At least President Obama picked the right advisor:

In terms of specific policies, Romer recommends a payroll tax holiday for corporations – rather than workers. Because “firms respond to incentives”, making it less expensive would encourage them to do more hiring.

Romer also wants more action from the Fed, which has already taken extraordinary measures to boost the economy and financial markets.

“What I’d like is for the Fed to come at the unemployment problem with the same passion as when the financial system was in such distress,” she says.

It’s a “mistake” for the Fed to end QE2 in June as planned, Romer continues. “The evidence is it’s been very effective. I don’t understand why we’d be dialing back that tool.”

Pity he didn’t listen to her views.

The Fed has adopted a policy stance expected to produce about 4.5% annual NGDP growth.  The policy might fail.  It might fail by generating 4.0% NGDP growth, or it might fail by generating 5.0% NGDP growth.  I claim that Bernanke would be very disappointed by 4.0% NGDP growth, and pleasantly surprised by 5.0% NGDP growth.  Indeed I think if God came down from heaven and told Bernanke he could have any NGDP growth rate he wanted over the next two years, he’d pick something closer to 6%, well above what the Fed expects.  At least that’s my hunch.

Have you ever requested something of someone, because you felt you had to, secretly hoping they’d say “no?”  Is that where Bernanke is?  Does he feel he must end QE2, but secretly hopes for the NGDP growth path that would result from one more dose of QE?

That’s today’s headlines.  But you might ask “weren’t the high inflation 1970s really bad for stocks?”  Yes they were.  Just like in the story of the three little bears, the stock market doesn’t want too much inflation, nor too little.  Something for the inflation hawks to think about.

HT:  Joe Cambria

In a recent post I argued that the opponents of having the Fed promote faster NGDP growth are full of “passionate intensity” while the supporters are strangely silent.  There is no better example of this weak passivity than this shockingly uninformed statement by Alan Blinder:

Creating jobs costs money””whether it’s via tax cuts or more spending. (The Federal Reserve normally can create jobs without budgetary costs, but with interest rates already near zero it says it’s out of ammunition.)

This is what Paul Krugman would call a “lie.”  (I think Blinder’s just uninformed.)  Alan Blinder (who used to be vice chair of the Fed!!), seems completely ignorant of the fact that the Fed repeatedly insists it is not out of ammunition, that it has many tools that it hasn’t even used.  Blinder’s statement isn’t even close to being true.  Here’s Ben Bernanke in 2010:

The issue at this stage is not whether we have the tools to help support economic activity and guard against disinflation. We do. As I will discuss next, the issue is instead whether, at any given juncture, the benefits of each tool, in terms of additional stimulus, outweigh the associated costs or risks of using the tool.

Perhaps Blinder got confused by statements made by some of the Fed hawks, who expressed skepticism that additional stimulus would help.  But these hawks are worried about more inflation.  They don’t deny that the Fed can inflate, but worry that more NGDP would not raise real output, just prices.  If the zero bound was a problem, they couldn’t even inflate.

The Fed has studies showing QE2 had a positive impact.  Bernanke insists that there are even more powerful tools that the Fed is still reluctant to use–lower IOR, higher inflation targets, or level targeting.  Or they could do a much bigger QE3.

It would be one thing if our Fed made phony claims about being unable to boost AD, as the BOJ sometimes does.  But the Fed actually insists it can do much more, it simply doesn’t think the economy needs more AD.

And much of the liberal establishment covers its ears and pretends not to hear.  Pathetic.

PS.  By the way, not only would aggressive monetary stimulus cost nothing, it would actually have negative budget costs, as it would sharply reduce our budget deficit.

HT Marcus Nunes

Here’s Paul Krugman criticizing Glenn Hubbard:

I’m late in getting to Glenn Hubbard’s debt column, but it still needs further bashing. Here’s what Hubbard says about the Obama administration:

“Ruling out long-term entitlement spending restraint, Mr Obama has argued that fiscal sustainability can be accomplished by raising marginal  tax rates on households earning more than $250,000 per year.”

This is what is technically known as a “lie”.

This caught my attention, as I held the same opinion . . . er, lie in my mind.  That got me thinking about the difference between opinions and lies.  Krugman points out that there are good arguments against Hubbard’s assertion, but I also see good arguments in favor.  And of course there are good arguments against many of Krugman’s assertions.

I’ve got to give Krugman credit, I’d have trouble looking people in the eye after calling them liars.

PS.  Here’s a tidbit from the New York magazine profile of Krugman:

One colleague at Princeton, where Krugman has taught since 2000, says the economist will avert his eyes when circumstance places the two of them alone in an elevator, his nose stuck in the corner, so as to avoid conversation.

I’d recommend the entire piece.  This is also interesting:

I brought up the work of the legal scholar Cass Sunstein, now with the Obama administration, who has studied the radicalizing effects of ideological isolation””the idea, born from studies of three-judge panels, that if you are not in regular conversation with people who differ from you, you can become far more extreme. It is a very Obama idea, and I asked Krugman if he ever worried that he might succumb to that tendency. “It could happen,” he says. “But I work a lot from data; that’s enough of an anchor. I have a good sense when a claim has gone too far.”

I get frustrated with conservatives who are oblivious to the fact that rumors of QE2 drove up TIPS spreads.  Don’t they follow the financial news?  Krugman’s focus on the data is part of the reason he is such a formidable debater.