Econ 1: Fall 2010: Sample Midterm (Draft)
The New York Times Starts Liveblogging the Civil War

Ben Bernanke Could Fix the Economy Pretty Quickly

Paul Krugman:

The End Of Western Civilization: Gauti Eggertsson writes in to follow up on my piece on quantitative easing in the Great Depression. He points me to a 2008 paper (pdf) in which he shows that the coming of FDR, combined with America’s exit from the gold standard, was seen by markets as a huge regime change; it was, said FDR’s own budget director, “the end of Western civilization.”

This regime change immediately shifted expectations of future inflation, well before there was any actual surge in monetary base. That, rather than the quantitative easing per se, is how monetary policy — or more accurately, expectations of future monetary policy — gained some traction in the 30s liquidity trap.

Again, an important lesson — but how relevant is it to current circumstances? Bernanke, unfortunately, cannot convince people that he’s bringing the end of Western civilization.

Ben Bernanke could do the near-equivalent from the perspective of fixing the economy fairly rapidly: any moment he wishes, he could announce that he no longer think the Federal Reserve's inflation target should be 2% per year but rather 4% per year--and that he will strive to hit that target.

But he is not going to do anything like that anytime soon, is he?

Barack Obama: master of zero-dimensional chess...