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Tuesday, May 25, 2010

Growth Policy versus Stabilization Policy

I have a new post at MoneyWatch:

Growth Policy versus Stabilization Policy: In economics, as in other disciplines, the important questions change over time. In macroeconomics, there are two big questions and our attention to one or the other changes with the economic events of each era. One question concerns stabilization policy -- keeping the economy as close as possible to the long-run growth path -- and the other is growth policy, i.e. policy that attempts to maximize the long-run growth rate. (There is also work on whether stability and growth are related. More stable economies could grow faster due to reduced uncertainty, but government intervention to stabilize the economy could also stifle growth according to some models, so the relationship is not clear a priori.)

We could go back further than this, but let me pick the story up in the 1970s. ...[continue reading]...

The argument is that we have paid too much attention to growth policy, and not enough to stabilization. Even if the growth policies do pay off in the long-run, the over emphasis on growth has caused a slower recovery and it's not at all evident that's a desirable trade off.

    Posted by on Tuesday, May 25, 2010 at 04:32 PM in Economics, Fiscal Policy, Monetary Policy, MoneyWatch | Permalink  Comments (51)


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