Thursday, September 23, 2010

How to Stimulate Aggregate Spending

There has been an uptick in the discussion of what exactly the Fed should do to stabilize aggregate spending.  Folks like Kevin Drum and Matthew Yglesias love it since it gives cover for the Fed to be more aggressive.   Well, it seems the folks behind the Wizard of Id comic strip have been reading these blogs because today they came up with their own radical proposal: (Click on figure to enlarge.)

Actually, this proposal is not that new as it was recently promoted by Greg Mankiw and William Buiter.  This approach does create some serious problems as noted by Rajiv Shastri, but it would be highly effective in stimulating aggregate spending.  My preference is to go with Scott Sumner's proposal.

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