I dislike to disagree with James Hamilton, as he is an economist I truly prize. The idea, though, that current conditions are the best We can expect seems downright wasteful of both Labor and Capital. Congress needs to stop giving Business Tax Cuts which they utilize to no one’s benefit but themselves, and the Fed needs to stop giving Business Free Cash which they only utilize to purchase Treasuries at higher rates of Interest. Times would become much better much faster if Congress would give their spare Cash they don’t have to the States for infrastructure replenishment and Clean-Up projects. I don’t know Why economists cannot understand that the only method to improve Consumption will likely be to raise the Household Income of most Americans, which the prior two methods of Stimulus sincerely do not!
I don’t believe that low Interest rates incite deflation, or even disinflation. At the same time, I don’t much care for Paul Krugman’s advocacy of low Interest rates. I personally believe far more in the availability of Cash setting Interest rates, but this availability also includes the Fed’s willingness to flood the markets with Cash; a disaster of a Concept if ever I heard of one. I have long been an advocate of a stable fed funds rate set at around 4% through all kinds of economic weather, with at most a percentage point difference during Recessions. Keynesians and Monetarists must someday reach the Conclusion that there is very little impact upon the economy unless the funds reach beyond the financial community. Making well-heeled bankers is not the medium of economic success.
The one element plainly expressed in the current downturn stands as the refusal of mortgage issuers to aid mortgage recipients in any definable manner. These institutions still expect the promised rate of Returns for their instruments as they were initially agreed, and resist all relevant attempts to provide any real ease of escape from the onerous terms. This makes it extremely difficult for Households to expand their Consumption, a necessary component for the reactivation of the economy. Governments–federal, State, and Local–must again become major Consumers; a factor which will not happen without federal extension of financial aid to the lower levels. Understand that the success of the FDR administrations was not attributable to the monetary policies originated in the 1960s, and expanded through the decades. It was achieved by the conscription of actual labor through Government Spending. It is what is needed Now, and I wonder when the Participants at Jackson Holes will come to realize this Truth. lgl