Despite the Fed’s historic actions, the economy is still ailing. Barry Bosworth says fiscal policy needs to be the next step: expenditures are important, with tax cuts being the quickest way to stimulate the economy.
“I think we have to have an active federal reserve under present circumstances. It is certainly breaking all past precedents, and I don’t think thus far its been terribly effective the best we can say is it has prevented the situation from getting even worse, but it’s very hard in this sort of situation to induce financial institutions to be responsible. I think we have now run the course of major monetary policy actions the Federal Reserve in the future can be supportive of fiscal policy, but I think the current situation calls out for large fiscal policy direct impact on the real sector of the economy. The role of the Federal Reserve is to make sure all those activities get fully financed.”
“…People used to argue about fiscal stimulus in A,B and tried to choose between them the current situation has gotten so serious I think you’ll see the federal government do a little bit of everything. There’s no need to choose anymore, we used to argue that we wanted it to be quick and temporary, now temporary is far less important. This recession is going to go on for several more years, so yes we want to be quick we have to get doing more because as we sit here debating what to do hundreds and thousands of people are losing their jobs every month, so we got to move more quickly, but I think the Federal Government can now afford to do things like cutting taxes but they can also do a lot of expenditures. I favor taxes simply because they can operate more quickly. For example like unemployment tax production would take effect very fast, and get money into the hands of people who would spend them, but as time goes on say beginning to the latter part of 2009 and into 2010 I would expect more an more of the burden be taken over by expenditure policies. Infrastructure is an obvious area, but the United States has been under investing in its infrastructure for many years, might as well take advantage of this opportunity to repair what has become sort of become crumbling infrastructure.”
“…I think clearly the problem of inflation just disappeared overnight at the same time I don’t think people should be focusing on the idea of deflation either. I think all were seeing is an unwinding of the commodity price increases in the last couple of years. we shouldn’t be focusing on prices. It’s really not telling us anything right now. What we need to focus on is creating jobs for people, and that means we should emphasize again the rate of growth in the GDP, and our ability to get an increase in employment, so I think the Federal Reserve is very clear about that. I hope that the new administration is very clear about that. The problem is to generate economic activity don’t worry about inflation don’t worry about deflation. Neither one of them is a particular relevance to the current situation.”