In abstract terms: It's not obvious to me that we must go winging off into inflation, deflation or along some other unstable path. Why can't the govt/CB print to provide demand, targeting a 2 or 4% inflation rate, then withdraw stimulus if/when we get to 2 or 4%? The system has not collapsed; in fact IBM just sold 3yr notes at 0.75%, and the 30yr treasury is under 3%. In fact every objective indicator says that we are slowly trending towards deflation.
In specific terms: According to this (*Chris Romer & others), we needed about $2 trillion in stimulus. Here's a simplified version of the calculation:
Bernstein’s calculation proved very similar. “The simple Keynesian answer is you take the GDP gap— actual GDP minus potential— sum it up over the downturn, and divide by the multiplier,” he wrote to me. “Using annual CBO potential GDP and the real GDP on the books for 08-2010, you come up with a GDP gap of around $3 trillion. Divide that by 1.4, and you’d need around $2 trillion, more than twice the ARRA.”
The saltwater guys have specific quantitative recommendations, and further, their model's prediction of growth given the $785 billion stimulus turned out to be pretty good. Again, surely some burden of proof rests on their critics, who insist that the situation has no solution, and/or saltwater's approach necessarily must end in us catastrophically winging off to one bound or another, no?
A suboptimal 'muddle through' is the likely result, IMO, with the only catastrophic bound being a deflationary spiral. I mean, where's even the vaguest indication of hyperinflation? If a conceptual model doesn't fit the facts, one needs to change it.
Block out all the political screeching, and just look at Romney and the US healthcare situation objectively.
Three facts: 1) Romney put a plan in place in Mass that's very similar to ObamaCare (albeit with help from Ted Kennedy). 2) Obama getting the Affordable Healthcare plan through Congress was, as Joe Biden said, "a big fucking deal". Pretty much every president since Eisenhower tried, and failed. 3) Romney lies his ass off, even for a politician, like no one we've ever seen before.
If Romney's elected, who honestly believes he'll end the govt healthcare plan. Americans would immediately start yelling that the grass was greener on the other side of the fence.
Shooter: "When the FED is buying all new debt....will you want to hold existing UST notes on the secondary market?"
Yet the 30yr Treasury is under 3%, and IBM just sold 3yr corporate bonds at 0.75%. The ugly fact is that we're not (yet) going into an inflationary meltup.
Question for the anti_Krugmans: "How can we all practice austerity (cut back on spending) at the same time?". My spending is your income.
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