Scott Sumner snarks:
TheMoneyIllusion: Suppose we picked on Paul Krugman or Brad DeLong. Then we’d dig up quotations from early 2009 insisting we needed fiscal stimulus because the Fed was out of ammunition, and from 2012 demanding that the Fed do more because a sluggish economy could put the barbarians back in power in November…. I’ve been 100% consistent from day one.
But he doesn't do the diving. Let's do the two minutes of work needed. We find things like… this: Brad DeLong: Kick-Starting Employment:
Unemployment is currently rising like a rocket, because businesses that normally would be expanding and hiring are not, and those businesses that would normally be contracting and shedding workers are doing so very rapidly. Businesses that ought to be expanding and hiring cannot, because the depressed general level of financial asset prices prevents them from borrowing money or selling bonds on profitable terms.
In response, central banks should purchase government bonds for cash in as large a quantity as needed to push their prices up as high as possible. Expensive government bonds will shift demand to mortgage or corporate bonds, pushing up their prices.
Even after central banks have pushed government bond prices as high as they can go, they should keep buying government bonds for cash, in the hope that people whose pockets are full of cash will spend more of it, and that this will directly pull people out of joblessness and into employment.
In addition, governments need to run extra-large deficits. Spending – whether by the United States government during World War II, following the Reagan tax cuts of 1981, by Silicon Valley during the late 1990’s, or by home buyers in America’s south and on its coasts in the 2000’s – boosts employment and reduces unemployment. And government spending is as good as anybody else’s.
Finally, governments should undertake additional measures to boost financial asset prices, and so make it easier for those firms that ought to be expanding and hiring to obtain finance on terms that allow them to expand and hire. It is this point that brings us to US Treasury Secretary Timothy Geithner’s plan to take about $465 billion of government money, combine it with $35 billion of private-sector money, and use it to buy up risky financial assets…. The appearance of an extra $500 billion in demand for risky assets will reduce the quantity of risky assets that other private investors will have to hold…. With higher financial asset prices, those firms that ought to be expanding and hiring will be able to get money on more attractive terms.
The problem is that the Geithner Plan appears to me to be too small – between one-eight and one-half of what it needs to be. Even though the US government is doing other things as well –fiscal stimulus, quantitative easing, and other uses of bailout funds – it is not doing everything it should…
Doesn't say what Scott said it would say, does it? Doesn't say that the government should do expansionary fiscal policy because the Fed is out of ammunition, does it? Says, rather, that the government should do everything--fiscal, monetary, and banking policy.
