been spent. Wait it out! I'm no deficit hawk, but more fiscal expansion when the first fiscal stimulus hasn't totally worn off is too much of a good thing. I hope that Sumner's ideas get even more momentum and that monetary ease is strongly considered.

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