The “usual idiots suspects”

Paul Krugman thinks he´s been consistently right while others are “usual idiots suspects”:

We are already, however, well into the realm of what I call depression economics. By that I mean a state of affairs like that of the 1930s in which the usual tools of economic policy — above all, the Federal Reserve’s ability to pump up the economy by cutting interest rateshave lost all traction. When depression economics prevails, the usual rules of economic policy no longer apply: virtue becomes vice, caution is risky and prudence is folly.

If the Fed cannot cut interest rates it obviously cannot pump up the economy through that venue. Maybe he thinks monetary policy is interest rate policy. It isn´t, but that has been hammered into everyone´s head so that most believe it is!

Luckily FDR did not think it was. He established a price level target and delinked from gold, in effect depreciating the dollar. This was done in March 1933 and the economy reacted immediately, with nominal spending rising fast! That´s a clear example of monetary policy´s power even at the ZLB!

Usual idiots suspects

2 thoughts on “The “usual idiots suspects”

  1. Ah, but he also did a lot of fiscal policy stuff. He not only provided money to spend. He also did a lot of the spending.

  2. It is sad that the John Cochranes and the Paul Krugmans are so encrusted into their dogmas that they cannot fathom the relatively simple promise and results of Market Monetarism, and sustained QE (with forward guidance).

    Really, the economic profession has become politics in drag, with practitioners waving around theories and calculus to “objectively” prove that their agendas line up with reality.

    How can Market Monetarism prevail?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.