Wednesday, August 22, 2012

NYT Room for Debate - Should the Fed Risk Inflation to Spur Growth?

At the NYT Room for Debate, Mark Thoma, John Cochrane and Edward Harrison address the question, Should the Fed Risk Inflation to Spur Growth?


Personally I side with Edward Harrison's view that the Fed is ill-equipped to substantially reduce the unemployment rate. There currently appears little reason to fear inflation and Cochrane appears off-base with comparisons between the US and Greece. As for Thoma's policy suggestion, further attempts to stimulate consumption and investment through rising asset prices risks creating new asset bubbles and preventing the household deleveraging necessary for more sustainable growth. Our current troubles primarily stem from fiscal policy decisions and therefore it is the responsibility of Congress, not the Fed, to correct these issues.

(h/t Economist's View)

1 comment:

  1. Shortly after the crisis, one would read often of "the household deleveraging necessary for more sustainable growth." But that now seems largely forgotten, and the focus has shifted to fool's questions like "Should the Fed Risk Inflation to Spur Growth?"

    If it were true that listless growth is caused by listless price increases, I would be the first to say "yes, let's go with inflation". But that is not the case.

    It may be true that we can tickle growth a bit by means of inflation. But insufficient inflation is not the cause of listless growth.

    A scientist looks for the cause of listless growth. A fool hosts irrelevant debates.

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