Sunday, June 26, 2011

restated thesis disease


i'd like to see a deep discussion of this implicit thesis in mainstream new keynesianism

example:

http://krugman.blogs.nytimes.com/2011/06/26/monetary-policy-in-a-balance-sheet-recession-wonkish/?gwh=55909E873C5974633114D70C1E4986A0

statement of thesis:

"There is always a  sufficiently low real interest rate that would produce recovery"

which amounts to the assertion
any market system can be stablized no matter what it pulls on itself
so long as
at the core of the market system's credit sector
is a central bank with a limitless money mine

of course can is not will
and gentle ben may well not use all the power he has
and he hasn't

believe this and US fiscal policy the handmaiden of the congress and thus politics
 can be by passed on our way to a full recovery even when we hit the zero bound
by the  actions of an independent guardian fed  only

do we really believe this
or is it simply the reification of our simple Hicksian type IS  modeling  assumptions
models that merely assert the non floor under  real r
and  that there is always a reachable real r
that would allow the market system to restore itself
without a gubmint fiscal sector
now thgis is not a comparative dynamics  assertion
ie it is not making claims about faster to recovery versus a  fiscal deficit driven recovery
nor is it an efficency or  social welfare improving assertion

 but still
  is it just a pigou gambit
or have we still too mkuch reliance on fed policy to stablize the economy
too much reliance on elite behind the curtain "solutions"
to stablization problems