Yet another reason for monetary policy to target nominal income. Read the rest of Scott's post here.
We do need much smaller budget deficits ASAP, but we also need much more stimulus. How do we achieve these two seemingly incompatible goals? With a much more aggressive policy of monetary stimulus we can get faster NGDP growth, and this will reduce fiscal deficits in two ways:
1. The automatic stabilizer part of the deficit will shrink naturally.
2. There will be less need for discretionary fiscal stimulus.
Tuesday, June 16, 2009
Balancing Deficit Concerns Against the Need for Stimulus
Scott Sumner provides some fresh perspective: