Friday , September 25 2020
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Wait for some clarity?

Summary:
Have you noticed that: The same people who a month ago failed to predict that the Western world would go into a coronavirus crisis and the stock market would crash . . . And the same people who a month ago failed to predict that China and some other parts of East Asia would see community transmission quickly fall close to zero . . . Are now confidently telling us how things will be in 6 months, and also that life will be radically different 10 years from now? I wonder if it makes sense to wait another month or so to get some clarity on whether the pace of new cases will fall sharply (due to recent social distancing), before passing multi-trillion dollar “stimulus” that might look wildly excessive or wildly inadequate a few months from now? Why not just pass a bill that

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Have you noticed that:

The same people who a month ago failed to predict that the Western world would go into a coronavirus crisis and the stock market would crash. .

And the same people who a month ago failed to predict that China and some other parts of East Asia would see community transmission quickly fall close to zero. .

Are now confidently telling us how things will be in 6 months, and also that life will be radically different 10 years from now?

I wonder if it makes sense to wait another month or so to get some clarity on whether the pace of new cases will fall sharply (due to recent social distancing), before passing multi-trillion dollar “stimulus” that might look wildly excessive or wildly inadequate a few months from now? Why not just pass a bill that addresses needs for a month or two, and then revisit the situation when we know more?

Why send 100 million people who still have jobs a check for $1000? The cost of living will fall this year, so I don’t see how people who are employed need a huge bailout. (The unemployed are different—yes, throw money at them.)

Monetary policy is a bit different. Unlike fiscal policy, it is not costly. If the Fed buys $10 trillion in bonds, it can sell them a month later if the situation improves unexpectedly. The long run commitment we need is level targeting; the rest is just a means to an end.

The bills now being debated in DC only make sense if the US is not able to do what China has done.  I’m willing to concede that we might not be able to achieve the same success.  I’m even willing to concede we probably won’t be able to achieve the same success.  But is it impossible that we could achieve a similar outcome?  You’d have to have a pretty low opinion of the United States to assume we could not possibly achieve a public health outcome that China has already achieved in a very short period of time.

PS.  I’m one of those people who failed to predict how things would play out.  But at least I’m smart enough to be agnostic on what things will look like in 6 months.


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Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment".

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