I consider fiscal infrastructure spending would be the most effective form of stimulus since it not only has a high chance of having a decent multiplier (the majority of people who are going to be directly hired are lower-down on the pay scale and are therefore likely to directly spend a higher portion of their income and therefore you don't have to worry as much about a liquidity trap as you do with monetary measures) but it also has a chance of actually increasing potential output and giving a genuine reason for recovery rather than a temporary demand-side fix.
With this said I think that in a world with a fairly flexible economy the right answer would be no stimulus, as stimulus spending, despite its inherent possibility of failure (crowding out, too much spending, too little spending, regime uncertainty, ETC.) the fact is that stimulus spending can oftentimes be wasted by politicians. For instance when stimulus was passed in 2009 we saw that a lot of the actual stimulus was spent either on projects that were pushed years into the future around the time of various election dates, or spent on random crap that was almost certainly a waste, multiplier or no. Politicians have an inherent incentive to show favoritism towards their districts and manipulate the system in such a way that their positions are improved.
I oppose monetary expansion because it leads to a short term miscalculation of the value of goods, which can have very negative effects after prices adjust. It’s also very difficult to get right, as can be seen by the FED’s continual failure to get things going after the past few years. The economy is unknowable as a whole (which is the only true utilitarian justification of capitalism) and therefore it’s very hard to know exactly what effect the effect of credit expansion will be especially because of the non-neutrality of money.
With this said I think that in a world with a fairly flexible economy the right answer would be no stimulus, as stimulus spending, despite its inherent possibility of failure (crowding out, too much spending, too little spending, regime uncertainty, ETC.) the fact is that stimulus spending can oftentimes be wasted by politicians. For instance when stimulus was passed in 2009 we saw that a lot of the actual stimulus was spent either on projects that were pushed years into the future around the time of various election dates, or spent on random crap that was almost certainly a waste, multiplier or no. Politicians have an inherent incentive to show favoritism towards their districts and manipulate the system in such a way that their positions are improved.
I oppose monetary expansion because it leads to a short term miscalculation of the value of goods, which can have very negative effects after prices adjust. It’s also very difficult to get right, as can be seen by the FED’s continual failure to get things going after the past few years. The economy is unknowable as a whole (which is the only true utilitarian justification of capitalism) and therefore it’s very hard to know exactly what effect the effect of credit expansion will be especially because of the non-neutrality of money.
Given the favoritism and deadweight loss often created through fiscal measures, I think monetary stimulus makes a lot more sense. Right now, the Fed isn't even hitting 2% inflation as a target let alone stimulating the economy through monetary easing. It is a much different issue- one that I think is being driven out of political fear.
I would like to see the Fed ramp up inflation to at least 2% and possibly more to make up for recent shortages. I am generally not for fiscal stimulus, but I agree that something like infrastructure spending could certainly be an optimal and beneficial use of money right now, especially with the Treasury's low borrowing costs right now.
I would like to see the Fed ramp up inflation to at least 2% and possibly more to make up for recent shortages. I am generally not for fiscal stimulus, but I agree that something like infrastructure spending could certainly be an optimal and beneficial use of money right now, especially with the Treasury's low borrowing costs right now.
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