How to End the Recession

[Hellestal]

@BrightNShiny

I can’t tell if this is directed at me or not.

Just a general comment.

Economists bicker all the time about IS-LM, DSGE, and every single other tool in use to attempt to understand the economy as a whole. I’m just continuing in that hallowed tradition, just trying to say I’m not a huge fan of IS-LM because it’s easy to misunderstand. But I shouldn’t complain. There are plenty of worse models out there.

@BrightNShiny

I would be quite happy if the central banks could commit to unconventional monetary policy. But if they’re not going to do it, and we all know they’re not going to do it, then what tools are available?

From my perspective?

Making a big fuss for the next couple decades until the target is changed.

It helps to keep in mind the history of the Fed. When Johnson pushed, the Fed caved and printed too much. When Nixon pushed, the Fed caved and printed too much. Carter appointed Volcker, but when the screws started to tighten, Carter got cold feet and the Fed complied with the wishes of the president. Independent? Supposedly, but they always used to bend on command. Even when they shouldn’t have. For that reason, among others, the cult of the independent central bank really got its wind from the 80s, and nobody has pushed against them in the US since then.

Times have changed, I know, but we’re now in a situation where money is too tight, by nominal spending standards, and historically a pushy president always got what he wanted. I say to Obama, he should get his shoving gloves on.

@BrightNShiny

The question for me is what are the risks vs. the benefits of more debt. And at the level of debt/gdp that we have right now, I’m not just seeing huge risks for more debt. And if the debt is spent properly, we can see fairly significant short-term and long-term benefits to the economy. Of course, the risk is that it won’t be spent properly.

Short- and medium-term, I don’t see a lot of danger from more debt. I just see it as suboptimal, and it strikes me that convincing a single committee would be easier than convincing a large group of short-sighted legislators, whose chances of keeping their jobs would be higher if they continue blocking every position Obama proposes.

I don’t see any real hope on any path, but the Fed is the best bet, in my estimation, both economically and politically.

[smiling_bandit]

@Hellestal

Short- and medium-term, I don’t see a lot of danger from more debt.

I defintiely see more. While we’re not at Greece-level of trouble yet, we don’t want to go anywhere near that, and we’re cranking our debts very high right now. Is it a short0-term risk? No. But medium to loing term it could get ugly indeed.

I would be happier if the Fed took advantage of the low interests rates to funnel as much into long-term bonds as possibly, but I’m told they’re still favoring shprt-term bonds, which could backfire horribly.

[BrightNShiny]

[QUOTE=Hellestal]
From my perspective?

Making a big fuss for the next couple decades until the target is changed.

It helps to keep in mind the history of the Fed. When Johnson pushed, the Fed caved and printed too much. When Nixon pushed, the Fed caved and printed too much. Carter appointed Volcker, but when the screws started to tighten, Carter got cold feet and the Fed complied with the wishes of the president. Independent? Supposedly, but they always used to bend on command. Even when they shouldn’t have. For that reason, among others, the cult of the independent central bank really got its wind from the 80s, and nobody has pushed against them in the US since then.

Times have changed, I know, but we’re now in a situation where money is too tight, by nominal spending standards, and historically a pushy president always got what he wanted. I say to Obama, he should get his shoving gloves on.

Short- and medium-term, I don’t see a lot of danger from more debt. I just see it as suboptimal, and it strikes me that convincing a single committee would be easier than convincing a large group of short-sighted legislators, whose chances of keeping their jobs would be higher if they continue blocking every position Obama proposes.

I don’t see any real hope on any path, but the Fed is the best bet, in my estimation, both economically and politically.
[/QUOTE]

But if it takes a couple of decades for the Fed to move, then we’ve caused an unnecessary amount of pain in the meantime. I agree that we should be pressuring the Fed (and the Euros should be pressuring the ECB), but in the meantime, we shouldn’t just waste a generation of productivity. I fully support kicking the Fed around, but I think it’s best to attack this problem from a Keynesian angle as well, since the risks from additional debt right now are low.

Maybe we should try and get one of the less establishment politicos (Kucinich or Sanders or someone) to start introducing resolutions condemning the Fed and demanding looser monetary policy or something. That might make the Fed nervous enough to act.

Or, apparently the Treasury has the authority to print coins on its own, so Obama could take a page from the OP and start printing up $100 coins and mailing them out to everyone. Maybe if it gets close to election and his polls are bad, he might consider it.