• By
  • Phil Izzo

A roundup of economic news from around the Web.

Hysterical Economy: Laurence J. Kotlikoff says policymakers mistakes are holding back the U.S. economy. “A ‘self-fulfilling recession’ is a long-established idea in economics. This column argues that the US’s economic malaise continues to be caused by leaders’ hysteria rather than by actual engrained economic problems. Obama and Congress need to stop scaring the nation about the ‘fiscal cliff’ because, ultimately, they are coordinating expectations on there being a recession. Tackling the right policies now, and sending out the right message, will help more than hysteria.”


Fed Arguments: Brad DeLong points to good and bad arguments against the Fed’s balance-sheet expansion. A good argument: “Blanchard 1994: A large central-bank balance sheet–or a large national debt–may make central-bank claims of the low inflation target incredible. If inflation expectations lose their anchor, then the central bank may have to push the unemployment rate up above its natural rate and keep it there in order to attain its inflation target.” A bad argument: “The central bank will expand its balance sheet by buying assets when they are high, and when it normalizes its balance sheet it will have to sell assets when their prices are low. Thus the central bank will lose money. The appropriate response to this is: so what? A central bank is not a profit-making institution.”

Compiled by Phil Izzo