the case for economic stimulus

“Our unprecedented, decisive and concerted policy action has helped to arrest the decline and boost global demand.” Thus did the finance ministers and central bank governors of the Group of 20 leading high-income and emerging economies pat themselves on the back [at this year’s Jackson Hole monetary symposium]. ….

Two groups of thinkers reject this viewpoint. One argues that the economy is always in equilibrium. If unemployment has exploded upwards it can only be because, after Lehman imploded, workers chose to take a holiday. An alternative view is that depressions are the natural consequence of excess. Both the guilty and the innocent must suffer, as past errors are purged.

Rightly, policymakers rejected such views.

Martin Wolf, “Why it is still too early to start withdrawing stimulus“, Financial Times, 9 September 2009.

The always sensible Martin Wolf, associate editor at the Financial Times, explains why monetary and fiscal stimulus was necessary, and argues that it ought to continue, given the fragile state of the private sector in today’s economy. “[P]remature monetary and fiscal tightening”, in Wolf’s view, “could cause another economic downturn”. Thought du Jour agrees.

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