>capital fetishists: believers in large positive externalities from
>investment through learning-by-doing, learning-by-using, and
>worker-employer quasi-rent sharing. Thus a low national savings rate
>terrifies us.
non-sequiter (if you mean low savings rate contrains investment)
>Thus we favor the policy mix proposed by Robert Solow back in the
>early 1960s: tight fiscal policy (to boost national savings)
tight fiscal policy to "boost national savings"?!?!?!
Johnny and Janey can't save *because* of tight fiscal policy!!!
>loose monetary policy on average (to counteract the tight fiscal policy);
read: contradictory fiscal and monetary policies.
at best they'll cancel one another out, but probably much worse. while congress drives us off the economic cliff with tight fiscal policy, lower interest rates do nothing if investment is interest-inelastic in response to cuts, and will drive households even deeper into debt if rate cuts result in more household borrowing.
>and delegation of
>the bulk of stabilization policy to the Federal Reserve.
>Of course, this requires that (a) the Federal Reserve be competent,
oh well...
>(b) the Federal Reserve have a sound and accurate view of what
>"maximum employment and purchasing power without accelerating
>inflation" means,
oh well...
>and (c) the economy not have gotten itself so
>wedged that monetary policy is ineffective.
oh well...!!!!!!!
>Neither (a), (b), nor (c) can be taken for granted. (Indeed, back in
>the spring of 1992, IIRC, Laura Tyson, Larry Summers, and Alan
>Blinder were all sufficiently alarmed by the then-ongoing "credit
>crunch" to say that it was time to restore fiscal policy to a more
>prominent stabilization policy role.) But *here* and *now* I think
>all three of them hold--but (c) does not hold in Japan, and (b) does
>not hold in Europe.
would you care to wager about the effectiveness of monetary policy in the near to medium future?
>Brad DeLong
Mat Forstater