Wednesday, August 10, 2016

Must-Read: This, from Paul Krugman, is 100% correct. The last eight years have taught us that as long as the distributi... [feedly]

Must-Read: This, from Paul Krugman, is 100% correct. The last eight years have taught us that as long as the distributi...
http://www.bradford-delong.com/2016/08/must-read-this-from-paul-krugman-is-100-correct-the-last-eight-years-have-taught-us-that-as-long-as-the-distribution.html

Must-Read: This, from Paul Krugman, is 100% correct. The last eight years have taught us that as long as the distribution of near-term possible outcomes includes at least a 10% or so chance of landing back at the zero nominal safe interest rate lower bound, the policies we should follow now are pretty much the policies we ought to follow at the bound.

Of course, this is the situation we will be in until the trend and expected inflation rate hits 4%/year: we are going to be in this situation for a looooooonnnngggg time:

Paul KrugmanMurky Macroeconomics:

we're not in the simple, depressed-economy world of 2011 anymore...

But here's the thing: we're not in what we used to call a normal macroeconomic situation either. Maybe we're close to full employment, but maybe not, and that's with near-zero interest rates; also, it's all too easy to imagine adverse shocks in the near future, and not at all clear how the Fed could or would respond. We are, if you like, half-out of the liquidity trap, with one foot on dry land — but the other foot is still hanging over the edge, and it wouldn't take much to topple us right back in.

What I would argue is that in this murky, fragile situation we should be conducting policy largely as if we were still in the trap--because we badly need to get both feet firmly on dry land with some distance between us and the quicksand. (And if I'm mixing metaphors--am I?--never mind. Throw the jackboot into the melting pot!) But it's not the crystalline case we used to be able to make.

Still, we need to deal with this murky situation right, which means embracing the uncertainty as part of the argument. Make murkiness great again!


 -- via my feedly newsfeed

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