Monday, May 5, 2014
Marshall Auerback — The Fed’s Conundrum
Caught between a rock and a hard place. Maybe the folks in charge will eventually figure out that Keynes was right about effective demand after all, so the solution is fiscal and not monetary, as the numbers are shouting at them.
Macrobits by Marshall Auerback
The Fed’s Conundrum
Marshall Auerback
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5 comments:
Perhaps low interest rates are impeding employment growth.
Interest rates were high during the economic boom from 1983-89.
"Interest rates were high during the economic boom from 1983-89"
Nominal interest rates fell persistently during this period, but real US$ interest rates rose as inflation was falling the the $ was appreciating sharply. In Supply Side jargon the Reagan administration was running a loose fiscal policy of tax cuts and defense spending along side a tight monetary policy by the Volker fed.
The real interest rate in 1984 was 8 percent.
"In Supply Side jargon the Reagan administration was running a loose fiscal policy of tax cuts and defense spending along side a tight monetary policy by the Volker fed."
How is that supply-side jargon?
"How is that supply-side jargon?"
It's basically the case that the late WSJ editor, Robert Bartley, made in his book, "The Seven Fat Years". He boiled it down into 2 policy levers at work in the 1980s, fiscal policy stimulus in the form of tax cuts and defense spending and tight monetary policy at the Fed to keep inflation in check.
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