Legal Commentary

Why We Are Condemned To A Lost Economic Decade

By Big Tent Democrat

Now that actual effective economic policy for our current economic conditions (fiscal stimulus) is off the table, a lot of Center Leftists are focusing on the Fed. But as Paul Krugman explains, while more Fed action can't hurt, it simply won't do the job of steering the economy back to health:

I wanted and still want fiscal expansion because it’s relatively certain in its effect: if the government goes and buys a trillion dollars’ worth of stuff, that will create a lot of jobs. [. . .] The truth is that it’s very hard for central banks to get traction in a zero-rate world. This doesn’t mean that [the Fed] shouldn’t try. [. . .] I didn’t and don’t think that we can count on monetary policy to do the job; blithely declaring that the Fed should target nominal GDP misses the difficulties. And that means we need fiscal policy.

Of course, at this point, with the loss of political will, it looks as if we’re going to see an attempt to do the trick with quantitative easing alone. I hope it works, but I wouldn’t bet on it.

Two points - actually there is no information I know of that in fact the Fed is going to expand quantitative easing. So I think Krugman is optimistic that there will even be an attempt. More importantly, it simply will not work. The policy that WILL work, fiscal stimulus, will not happen. So we're doomed to a Lost Decade. At least my children are young and may see better days when they reach employment age. We sure won't.

Speaking for me only

Full post as published by TalkLeft on October 06, 2010 (boomark / email).