Grasping Reality on TypePad, by Brad DeLong

Hoisted from the Archives from 2013: Contra Raghu Rajan: Economic Stimulus Has Not Failed, It Has Not Been Tried (on a Large Enough Scale): "Back in 2007 I would have said that every macroeconomist who has done any homework at all believes that coordinated monetary and fiscal expansion together increase at least the flow of nominal GDP. Now comes the very smart Raghu Rajan to say, apparently, not so.... From my perspective... Raghu is... saying that if we were to undertake more aggressive coordinated monetary and fiscal expansion we would hit the inflation wall sooner than I think likely--that the difficulties of retraining and readjustment mean that the division of the increase in the flow of spending would soon shift to 100% inflation, 0% extra production. Perhaps it will. But we have not gotten there yet. We are still in a world where the flow of nominal GDP in the North Atlantic is some six percentage points below its pre-2008 trend. Fix that trend of nominal GDP first via coordinated monetary and fiscal expansion, and then we will examine the division at the margin of PY into P and Y, and talk…...