[quote=bsrsharma]
My question is: why resort to such a cockamamie idea instead of old fashioned inflation to prevent people from hoarding cash. If the Fed just buys about $1T of treasury paper from market every month, it should easily be able to set at least a 10% p.a. inflation. At that rate, most assets will be bought.[/quote]
BSR – I don’t think they are exclusive… Mankiw is describing one way in which they could promote price inflation by reducing the demand for money. The monetization you describe is another way, though Mankiw’s is broader and more focused on households.
This article was pretty much jaw-dropping to me. This guy is suggesting we openly punish people who save instead of running out and squandering every penny on things they don’t feel they need. (They already punish saving to an extent, but this takes it to a whole new level in terms of both openness and extent). As if the long-term prosperity of society is optimized by maximizing short-term consumption rather than saving wealth. This type of thinking is every bit as backwards as the housing bubble boosterism we heard in 2005, imho.
Mankiw is the author of one of the most widely used economics text, iirc, in addition to having been a presidential economic adviser to the last administration. So this is beyond a mainstream guy — he is one of the authorities in the field of economics.
This just goes to show how short-sighted and misguided mainstream economics is. And, by extension, economic policy, since it is informed by mainstream economics.
