Politics Can’t Handle the Truth About Austerity
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June 5 (Bloomberg) -- What we know, or think we know, aboutfiscal policy five years after the global recession startedisn’t all that different from what we knew, or thought we knew,back in 2008. It boils down to two points. One, fiscal stimulusis essential when conventional monetary policy is powerless.Two, fiscal stimulus may be impossible even when it’s essential.
Most economists agree that changes in interest rates areusually a better way to regulate demand than discretionarychanges in taxes and public spending. But interest rates can’tfall to less than zero. When that limit is reached -- as it wasin this recession -- fiscal policy must carry a bigger load.