Matt O´Brien posits the wrong choice

In “The terrifying idea that the economy might stay stuck forever just got more terrifying” Matt evokes Reinhart & Rogoff plus Summer to argue:

The U.S. economy has fallen, and it can’t get up.

At least that’s the way it seems. That’s because our slump hasn’t really ended, even though the Great Recession officially did more than five years ago. Growth has been low, unemployment is still high, and it’d be even more so if the labor force hadn’t shrunk so much. And all this, remember, has happened despite interest rates being zero the whole time. It’s the opposite of what we would have expected: big crashes are usually followed by big comebacks. So why has this time been different?

Well, it hasn’t — not if you compare it to other recoveries from financial crises. These, as economists Carmen Reinhart and Ken Rogoff have shown, tend to be nasty, brutish, and long.

At the conclusion he borrows my “it´s a choice” concept:

It’s a grim picture of a recession stamping on a human face — forever. But it wouldn’t be too hard to save ourselves from this dystopian future. All it would take is a higher inflation target that would let real rates go lower, and help households reduce their debt burdens. Immigration reform that boosted the workforce wouldn’t hurt either.

Stagnation, in other words, is a choice.

But the choice is not about a higher inflation target. It´s really about choosing higher level of spending, or NGDP, target.


One thought on “Matt O´Brien posits the wrong choice

  1. Marcus–of course, I agree with you. But, I will take an ally even if they are a bit off course. A higher inflation target is at least better than the zero percent inflation target rhapsodized by so many.

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