Kelton:
Lerner wasn’t trying to use interest rates to optimize the economy. That was a job for fiscal policy. He argued that the government should be prepared to spend whatever is necessary to sustain full employment without raising taxes or borrowing …You see that line often, that the government should be prepared to spend "whatever is necessary" to sustain full employment without raising taxes or borrowing. It sounds great, but I can't help thinking that it rests on hopeful analysis rather than on careful analysis.
I call such hopeful views fantasy.
Well, by now everyone who really needs to read this post has stopped reading, called me an ass, and moved on. I'll finish the thought anyway. Maybe they'll be back.
Here's the statement I have trouble with:
government should be prepared to spend whatever is necessary."Whatever is necessary" is open-ended: As long as the problem is not solved, the solution remains the same. There is no exit from such a policy. There is no point at which you are forced to say "It's not working. My plan must be wrong." You can use the same plan always, even if it never works.
Some years back, Daniel Kuehn criticized Scott Sumner's analysis, saying that it "meshes together policy goals with actual policies". Kuehn says that for market monetarists like Sumner,
there seems to be no way to logically make the statement "we have done the market monetarist policy rule and the goal was not achieved". Why? Because if NGDP level targets have not been reached then by definition you haven't been doing market monetarist policy.Kuehn is saying there is no point at which Sumner is forced to say "It's not working. My plan must be wrong."
Not long ago Bill Maher said I don't think there is a great need for new solutions. We've been around these same problems for decades. We know what the solutions are. We only lack the political will to put them into play. Maher's strategy is open-ended: As long as the problem is not solved, his solution is only to try harder. He wants to keep using the same solutions that have not worked in 45 years, and just try harder. Maher's strategy leaves no point at which he is forced to say "It's not working. The plan must be wrong."
Again: There is no point at which Kelton or Lerner would be forced to say "It's not working. Our plan must be wrong."
