 monetary stimulus, although some big names like Joe Stiglitz expressed opposition to QE2. Most consider it worth a shot. But it’s also true that in policy circles there is almost zero awareness among liberals that monetary policy can be highly effective at the zero bound. That was Johnleemk’s point. And I continue to insist that this is due to the extremely misleading advice provided by people like Krugman and DeLong. Consider their recent suggestions that the Cameron government needs a more expansionary fiscal policy. That recommendation makes no sense, because if Britain needs more AD then Cameron could simply tell the BOE to raise its inflation target. So what aren’t people like Krugman focusing on the need for Cameron to raise the inflation target? (Or better yet NGDPLT.) If they do fiscal stimulus, and the BOE keeps the inflation target at 2%, then it might end up sabotaging the stimulus. With a higher inflation target they wouldn’t need fiscal stimulus.
It’s these very “mixed signals” they lead most people to believe that the left is fixated on fiscal stimulus and has all but given up on monetary stimulus. That perception might be unfair, but if progressives want to change it they need to work much harder at communicating the importance of monetary stimulus. Because policymakers aren’t hearing the message, indeed it’s not even part of the debate. All we hear is austerity vs. fiscal stimulus; it’s as if there are no other choices. Does President Obama know monetary policy might determine his fate? Did he know that when he appointed 6 of the 7 current members of the Board of Governors? I think we all know the answer.
Some commenters tell me to “be nicer to Krugman and DeLong, they’re on your side.” I often say good things about their support for monetary stimulus. I call them insanely talented bloggers. But I also think fiscal stimulus is a dangerous distraction, so I’m going to monomaniacally push the need for monetary stimulus. Nothing else will work.
PS. Tyler Cowen did a post on Johnleemk’s comment. Then in his very next post he quoted from a WaPo article that perfectly illustrates the problem. The Pearlstein article had lots of thoughtful things to say, but because it ignored monetary policy it was essentially worthless.
I haven’t been following UK blogs closely of late, as we had this tiresome squabble about a referendum in Ireland; but my impression is that Simon Wren-Lewis and Jonathan Portes have been clamouring for more spending. Maybe Krugman thinks they have it about right?
While I agree, I would rephrase. Fiscal stimulus needs monetary accommodation to work. This is the heart of the Sumner critique. Not just that, it’s far more politically easier to guarantee monetary accommodation than it is to guarantee fiscal stimulus. The left has nothing to lose from pushing monetary policy.
What’s the worst case scenario if you monetise all of US debt? The US doesn’t owe any money anymore. That’s the worst case scenario. There’s absolutely no reason for the left to not be pushing monetary stimulus — yet the most powerful man in the world’s first pick for the Fed was a Nobelist who doesn’t even believe 4% inflation is attainable. It’s insane.
It was interesting to read some comments after TC put up Johnleemk´s comment. They were mostly a defense of PK and argued that by “attacking” PK, MM´s wanted to place themselves as the underdog or some such silliness. But you don´t have to go back to 2008. Just the other day, PK wrote “1937” arguing that since growth in government expenditure is negative, we could be trying to relive that experience. He implies that FP was responsible for the second leg of the depression and never mentions higher RR´s or, more importantly, Gold sterilization.
I have a hard time understanding the simultaneous arguments that 1) monetary policy does not work at the lower zero bound; and 2) *because* long-term interest rates are so extraordinarily low, we would be foolish not to take advantage of that by providing more fiscal stimulus.
The one hand does not seem to be giving the other hand any credit; however, that one hand seems very much willing to take advantage of what the other hand did not do.
Saturos: but the context here is people who think that monetary stimulus is ineffective because of the zero lower bound. You can’t believe that and believe that too much monetary stimulus will lead to hyperinflation. If you believe the latter then you should also believe that monetize some fraction <100% of the US debt, that should produce a recovery.
I’m not afraid of saying that I like the ISLM model, whilst also saying that Keynesian thinking (Krugman: “Greenspan has to set the interest rate to equate desired saving and investment”; i.e. the most confusing possible way of reading the ISLM model) is an utter mess.
Just talking to my father the other day, I realized the biggest benefit of NGDP targeting. With aggregate demand permanently stabilized, we return to a classical world where “creating jobs” is an absurdity even for the public. There’s not enough work being done, no question of whether there are “enough jobs to go around”. Just think of the enlightening consequences for political economy in general. Yes, the Caplanian view of politics has taught me to be pessimistic, but as Milton Friedman showed, change can happen. People can be less economically stupid, given the right environment.
Alex Godofsky, do you really think that we got to where we are today with zero cognitive dissonance amongst the public and policymakers?
Aint nothing you can say that Scott hasn’t said already.
PS it’s refreshing to revisit the old posts on this blog, back before there were zillions of comments beneath each one, back before Major Freedom.
Scott, it is your fault too.
1. You allow there to be confusion between Faisal Stimulus as Tax Cuts and Gvt. Spending.
2. You dance around it, but don’t specifically ask and insist that DeKrugman wants Gvt. Spending REGARDLESS of the situation. Which BTW makes them non-Keynesian to boot.
3. You don’t take the time to HIGHLIGHT the way 4.5% NGDPLT shrinks govt. even though you agree.
And they GET IT. They get that Cameron = cut govt. and printing money to make sure the nominal growth keeps happening.
They are AGAINST it.
Even though you dont think it is optimal, and it gives DeKrugman no inflation today, it offers the promise of some next month – that won’t be good enough for them.
You can compliment them all you want, but the fact is they are IN THE WAY of your policy.
And the more they understand it, the more they will get in the way.
Imagine yourself like Obama, a man with an agenda – DeKrugman is the GOP.

Saturos: sorry, it seems like we were on the same page all along.
PS if something I say sounds like something Sumner already said that’s probably because I read the thing Sumner already said and was convinced by it.
I think DeLong and Krugman push fiscal stimulus because it matches their left-wing political ideology. They recognize that monetary stimulus will work too, but it doesn’t offer the same social engineering benefits (i.e., redistribution, welfare state, etc.) of fiscal stimulus.
I think another reason they are clinging so desperately to NK is that they have spend their lives pushing it. If they switch to MM, they have to acknowledge the flaws of NK. This kind of change is probably too radical for proud academics like DeLong and Krugman. What makes it worse is that MM is the intellectual godchild of Milton Friedman, who isn’t exactly revered by the left.
The question is, since Scott KNOWS it, why doesn’t he be clear about it?
Politicians always want to hear “my department can fix this” never “those guys over there are responsible.” That’s the institutional bias, and i expect to hear the same from any administration or Congressman. The idea that Congress can keep their hands out of the bank account, as some people are suggesting, is completely naive (the House just voted 299-120 for a 642 Bn defense bill that adds missile defense to the East Coast – and a lot of other items that the military opposes, Tea party Republicans have taken more than $1 Bn in earmarks).
It sure looks to me like liberals prefer fiscal stimulus to expansionary monetary policy because they favor more and bigger government programs.
However, there is another aspect to this. In the old “rules vs. discretion” monetary policy debates back in the 1960’s and 70’s, Friedman and the conservatives favored rules while liberals mostly favored discretion. It now seems pretty clear that to be effective, monetary policy has to influence people’s expectations, and that is most easily accomplished by being explicit about what you’re trying to do.
In line with this, market monetarists favor targeting the path of expected nominal GDP, which is much more like a rule than discretion. And to the extent it works, it destroys the rationale for fiscal stimulus programs. It’s not hard to see why the liberals don’t like this.
What’s more puzzling is how the conservatives have apparently forgotten all about the debates of thirty years ago. It seems that much of what is called conservatism these days is just