Explaining the Deficit

Weekly Economic News Roundup and explaining the deficit
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Comments (1)
  1. Rick Shapiro says:

    Fiscal (not monetary) policy is the one worthy of attention. But we should keep in mind that, comparing upper tax bracket levels between the era of sustained fast growth (50s and 60s) to today shows that there is plenty of room for taxing the rentier class without crimping social spending; just as the extremely low inflation post 2008 showed that the fiscal stimulus was much too small.
    But paralysis of fiscal policy abdicates macroeconomics to monetary policy, which basically pushes on a string. Consequently, the fed pushes so hard that they break things, keeping rates so low that they provoked asset inflation, and now continuing to raise rates before allowing raises to work through the economy, thereby assuring the next recession.
    Monetary policy that pushes so hard that it actually has an effect, sufffers from enormous instability resulting just from delay in effect. Viewing monetary policy as the complex transfer function in a negative-feedback control system, these delays inevitably cause transfer function zeros to appear in the positive half-plane. At best this results in instability (in economic terms, extreme business cycles), at worst in pegging to a voltage rail (in Keynsian terms, switching to an inferior equilibrium)

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