Home > Fiscal Policy, Monetary Policy > A Manifesto For Economic Decline

A Manifesto For Economic Decline

Here is the carefully crafted voice of consensus (I wonder if they have 364 signatures yet):

In the face of a less severe shock, monetary policy could take up the slack. But with interest rates close to zero, monetary policy – while it should do all it can – cannot do the whole job

Cannot do… “the whole job”?  It can do just part of “the job”?  What is this job?  Does monetary policy only work from Monday to Thursday, but takes a long weekend at the beach?  Because surely these wise heads cannot be talking about AD management, can they?  Is targeting the CPI rate one of these “jobs” for which monetary policy is now only partially capable?  It’s all so confusing.

Sure, there is stuff in there which is reasonable, but the whole thing reads like a poorly disguised cry for more deficit spending.  But at least they don’t mention Japan, do they, that would surely be foolish.


Let’s recall how well Japan has done with deficit spending and “impotent” monetary policy.  Here are the IMF numbers:

Year Nominal GDP Govt Net Debt to GDP
1992 ¥488tn 14%
2010 ¥481tn 113%

I think that counts as “not very well”.  Here’s a simpler six word manifesto:

Target the level of nominal GDP

… and here’s the appropriate soundtrack for our demise:

Have a nice decade.

(WIth apologies to Scott and everybody else whose ideas I shamelessly rip off with every post.)

  1. Ravi
    July 3, 2012 at 16:22

    my question for the day: should bob diamond be up for mervyn king’s job? diamond seems to be better at manipulating interest rates. (that’s a joke; i know interest rates show the stance of monetary policy…)

    • July 3, 2012 at 17:04

      Nice one! I think Diamond is even less likely to get the job than… say… Ed Balls. :)

  2. Ravi
    July 3, 2012 at 16:24

    whoops – interest rates DON’T show the stance of MP…

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