The progressive inflation hawks

Paul Krugman and Joe Stiglitz are brilliant Nobel-prize winning economists.  Both have been known to be somewhat caustic in their criticism of others.  Most importantly, both are public intellectuals who often criticize the orthodox establishment from a liberal or progressive vantage point.  I used to think they were sort of similar.

Until now.  In the field of macro, Krugman >>>>>>>>> Stiglitz.  Check this out:

NEW YORK (Reuters) – Ultra-loose monetary policies by the U.S. Federal Reserve and the European Central Bank are throwing the world into “chaos” rather than helping the global economic recovery, Nobel Prize winning economist Joseph Stiglitz said on Tuesday.

A “flood of liquidity” from the Fed and the ECB is bringing instability to global foreign exchange markets, Stiglitz told reporters after a conference at Columbia University.

“The irony is that the Fed is creating all this liquidity with the hope that it will revive the American economy,” Stiglitz said. “It’s doing nothing for the American economy, but it’s causing chaos over the rest of the world. It’s a very strange policy that they are pursuing.”

And here is Robert Reich:

Washington is actively pursuing a weak dollar as a jobs policy. (The dollar just plunged to a six-month low against the euro.)

How? The Fed is keeping long-term interest rates so low global investors are heading elsewhere for high returns, which bids the dollar down. Every time another Fed official hints the Fed will start printing even more money (“quantitative easing” in Fed speak) the dollar takes another dive.

Meanwhile, Congress is ginning up legislation to allow the President to slap tariffs on Chinese imports because China is “artificially” keeping its currency low relative to the dollar.

But using a weak dollar to create American jobs is foolish, for two reasons.

First, no other country wants to lose jobs because its currency becomes too high relative to the dollar. So a weak dollar policy invites currency wars. Everyone loses.

At least a half dozen other countries are now actively pushing down the value of their currencies. Japan recently sold some $20 billion of yen in order to keep the yen down, the biggest ever sell-off in single day.

Last week, Brazil’s Finance Minister lashed out at the US, Japan and other rich nations for letting their currencies weaken to spur jobs. Brazil’s high interest rates are attracting global investors and pushing up the value of Brazil’s currency. This is crippling Brazil’s exports and fueling unemployment.

Perhaps Krugman will have to send out another memo to Ezra Klein, as it’s hard to keep track of which side are inflation hawks and which side is pro-stimulus.  No matter how often I criticize Krugman for one thing or another, at least you can sense some sort of coherent model—you understand why you disagree.  It’s often a very minor point of interpretation; is monetary or fiscal stimulus more likely, or did Japan really try to escape its liquidity trap?

I have no idea where these guys are coming from.  A currency war causes everyone to lose?  Why is that Mr. Reich?  Because it leads to high inflation?  And what causes the high inflation?  Rising AD?  And what is the point of the fiscal stimulus you favor?  Higher AD?

The name of my blog never seemed more appropriate.  We’re hardwired to think disputes must be over who gets what—who’s favoring the capitalists and who favors the workers.  It’s much more than that.  It’s mass confusion about the nature of monetary policy.  Krugman and Stiglitz are distinguished economists with impeccable progressive credentials, and they both can’t be right.  The AFL-CIO opposed FDR’s dollar depreciation of 1933, even though it led to a rapid increase in production.  Every day that goes by I’m reminded more and more of the intellectual climate during the 1930s.  We’ve learned nothing.

HT:  Liberal Roman

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41 Responses to “The progressive inflation hawks”

  1. Gravatar of Alan Rai Alan Rai
    5. October 2010 at 18:16

    Hi Scott

    I agree about the strange nature of Stiglitz’s talk. It gets even more bizarre with the second last quote in the article:

    ‘But additional monetary stimulus will “clearly” not solve the problems caused by lack of global aggregate demand, Stiglitz said.’

    Perhaps a (biased?) reading of his talk (excluding the last bit of babble about inability of m/p to help AD) would be that it would be better for countries to co-ordinate devaluations in order to minimise FX volatility. In the words of Eichengreen:

    “It is true that the process was disorderly and disruptive. Better would have been for the countries concerned to co-ordinate their moves to a more stimulative monetary policy without sending exchange rates on a roller-coaster ride.”

  2. Gravatar of qq qq
    5. October 2010 at 18:31

    Hopefully Krugman and DeLong call them out on this with the same enthusiasm they’ve had in calling out conservative inflation hawks. Otherwise, chalk them up as victims of Robin Hanson’s “politics isn’t about policy.”

  3. Gravatar of Ram Ram
    5. October 2010 at 18:52

    The Stiglitz piece is difficult to decipher. The beginning, which you quote, makes it seem as if Stiglitz is in Rajan’s camp, favoring higher nominal interest rates by means of tighter money. The rest of the piece, however, makes it seem as if he’s merely agreeing with Krugman that easier money is desirable but is inadequate to the task, necessitating fiscal stimulus. The comments about “chaos” seem to reflect fears about competitive devaluation, similar to Reich’s comments. On the other hand, it seems like Stiglitz is less concerned about countries devaluing in response to one another than about countries adopting protectionist policies in response to these devaluations.

    One need not agree with this other interpretation of his comments in order to grant that they are less objectionable in this light. I have a feeling that the reporter is not properly conveying what Stiglitz was actually saying, so I will withhold judgment on his comments.

  4. Gravatar of mbk mbk
    5. October 2010 at 18:54

    Just a tidbit. I recently (few weeks back) talked to a French finance professional working in derivatives for a large bank. She said Stiglitz had been her hero during his time at the World Bank, but she’d been very disappointed by his recent comments on the economic crisis. In her words, paraphrased from memory: “He doesn’t understand how finance works and what the various instruments actually do”.

  5. Gravatar of JimP JimP
    5. October 2010 at 19:04

    Well both Stiglitz and Krugman wanted to nationalize the banks during the peak of the crisis – and thereby give the senior debt a good solid gutting. And destroy the world insurance industry. And set off a world wide run that would have made 1930 look like a Sunday School outing.

    Neither one of them has the faintest clue what they are talking about.

  6. Gravatar of Morgan Warstler Morgan Warstler
    5. October 2010 at 19:07

    Uhm, that’s noise. We have learned:

    1. to not let a FDR come in and raise taxes.
    2. to tell Krugman to sit down and stfu.
    3. to tell Sumner to shhhh… we’ll call him when it’s time to to QE… right after we gut the Public Employees.

    This was all set in motion in 1980. Let’s let it play out.

    MEANWHILE Scott, I’m going to keep asking the question you never answer:

    Since you desperately want QE which will inflate away the savers righteous advantage (the opportunity to by liquidation assets), WHY NOT advocate QE policies where the new dollars get handed to savers first?

    Then there is no moral hazard, then you win over Main Street / Tea Party.

    I see no good reason not to shape your policy towards this end. Is there one?

  7. Gravatar of happyjuggler0 happyjuggler0
    5. October 2010 at 19:12

    I wish that more people would realize that devaluation is the tail that is wagged by the dog of less tight money, and that this less tight money is what boosts growth, at least when monetary policy has been too tight.

    If monetary policy hasn’t been too tight and a central bank loosens, then not only will a currency devalue relative to others (all else being equal), but you’ll also get unwanted inflation with only perhaps a burp of real GDP boosting followed by a real GDP hangover.

  8. Gravatar of JimP JimP
    5. October 2010 at 19:31

    Now this is depressing.

    Martin Wolf joins the trade war with China bloc. I guess he and Krugman are pals.

  9. Gravatar of Tom P Tom P
    5. October 2010 at 19:33

    Scott Sumner is on a roll today!

  10. Gravatar of Greg Ransom Greg Ransom
    5. October 2010 at 19:48

    Did you notice Bob Murphy’s mea culpa on his inflation call?

  11. Gravatar of TGGP TGGP
    5. October 2010 at 20:24

    One of the righty economists bashed by Krugman & Delong, Casey Mulligan, says they’ve got him wrong regarding inflation. He has written that inflation isn’t occurring, it would be a good thing if it actually was, and he opposed the fiscal stimulus because he thought the increase in public demand would be neutralized by the drop in private demand and therefore have no inflationary effect. Niklas Blanchard says we could have known it wouldn’t before it even passed.

  12. Gravatar of Mark A. Sadowski Mark A. Sadowski
    5. October 2010 at 20:40

    Stiglitz apparently said:
    “The irony is that the Fed is creating all this liquidity with the hope that it will revive the American economy,” Stiglitz said. “It’s doing nothing for the American economy, but it’s causing chaos over the rest of the world. It’s a very strange policy that they are pursuing.”

    What on earth is he smoking? (I’d like to get some, if only to advise others not to smoke the same.)

  13. Gravatar of Mattias Mattias
    5. October 2010 at 23:34

    But if I understand you right a “currency war” would lead to an increase in the global money supply and that would help solving our problems. Is that right?

    Would a “currency war” be easier to defend for the central bankers of the world than national QE programs?

  14. Gravatar of Tony McGovern Tony McGovern
    6. October 2010 at 03:38


    Love you blog. Your lament regarding intellectuals learning nothing reminded me of something Heb Stein once wrote:

    “We have Swedish Count Axel Oxenstierna writing in the 17th century, ‘Behold, my son, with how little wisdom the world is governed.’ For a long time I thought that this was a complaint that the world is not governed with more wisdom. Recently I have come to think it means that not much wisdom is required to govern the world.”

  15. Gravatar of Tony McGovern Tony McGovern
    6. October 2010 at 03:39

    Sorry, Herb Stein. Not Heb Stein.

  16. Gravatar of tweeting tweeting
    6. October 2010 at 03:51

    “And what causes the high inflation? Rising AD?”

    Rising AD is one(market driven), devaluation is the other(fiscal/monetary policy driven). Hardly to fault consider there are two ways. Inflation is incurring, as can be measured in food, oil and other commodities prices (future contracts) and usd index (it’s below 78 and now momentum driven to about 74 unless euro blows up again). Just because these aren’t showing up in cpi’s basket yet doesn’t mean it’s not incurring (US’s cpi is notorious for not including oil). USD has devaluated for 4 straight months now, long enough for it to be fed into price even considering price stickiness.

    (PS: I am a former hq retail merchandiser who dealt with price negotiation on forward purchases.)

  17. Gravatar of nyd nyd
    6. October 2010 at 04:55


    Stiglitz is on record praising the economic policies of Hugo Chavez (the policies that gave Vene 30% inflation with a fall in GDP of around 5%). I have no idea why you would even consider taking him seriously.

  18. Gravatar of W. Peden W. Peden
    6. October 2010 at 05:46

    I think this highlights the difference between Paul Krugman, who has his faults but is basically a very good economist when he is at his best, and people like Joseph Stiglitz. I’ve never understood the hype with Stiglitz; I can understand why he’s popular on the left, because he’s an eminent economist who says what they want to hear (the John Kenneth Galbraith factor), but I struggle to understand his reputation amongst the economic establishment.

    As I understand it, his contributions primarily involve pointing out that markets in reality do not operate in a utopian way, which is something that seems to obvious to me that I’m amazed that it can be passed off as an interesting observation. The illogical step, of course, comes from when people like Stiglitz infer a certain government success from the existence of a market failure. This is usually coupled with a curiously moralistic and selectively sceptical way of looking at macroeconomic management: bad management is a result of bad people, so we could have the same management structure with good people and get good management.

    His comments on monetary stimulus (which he apparently thinks exists in the US) are inconsistent with what he has said before about changes in monetary aggregates, which was that they have negligible effects outside of extremely large upward movements. As a point of logic, how can something be both deleterious and chaotic but ALSO negligible in importance?

    However, I have no reason to doubt Stiglitz’s intelligence axiomatically, so how about this explanation: Stiglitz understands that monetary stimulus can be a replacement for fiscal stimulus; Stiglitz wants fiscal stimulus (he wanted more deficit spending in the 1990s boom, so he must be bursting with desire now); so Stiglitz wants to persuade people that monetary stimulus is not only totally ineffectual but also damaging (!).

    Of course, that’s only going to be the case if we are intellectually charitable and use as optimistic a theory of mind as is possible with Stiglitz.

  19. Gravatar of W. Peden W. Peden
    6. October 2010 at 05:47


    I would be very surprised if Krugman has a bad word to say about Stiglitz’s hawkishness. For some people, economics is just another political battleground.

  20. Gravatar of pj pj
    6. October 2010 at 06:51

    W. Peden, I couldn’t have said it better.

    As for Robert Reich, he doesn’t have a model, he has an ideology. It drives me nuts when NPR interviews that guy about the economy and refers to him as an economist. He’s not an economist! He’s a bureaucrat, a politician, or a political commentator, but not an economist.

    Scott – did today’s WSJ headline make you smile?

  21. Gravatar of Liberal Roman Liberal Roman
    6. October 2010 at 07:37

    Krugman takes a not so veiled shot at Sumner here:

    Here is the punchline:

    “So I didn’t and don’t think that we can count on monetary policy to do the job; blithely declaring that the Fed should target nominal GDP misses the difficulties. And that means we need fiscal policy.”

    To be honest, even after reading this blog for as long as I have, I can still see Krugman’s point. It seems that Scott’s main argument comes down to the fact that if the Fed commits itself to an inflation or a nominal GDP target and takes some actions showing that its committed to it, the market will believe it and take us there by itself. That is how I think Scott thinks about monetary policy in layman’s terms.

    But most people begin to try to understand what exactly QE will do. Well I guess QE is intended to lower borrowing rates. But the problem is not that the cost of borrowing is too high right now, it’s that there is no demand to borrow. That is how I think most people think about the situation and monetary policy.

    The question is who is right? I guess we’ll find out.

  22. Gravatar of Mehul Mehul
    6. October 2010 at 08:05

    i believe the concept of very low interesnt rate and slashing the import duties on chinese imports basically refect the protection against rising public debt realtive to gdp growth rate. have a look at this-

  23. Gravatar of MikeDC MikeDC
    6. October 2010 at 09:09

    Am I wrong to guess QE is intended to re-inflate asset prices by inducing finances to buy? At least, that’s my interpretation of Says’s Law in a world where there’s more than simply a transaction demand for money.

    * Currently, banks are holding excess reserves because of an increased demand for money. Consider it a hedge against against another panic, or to offset iffy assets on their books.
    * Like everything, however, there are diminishing marginal returns to holding dollars for precautionary reasons. As QE puts more cash on their books, they’ll eventually look around to start buying assets outright instead of continuing to hold those dollars. Says’s Law works (once the monetary authority eliminates to shortage of dollars causing a surplus of other assets).
    * As other assets are bought up, prices rise, and demand for borrowing should pick up along with it (e.g. your 401k is no longer sunk, so you don’t feel bad about getting a loan to buy that summer cottage at a low, low price).

  24. Gravatar of W. Peden W. Peden
    6. October 2010 at 09:28

    Liberal Roman,

    No demand to borrow? Really? Here in the UK the money supply is flowing more smoothly than in the US and businesses are ACHING to borrow. That’s the whole point of a credit crunch: it’s a supply-side problem, not a demand side problem, re the money supply.

    Actually, if demand for money was low, there’d be absolutely no monetary problem right now, because demand for money would be closer to the supply of money which is anemic.

    I wonder if Krugman would accept this wager: if the Fed engineers a sustained and significant growth in the supply of broad money over the next two years, without any extra fiscal stimulus, the US will be well on the way to recovery come inauguration day 2012. That would be one thing on which I would bet a little money.

  25. Gravatar of rob rob
    6. October 2010 at 09:40

    I can’t help but point out that the ad on this post in Google Reader says “Learn to Protect Your Family from the Falling Dollar”

  26. Gravatar of W. Peden W. Peden
    6. October 2010 at 09:43

    I have just remembered that the Presidential inauguration day will be in 2013, not 2012.

  27. Gravatar of TVHE » Race to the bottom actually race to the top TVHE » Race to the bottom actually race to the top
    6. October 2010 at 11:44

    […] poppycock from Reuters on “currency wars” here.  I’ll let Scott Sumner discuss the fallacy here. I have no idea where these guys are coming from.  A currency war causes everyone to lose?  Why […]

  28. Gravatar of marcus nunes marcus nunes
    6. October 2010 at 12:43

    Mark Thoma argues that Stiglitz didn´t say enough! How much more damage does he crave for?
    “I appreciate Stiglitz’ shining the spotlight on the ineffectiveness of monetary policy in a recession, but I think fiscal policy is where the biggest mistakes were made and I wish he would have talked about that as well”.

  29. Gravatar of Liberal Roman Liberal Roman
    6. October 2010 at 13:05

    @W. Peden

    “No demand to borrow? Really?”

    I think that is an accurate statement. Businesses and people borrow to invest and/or consume. But the problem is individuals are on the aggregate repairing their balance sheets and not borrowing and not consuming and businesses have overcapacity and are not going to invest until they see individuals consuming.

    This line of reasoning that I just spelled out above is why so many people believe the Fed cannot “reflate” the economy and that it is “pushing on a string” with all of its actions.

    HOWEVER, Scott’s key insight is that the point of all of this Fed action is not so much to lower borrowing costs but to get the market to believe that the Fed is committed to higher inflation (or in our case we would just take 2% inflation for now). Once that expectation is set in, the market will take care of the rest by itself with no government intervention.

    The hard part is getting a conservative institution like the Fed to do what is necessary to establish those expectations. Right now they are slowly moving towards starting up QE2. But do they have the conviction to follow that through with more action if its necessary? The market is rightly skeptical.

    I watch this quote on Bloomberg almost daily:

    It is the expectation of the market for average annual inflation 5 years out based on the spread between the 5 year TIPS security and the 5 year bond. As you can see, recently the inflation expectations have started to tick up a bit on talk of QE2. But these expectations are still woefully low. We need to at least get this to return to 2% inflation and for our purposes we actually probably need to average about 3% inflation over the next 5 years to get us out of this mess.

    So, does the Fed have what it takes to accomplish this. Will they expand QE if what they do November is insufficient? Will they remove interest on reserves if that’s what is necessary? Will they announce a higher inflation target? Will they start up those helicopters and start dropping cash on the streets?

    The market believes there is a higher chance now than there was a month ago of the Fed actually doing what’s necessary, but even now it still doesn’t even believe that we average 2% inflation (The Fed’s mandate) over the next 5 years let alone the higher inflation rates that we need.

    I think this is my best attempt to explain what Scott believes in layman terms.

  30. Gravatar of JimP JimP
    6. October 2010 at 13:32

    Peden –

    And the problem we face is that it is just as easy to dig your grave with a teaspoon (the Fed not doing enough – and then not doing enough again) as it is with a steam shovel (Plosser + Meltzer slamming the economy just for the fun of it).

    Does BB have what it takes? Not without a direct Presidential statement – or at least so I think. I think Obama must demand really aggressive Fed action if we are to get it.

    But Obama won’t do that. Because he is no Roosevelt. This is my worry. I hope I am wrong.

  31. Gravatar of MikeDC MikeDC
    6. October 2010 at 16:34

    I would speculate a public “Obama demand” would backfire in the same way that if he states the sky is blue, it will cement 30% of opinion at “the sky is red”.

    Liberal Roman, et al,
    Is my comment too dumb to comment on? It very well could be, but I’m just throwing out what makes sense to my non-expert mind.

    Anyway, even if the name of the game is creating credible expectations, there has to be some sort of model of how “QE leads to inflation”. If the new money is just sat on by banks (either owing to caution on their part or lack of demand from lenders), it’s not going to generate credible expectations is it? Scott needs a story of how this happens, no?

    As a side note, doesn’t “credibility” seem a lot like liquidity? The Fed has supposedly spend years building up its credibility, but when it needs to use it, it always vanishes. Just like assets that appear nice and liquid in good times become “toxic” when money’s tight. And in any case, if it took the Fed years to build its inflation fightin’ street cred, wouldn’t it take the Fed years to build its inflation promoting street cred?

  32. Gravatar of JimP JimP
    6. October 2010 at 16:48

    Mike –

    I don’t think credibility is a problem. As StatsGuy said in a previous thread:

    “If the Fed (Bernanke) were to give a forceful speech saying that price _level_ targeting was the new standard, that would help solve both short and long term issues. That would be worth popping the champagne.”

    Indeed so. If they commit to price level targeting it is both simple and clear. And they just keep buying assets till they hit it.

  33. Gravatar of Larry Larry
    6. October 2010 at 17:32

    Stiglitz wants fiscal stimulus in the US. Krugman recognises the political constraints on stimulus and hence talks up QE2. I don’t imagine the difference between them is far, really. Sounds like one of those quotes-out-of-context things.

  34. Gravatar of Krugman the Saucy Vixen Playing Hard to Get With Scott Sumner Krugman the Saucy Vixen Playing Hard to Get With Scott Sumner
    6. October 2010 at 18:30

    […] I was wondering what could have prompted such a turnaround. Then I recalled a recent Sumner post that the ineluctable von Pepe sent me just yesterday, in which Scott opened like this: Paul Krugman […]

  35. Gravatar of scott sumner scott sumner
    6. October 2010 at 18:50

    Alan Rai, I hate to say this about a Nobel Prize winner, but macro’s not Stiglitz’s forte. I read a longer piece by him, and he doesn’t seem to understand that changes in money supply and demand drive AD. Krugman knows way more macro.

    qq, Good point.

    Ram, No he’s clearly arguing that monetary policy is too loose, and fails to realize it isn’t loose at all.

    I read a different article that was just as bad.

    mbk, Rogoff had a devastating reply to Stiglitz’s critique of the World Bank–showed he didn’t understand some basic principles of monetary economics.

    JimP, Yes, I believe even DeLong called him on that–so I shouldn’t be too hard on DeLong.

    Morgan, I’m a saver and I want a robust recovery so that real returns on saving will rise above their current 0%.

    The status quo is horrible for retirees living on interest.

    Happyjuggler), That’s right.

    JimP, That’s depressing.

    Thanks Tom P.

    Greg, Well he had to throw in the towel eventually.

    TGGP, Yes, I think Mulligan over does the supply-side argument, but I think Krugman was unfair. I also recall him admitting that some of the problem was demand. And Krugman underestimates the effect of 99 week UI. I don’t focus on this issue as I think more demand is the best solution–but it is having some effect.

    Mark, Yes, and the rest of the world is doing pretty well compared to us. Stiglitz mentioned Brazil, which is growing rapidly.

    Mattias, I don’t know. I hate to see solutions with the term “war,” as that’s no way to run a world economy–but what options are we left with?

    Tony McGovern. One of the beauties of the market system is that it allows countries with an average IQ of 100 achieve highly sophisticated and successful economies.

    tweeting, Higher AD and devaluation aren’t two solutions. Devaluation leads to more AD. And the Fed is buying domestic assets, not foreign bonds–so it’s a garden variety OMO.

    nyd, I recall even The Nation magazine thought Chavez was a bit nuts. That’s depressing.

    W. Peden, You said;

    “As a point of logic, how can something be both deleterious and chaotic but ALSO negligible in importance?”

    Very good point. I haven’t followed his micro stuff, but people who have say it is very high quality. But I have been very disappointed about everything I read by him on money/macro/development.

    Too many comments today . . . I’ll try to catch up tomorrow morning.

  36. Gravatar of scott sumner scott sumner
    7. October 2010 at 04:22

    pj, Yes, I did a short post on that.

    Liberal Roman, One issue that I have never seen Krugman discuss is level targeting–which makes credibility far easier to achieve. As inflation undershoots it forces a higher target later. That increases the credibility of policy.

    Part of Krugman’s pessimism is based on a misreading of Japan–he thinks they tried and failed, whereas it’s clear they never tried at all.

    Mehul, I don’t see people talking about “slashing duties.”

    rob, My ads have never fit my message—many are gold sellers.

    Marcus, Yes, that’s a really weird statement from Thoma. Does he not realize that Stiglitz is calling for tighter money?

    Liberal Roman, I also watch the 5 year spreads. It’s likely that the recent market action is not so much expectation of a fast recovery, but just getting back to the slow recovery expected before the Greek crisis hit in May. Less tail risk of a double dip. A fast recovery would push the Dow up another 1000 points at least, maybe 2000.

    MikeDC, Yes, Obama missed his best chance in January 2009, when he should have quickly appointed 2 people to the Fed, and talked to Bernanke about his views before re-appointing him.

    Larry, No is not an out of context thing, they are separated by the Grand Canyon.

    Love the title of that Bob Murphy post at the bottom of the thread.

  37. Gravatar of James James
    7. October 2010 at 07:06

    Was this article is just meant to throw an insult at Krugman? We know where Stiglitz and Reich stand. The only thing that makes Stiglitz’ statement “odd” is if taken out of context. Reich is talking about how absurd a currency war is to increase American jobs. Your post smacks of some weird vendetta.

  38. Gravatar of Morgan Warstler Morgan Warstler
    7. October 2010 at 14:05

    “Morgan, I’m a saver and I want a robust recovery so that real returns on saving will rise above their current 0%.”

    Uhm, forget it. “Real returns” – the safe kind – are going to be low for a long time BECAUSE the Federal Government cannot afford to borrow at 5%.

    This is why structural changes are required immediately, we have to gut the Public Employees down to Private Sector levels. Show the markets, the government “gets it,” and you’ll see all kinds of upside.

  39. Gravatar of scott sumner scott sumner
    8. October 2010 at 14:30

    James, You said;

    “Was this article is just meant to throw an insult at Krugman? We know where Stiglitz and Reich stand. The only thing that makes Stiglitz’ statement “odd” is if taken out of context. Reich is talking about how absurd a currency war is to increase American jobs. Your post smacks of some weird vendetta.”

    I said Krugman right and Stiglitz is wrong. I said Krugman’s >>>>>>>>>> Stiglitz. Yeah you are right, that’s a pretty “weird” vendetta against Krugman.

    Morgan, Real returns are procyclical. Let’s get a boom.

  40. Gravatar of scott sumner scott sumner
    8. October 2010 at 14:31

    James, By the way, Stiglitz and Reich oppose more monetary stimulus. Now that is “weird.”

  41. Gravatar of MikeDC MikeDC
    11. October 2010 at 05:00

    Belated thanks for the answer. I suppose I’m still skeptical because I’m not sure the Fed really has the necessary (practical? political?) capacity to single-handedly buy enough assets to reflate enough. Does it?

    And again, doesn’t the credibility problem hinge on what the financial system does with their new money? At some point, they have to be enticed enough by the asset prices they see out there to jump in the pool, no?

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