As I said on Thursday, the most potent kind of stimulus is money-financed fiscal policy where you have the government print money and deploy the newly printed money to purchase goods and services. Our actual institutions don’t work that way, but contemplating such an effort is one of the quickest ways to see the problem with the fallacy of “the money has to come from somewhere”.
Greg Ip reports from the monetary policy at Jackson Hole on a more institutionally realistic variant of this idea:
If Q[uantitative] E[asing] cannot spur private demand on its own, combining it with looser fiscal policy may help. If the private sector will not spend, the government can do it instead, borrowing to cut taxes, send cheques to households, build infrastructure or even extinguish underwater mortgages. QE prevents all that borrowing from driving up long-term interest rates.
This kind of thing, incidentally, is why despite the operational independence of the central bank the wise president will still want to ensure that the Board of Governors is largely stocked with people who share his worldview. Re-appointing your much more conservative predecessor’s choice for Chair and then going all the way through the midterms without getting candidates for the other vacancies confirmed is not consistent with this approach.
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