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Wednesday, October 07, 2015

Summers: Global Economy: The Case for Expansion

Larry Summers continues his call for fiscal expansion:

Global economy: The case for expansion: ...The problem of secular stagnation — the inability of the industrial world to grow at satisfactory rates even with very loose monetary policies — is growing worse in the wake of problems in most big emerging markets, starting with China. ... Industrialised economies that are barely running above stall speed can ill-afford a negative global shock. Policymakers badly underestimate the risks... If a recession were to occur, monetary policymakers lack the tools to respond. ...
This is no time for complacency. The idea that slow growth is only a temporary consequence of the 2008 financial crisis is absurd. ...
Long-term low interest rates radically alter how we should think about fiscal policy. Just as homeowners can afford larger mortgages when rates are low, government can also sustain higher deficits. ...
The case for more expansionary fiscal policy is especially strong when it is spent on investment or maintenance. ... While the problem before 2008 was too much lending, many more of today’s problems have to do with too little lending for productive investment.
Inevitably, there will be discussion of the need for structural reform... — there always is. ...
Traditional approaches of focusing on sound government finance, increased supply potential and the avoidance of inflation court disaster. ... It is an irony of today’s secular stagnation that what is conventionally regarded as imprudent offers the only prudent way forward.

[The full post is much, much longer.]

    Posted by on Wednesday, October 7, 2015 at 12:46 PM in Economics, Fiscal Policy | Permalink  Comments (78)


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