Monday, November 30, 2009

Thorstein on Bradford DeLong's Semi-Daily Journal...

The problem is that Obama has listened too much to Larry Summers, who is a deficit hawk, and who was never really a full believer in Keynesian prescriptions... He thought things should be left more to central bankers. And so went w/ a small stimulus. Here's the thing: this might not have been so bad but for a Fed which is perfectly content with 1.4% inflation and 9.7% unemployment. And but for Macroeconomists like Alan Blinder who call this "hitting the bulls-eye".

To which I'll add -- although I think Obama's stimulus was too small, had Thorstein Veblen been President, I might have only proposed a stimulus of $925 billion or $975 billion. Our current Macro situation wouldn't be that much different. But had I been Fed Chairman, I would not have shrunk the balance sheet from January into March. I would have started buying buying long-term Treasuries in November rather than March, and I would have bought $3 trillion rather than $300 billion. I'd have printed money until it obscured the sun. I'd have pumped money into the system until... until we have actual employment growth or inflation. What is the logic of stopping when we have neither? (And for all those who are worried that once the economy does rebound, we'll have to deal with the problem of having all this excess money floating around, I say, once there is a strong recovery, that money can be taken out, and banks' reserve requirements need to be increased anyway, why not do it while there's a trillion sitting around in excess reserves anyway?)

But I digress. The main point is that Ben Bernanke is God, not Larry Summers. Had Summers done more, who can say that the yahoos at the Fed wouldn't have done even less? And when Ben "inflation-fighter-extraordinaire" Bernanke talks to Macroeconomists outside the Fed, such as Alan "Ben,-you're-hitting-nuthin'-but-bulls-eyes" Blinder, what kind of a message is he getting? Is anyone telling him he's messing up, save a few fringe bloggers like Ryan Avent? That's not clear to me.

1 comment:

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