If Policy Won't Succeed, Does That Mean Policy Can't Succeed?
By Scott Sumner: Early on I decided that it was very unlikely that Fed policy would rescue the economy. The markets predicted that Fed policy would remain suboptimal, and the markets are usually right. So what implications can we draw from this pessimism? 1. Some argue that the Fed is too hawkish to change its policy, and even if it did the new policy wouldn’t be credible. Thus we needed fiscal stimulus. 2. Of course Congress is much too deficit-phobic to enact effective fiscal stimulus, and the Fed’s 2% inflation target would neutralize it even if they did. So any sort of demand stimulus is futile. 3. Some argue that this means we should focus on structural changes, supply-side reforms like a simple, loophole-free consumption tax. But of course Congress is much too corrupt to ever do that, so there is no prospect of supply-side reforms. 4. Some argue that there’s no pointComplete Story »