Live from the Republicans' Self-Made Gehenna: WATCH: This 10 Minute Elizabeth Warren Speech Needs To Be Played On Repeat Through November::
Critics... well, probably better to call them "friends" have pointed out to me that last summer I didn't spend enough time linking to Dan Kervick's and Matt Brunig's contributions to the Piketty debate. I remember reading them at the time. And I cannot figure out why I didn't focus more on them--save probably because both seemed to me to be thinking along the lines I was thinking along, I didn't think that there was much new there. But usually I am anxious to promote people saying things that I think are smart and right, so it is a puzzle...
Five years ago, there was a near-complete consensus that aggregate demand management was the exclusive province of central banks and their conventional open-market operations. Problems of legislative process of implementation meant that fiscal policy worked more slowly than conventional monetary policy. Even should an economy find itself in a liquidity trap, whatever that means, credible commitments by central banks to hit future nominal spending and nominal exchange rate targets still seemed to dominate fiscal policy.
Today because we are in a depressed economy we think differently. Or do we? How differently do we think, and why?
Suggestions that we should move away from exclusive reliance on central banks and conventional open-market operations in a liquidity trap have three possible justifications:
Readings from David Romer and Christina Romer: Econ 134: Macroeconomic Policy from the Great Depression to the Great Recession:
April 3. Professor David Romer: Monetary Policy at the Zero Lower Bound:
David Romer (2012), Short-Run Fluctuations (open access, 2012), Section IV, "The Liquidity Trap." http://www.econ.berkeley.edu/~dromer/index.shtml
Ben S. Bernanke (2000), "Japanese Monetary Policy: A Case of Self-Induced Paralysis?" in Ryoichi Mikitani and Adam S. Posen, eds., Japan's Financial Crisis and Its Parallels to U.S. Experience, pp. 149-166 (Washington, D.C.: Institute for International Economics). http://www.princeton.edu/~pkrugman/bernanke_paralysis.pdf
Joseph Gagnon, Matthew Raskin, Julie Remache, and Brian Sack (2011), "The Financial Market Effects of the Federal Reserve's Large-Scale Asset Purchases," International Journal of Central Banking 7 (March 2011): pp. 3-25 and pp. 38-40 only. http://www.ijcb.org/journal/ijcb11q1a1.pdf
Peter Temin and Barrie A. Wigmore (1990), "The End of One Big Deflation," Explorations in Economic History 27 (October 1990): pp. 483-502. http://www.sciencedirect.com/science/journal/00144983/27
Lloyd Metzler (1951). "Wealth, Saving, and the Rate of Interest". Journal of Political Economy 59:2 (April), pp. 93-116 http://www.jstor.org/stable/1825743
Gauti Eggertson and Michael Woodford (2002). "The Zero Bound on Interest Rates and Optimal Monetary Policy". Brookings Papers on Economic Activity 2002:1 (Spring), pp 139-211 http://www.ny.frb.org/research/economists/eggertsson/BrookingsPaper.pdf
Gabriel Chodorow-Reich, Laura Feiveson, Zachary Liscow, and William Gui Woolston (2011). "Does State Fiscal Relief During Recessions Increase Employment? Evidence from the American Recovery and Reinvestment Act". Berkeley: U.C. Berkeley (August) http://econgrads.berkeley.edu/gabecr/files/2011/05/Does-State-Fiscal-Relief-During-Recessions-Increase-Employment-August-20114.pdf
Jan Hazius and Sven Jari Stehn (2011). "The Case for a Nominal GDP Level Target". Goldman Sachs U.S. Economic Analyst 11/41 (October 14) http://delong.typepad.com/1014wkly.pdf
Christina D. Romer (2011). "What Do We Know About the Effects of Fiscal Policy? Separating Evidence From Ideology". Berkeley: U.C. Berkeley (November 7) http://www.econ.berkeley.edu/~cromer/Written%20Version%20of%20Effects%20of%20Fiscal%20Policy.pdf
"I now know it is a rising, not a setting, sun" --Benjamin Franklin, 1787