« 'Economists Played a Special Role in Contributing to the Problem' | Main | 'Economic Research vs. the Blogosphere' »

Thursday, October 04, 2012

Stiglitz: Monetary Mystification

Busy day today -- so a quick one. Joe Stiglitz argues that recent monetary policy initiatives by the Fed and the ECB won't be anywhere near enough to produce an economic revival, and that "the stimulus that is needed – on both sides of the Atlantic – is a fiscal stimulus":

Monetary Mystification, by Joseph Stiglitz, Commentary, Project Syndicate: Central banks on both sides of the Atlantic took extraordinary monetary-policy measures in September: the long awaited “QE3”..., and the European Central Bank’s announcement that it will purchase unlimited volumes of troubled eurozone members’ government bonds. Markets responded euphorically... Others, especially on the political right, worried that the latest monetary measures would fuel future inflation...
In fact, both the critics’ fears and the optimists’ euphoria are unwarranted..., the stimulus that is needed – on both sides of the Atlantic – is a fiscal stimulus. Monetary policy has proven ineffective, and more of it is unlikely to return the economy to sustainable growth. ...
Of course, marginal effects cannot be ruled out: small changes in long-term interest rates from QE3 may lead to a little more investment; some of the rich will take advantage of temporarily higher stock prices to consume more; and a few homeowners will be able to refinance their mortgages, with lower payments allowing them to boost consumption as well. ...
For both Europe and America, the danger now is that politicians and markets believe that monetary policy can revive the economy. Unfortunately, its main impact at this point is to distract attention from measures that would truly stimulate growth, including an expansionary fiscal policy and financial-sector reforms that boost lending. ...

I'm a bit more optimistic than he is about what monetary policy can do. But I also think that fiscal policy is needed to really make a difference, and, like Stiglitz, I worry that too much faith and emphasis on monetary policy has let fiscal policymakers off the hook.

    Posted by on Thursday, October 4, 2012 at 09:35 AM in Economics, Fiscal Policy, Monetary Policy, Unemployment | Permalink  Comments (27)


    Comments

    Feed You can follow this conversation by subscribing to the comment feed for this post.