Over the last 10 months I have become increasingly aggressive in my criticism of the current state of macroeconomics. I talked about all of the double standards. Fiscal policy is discussed in terms of whether it can create jobs. Monetary policy is discussed in terms of its impact on inflation. Which sounds better, jobs or inflation? Obviously jobs. Yet there is nothing in macro theory that would justify this dichotomy. Indeed, if anything an AD shock driven by government spending would be expected to be more inflationary than equivalent shock created by monetary policy. That’s because the private sector can usually spend money a bit more efficiently than the public sector.
If your intuition still tells you that monetary policy is more of an inflation threat than fiscal policy, you are probably right. But that is because, and only because, you intuition is correctly telling you that monetary policy is a far more powerful tool for boosting NGDP. Which begs the question of why so many economists support fiscal stimulus, and so few criticize the Fed.
That's economist Scott Sumner. Someone who has long argued that our monetary policy response to this crisis isn't what it should be and isn't even what most people (including many economists) think that it is.
The recent debate over more fiscal stimulus has basically swamped any talk of additional monetary moves. While some would argue that there are no monetary moves left available due to incredibly low nominal interest rates, I'm not convinced that that is really the case.
Now the talk is are we repeating the mistakes of 1937 and not stimulating the economy enough. Perhaps it's the monetary policy mistakes of 1937 that we are repeating, and if we are, I'm doubtful those can be offset by further fiscal measures.