Friday, 29 March 2013


This should be another relatively fast post but I thought it'd be a worthy topic of conversation.

Trough Economist' View (many thanks to Mark Thoma for his remarkable blog, it's quite a versatile resource, with countless links to other interesting sites. I am a bit envious, I have to say) , I came across this interesting blog post by Timothy Taylor:

Basically, Timothy Taylor argues the US has been using Fiscal and Monetary policies as hard as could reasonably be expected (especially given the actual political landscape) and their relative lack of success (pulling the USA off the brink of a disaster but not much more) ought to tell us to try something different.

Now, of course, with regards to fiscal policy, you always have people (me included) who would say "more was/is needed". Paul Krugman would be the natural chieftain of that tribe. But, as I myself said ("I am less convinced than, say, Krugman or DeLong of the utter efficiency of fiscal stimulus in our present-day crisis"and Taylor confirms, fiscal policy hasn't delivered all that impressive results and one need to wonder if 'more' would really change the dynamic.

On the Monetary policy side of things, the natural leader of the 'let's do more' camp can only be Scott Sumner. No one has done more to push Ben Bernanke and the Fed to boost NGDP. As I mentioned before, I am even more dubious of the real world efficacy of QE Unlimited than I am of fiscal policy. At least, a dollar spent by the US government is real. What QE does and where the money ends up seem a lot more fuzzy to me.

So. Do we do nothing?


Taylor has a bag-full of solutions (go read his post) and basically I cannot find much fault with any of them.

On the other hand, like with fiscal and monetary policies, they strike me as falling rather short of what's needed. With the possible exception of his 'let's close the tax loopholes', it seems to me to be largely tweaks to make things better run. It's always nice but, apart from the fact that operational excellency is hard to achieve, it's also unlikely to rock our world, short term.

So, what do we do?

As I suggested before, I think the key is "Create the conditions for income growth".

Like operational excellency, this is easier said than done.

But the government CAN do things about globalisation (start retaliating against countries running a mercantilist policy), it CAN decide how we react to technological progress (say, start spending those productivity gains in reduced work time?) and it CAN do things about the way we approach private property and the way capital ownership is distributed throughout society.

By the way, on that last point, if you think that I am the last mad socialo-pinko-marxist nutter left, let me introduce you to Noah Smith and his own take on Robots and Labour, going well further than I dared. To wit:

"[T]hen there are more extreme measures.

Everyone is born with an endowment of labor; why not also an endowment of capital? What if, when each citizen turns 18, the government bought him or her a diversified portfolio of equity? (...) [I]f technological improvements reduced the value of that person's labor, he or she would reap compensating benefits through increased dividends and capital gains.

[I]f the age of mass human labor is about to permanently end - then we need to think fast. Extreme inequality may be "efficient" in the Econ 101 sense, but in the real world it always leads to disaster".

I can only approve. And wouldn't that kind of solutions be anyhow funnier than arguing for more deficit spending or more debt monetisation?