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Old 12-28-2011, 11:14 PM
Parallax Parallax is offline
Join Date: May 2011
Posts: 219
Default Re: Katherine's pants are on fire

Originally Posted by badhatharry View Post
I was being sarcastic. There's always a down side.
My point is exactly that this does not have to be a zero sum game.

Yes, I've read this. I need to research this a lot more before I come to a conclusion about whether this is ultimately a good thing but I think I understand your argument.

Bottom line, I just don't think anyone is smart enough to be able to successfully orchestrate the economy. Since 2008 it really hasn't worked. I know, I know, the economy would have been worse. Prove it.
It is not a matter of being smart, we know the theory, we know it works but what we lack is determination. The Fed can lower unemployment with a speed that would stun any observer if it really wanted to (for example this would happen if the Fed sais it will buy $250 billion in MBS every month until unemployment drops below 7%). But the problem is then that would make people in Fed look like incompetents because they sat on their hands for 4 years before doing this (remember the recession started in Dec. 2007).

I don't know what I am supposed to prove, or even the concept of proof is a meaningful one in economics (can you prove something in history?). You have models but every model is an approximation, it has various assumptions that you can dispute and so on. Inside that mathematical model you can "prove" things but whether your model is actually a good one that reflects what is going on in the real world is not something you can rigorously demonstrate.

But to see the advantages of more easing look at Europe. Unlike the Fed, ECB actually raised the rates in summer and several EU countries are now in recession. If you doubt the value of a fiscal stimulus look at UK and how fragile their recovery has been compared to that of US (they had one quarter with a sharp contraction and another one with no growth since summer of 2009).

The most effective way of dealing with the current situation was already suggested by Milton Friedman. The treasury and the Fed should prepare a money bomb: treasury issues debt directly to Fed and using this money cuts everyone in US a $5000 check. It is disturbing to see that a solution suggested by Friedman is not acceptable to people who think they are his intellectual successors ...
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