My economics professor once said that fiscal and monetary policies have their time and place. Like telling a joke, the timing and delivery of the punch line is very important; therefore when implementing fiscal and monetary policies, timing is everything.
As rule of thumb, he said, "When we are in a glooming economic condition..i.e. financial crisis and the great depression, fiscal policy is very effective. When in boom, monetary policy is more effective in influencing the economy."
Therefore, current economic conditions merit fiscal policy rather than monetary policy since there is not any policy traction from the Fed. At the same time, fiscal stimulus policy is running against the wind of the fiscal hawks who fear the budget deficit will undermine ecocomic growth in the long run.
Ineffective monetary policy + no fiscal stimulus for fear of a high budget deficit = depression-like economic conditions.
Hi Sing,
ReplyDeleteI learned something new today. Now, we're going into depression great!
Nice blog, I'll follow it.
Dwight
Dwight,
ReplyDeleteI meant depression-like economic conditions like it was described in Krugman's book Depression Economics, which is high unemployment in the magnitude of a 3-5 years horizon.