Over at the Washignton Center for Equitable Growth: The slides from the talks I was giving as 2008 turned into 2009. The huge hole in them is the lack on my part of any consideration of the possibility that we might not do what was necessary--that we might fail to use fiscal and banking policy on a large-enough scale to rebalance aggregate demand at full employment in a short-run of two to three years...
I simply assumed that the political and economic logic would work together: the political logic was that all incumbents of whatever party were at grave risk in the next election if unemployment was still high in 2010 and even more so in 2012, and that the economic logic behind using expansionary fiscal policy to get spending up to potential output was crystal-clear. I thought it obvious:
- that inflation was not a threat unless and until unemployment reproached its natural rate,
- that all economists recognized that even in a near-Ricardian world the multiplier on government purchases was near one in the absence of monetary-policy offset,
- that there would be no monetary-policy offset for a few years,
- that even deficit hawks would recognize that as long as long-term real interest rates stayed low the market was telling us that worrying about the projected future debt-to-GDP ratio was not appropriate.
These all seemed to me to be barely worth noting, or not even worth noting.
Silly me... READ MOAR