When the government relieves an excess demand for liquid money by printing up cash and swapping it out for government bonds, we call that expansionary monetary policy. When the government relieves an excess demand for bonds by printing up more Treasuries and selling them to finance its own purchases of goods and services, we call that expansionary fiscal policy. And when it prints up cash and bonds and swaps them for risky private financial assets, or when it guarantees private assets and so raises the supply of high-quality and reduces the supply of low-quality bonds, we call that banking policy.I suppose Brad DeLong knew he was addressing readers well versed in the discipline--after all, this is in the Financial Times where he was arguing in favor of expansion. Still ...
Compare this with how Niall Ferguson writes against:
deficits are being run at a time when the US is heavily reliant on foreign lenders, not least its rising strategic rival China (which holds 11 per cent of US Treasuries in public hands); at a time when economies are open, so American stimulus can end up benefiting Chinese exporters; and at a time when there is much under-utilised capacity, so that deflation is a bigger threat than inflation.So, can we kind of settle this debate on whether or not a "surge" is in order to fight the economic slump? How about a third economist, with equally impressive credentials--Kenneth Rogoff?
much of the world is going to be facing huge macroeconomic uncertainty for years to come. There is uncertainty about regulation, sovereign debt, the state of our banking and healthcare systems as well as about political fallout from the financial crisis. In this environment, measures to gradually stabilise debt burdens – to restore normality – surely make sense. If things turn radically worse for a sustained period, then yes, absolutely, further action will be necessary. But until then, a panicked government fiscal surge is far more likely to destabilise the nascent recovery than to nurture it.So, there you have it. No wonder then that President Truman asked for a one-handed economist!
One can also easily then see why there are endless discussions in the Senate, where mis- and ill-informed parade about. And worse, outside, like this populist leader who wants to refudiate everything :)
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