Chicago economist Casey Mulligan on the "paradox of toil", stimulus, unemployment, Krugman, and liquidity trap.
The Marginal Revolution boys offer their thoughts here and here.
Sumner here.
And here's a link to Krugman's blog, where he has a number of posts on the topic.
Question for liquidity trap proponents: can the Fed actively buy debt (as oppose to passively inflate through zero interest rates), both private and public, to further increase the money supply? If so, would this make fiscal stimulation unnecessary?
Showing posts with label Liquidity Trap. Show all posts
Showing posts with label Liquidity Trap. Show all posts
Deficit Discussion/Clarification
Okay, so I read all of Rob's links concerning Krugman framing his liquidity trap/fiscal stimulus story. And Rob is right, he does frame the argument quite well. It seems I was speaking more out of my own incoherence than Krugman's failure to convey his ideas clearly.
So I propose we drop Murphy as I don't think he adds anything to the discussion (I regret the post) and ignore tax policy (at least for the time being) so we can focus on Krugman's deficit argument.
As I understand it, Krugman's premise is we are in a liquidity trap (interest rates = 0) so monetary policy is a gun without ammunition and fiscal policy needs to step in to make up for what the Fed and private sector can't/won't do. This can be done through tax cuts or increased spending. This is viewed as a short-term issue so it is assumed the deficit can be paid off in the long-run without signifcant inflationary costs. Also, tax cuts will be saved instead of used for investment or saving, and thus government must step in to do the spending. Ala, deficit spending is the best remedy for our current woes.
Rob, is this correct? I don't want to go any further unless I have basics of the story down.
So I propose we drop Murphy as I don't think he adds anything to the discussion (I regret the post) and ignore tax policy (at least for the time being) so we can focus on Krugman's deficit argument.
As I understand it, Krugman's premise is we are in a liquidity trap (interest rates = 0) so monetary policy is a gun without ammunition and fiscal policy needs to step in to make up for what the Fed and private sector can't/won't do. This can be done through tax cuts or increased spending. This is viewed as a short-term issue so it is assumed the deficit can be paid off in the long-run without signifcant inflationary costs. Also, tax cuts will be saved instead of used for investment or saving, and thus government must step in to do the spending. Ala, deficit spending is the best remedy for our current woes.
Rob, is this correct? I don't want to go any further unless I have basics of the story down.
Subscribe to:
Posts (Atom)
