Tags: Rogoff | Bernanke | More | Inflation | jobs | economy

Rogoff: Bernanke Should Shoot for More Inflation

Friday, 03 Sep 2010 08:22 AM

Economist and Harvard professor Kenneth Rogoff says there’s no magic bullet to cure this recession.

“The honest answer — but one that few voters want to hear, is that … it took more than a decade to dig today’s hole, and climbing out of it will take a while, too,” Rogoff writes in Project Syndicate.

However, given the massive deleveraging of public-sector and private-sector debt that looms, Rogoff says Federal Reserve chairman Ben Bernanke should shoot for more inflation and buy more government bonds or private-sector debt.

“Two or three years of slightly elevated inflation strikes me as the best of many very bad options, and far preferable to deflation,” Rogoff says.

“While the Fed is still reluctant to compromise its long-term independence, I suspect that before this is over it will use most, if not all, of the tools outlined by Bernanke.”

Rogoff finds the G-20’s policy of aiming to bring growth in national debt into line with national-income growth by 2016 a reasonable approach to balancing short-term stimulus against longer-term financial risks, even at the cost of lingering unemployment.

He notes that many Americans believe that the simple solution to the nation’s problem is just to cut taxes and goose up private consumption.

“Cutting taxes is certainly not bad in principle, especially for supporting long-term investment and growth,” Rogoff says. “But there are several problems with the gospel of lower taxes,” including our huge public sector debt and the strong possibility that tax cut beneficiaries might well save instead of spend.

Moreover, since nearly half of all Americans do not pay any income tax already, cutting taxes skews an already very unequal income distribution.

The Washington Post reports that, with interest rates near zero and the Federal Reserve already owning a large share of the mortgage and securities markets, many investors fear the central bank may be out of ammunition should the economy take a serious turn for the worse.

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Economist and Harvard professor Kenneth Rogoff says there s no magic bullet to cure this recession. The honest answer but one that few voters want to hear, is that … it took more than a decade to dig today s hole, and climbing out of it will take a while, too, ...
Rogoff,Bernanke,More,Inflation,jobs,economy
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2010-22-03
Friday, 03 Sep 2010 08:22 AM
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