raghu wrote: >> Instead of fixing a dollar figure for quantitative easing, they could >> aim for a specific inflation target. Krugman and even people like >> Mankiw and Rogoff have argued for a temporarily higher inflation >> target of 4-5%.
Doug: > That would be utterly meaningless. How could you get inflation to 4-5% with > the economy this weak? right. Private fixed non-residential investment is blocked by a combination of extreme unused capacity and pessimism (and to a smaller extent, excessive debt), so that most firms are simply piling up profits. Residential investment is blocked by a glut of unsold housing and a paucity of consumer demand. Consumer expenditure is blocked by the depressed prices of housing and other assets (401ks, etc.), excessive consumer indebtedness, and pessimism (if not fear). That means that private spending does not respond much if at all to low real interest rates. (In jargon, the IS curve is vertical or so steep that only an extremely low real interest rates allows attainment of full employment: it intersects the horizontal axis far below potential output.) US net exports can be promoted by lowering the US$ (though not relative to the yuan), but that simply shifts demand away from US trading partners, encouraging recessions there. So expansionary fiscal policy -- a new stimulus program -- is called for. Not bloody likely, given the politics these days. Having yet another war would be an excuse (the standard one) for expansionary fiscal policy. Maybe some consumer debt forgiveness would help? Not bloody likely. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
