Economic Growth Via Stimulus Is The Best Solution When Monetary Policy Is Constrained by Zero Bound

This article from an analyst at Goldman supports the analysis made by Larry Summers and Brad DeLong which argues that fiscal stimulus is necessary when monetary policy is limited, as it is today, by the zero bound. Their analysis shows that economic growth, generated by stimulus, will increase tax revenues and reduce government debt without the need for tax increases. It also argues that long term growth is impeded by letting an economy stagnate. It leads to a human capital shortfall and capital shortfall that reduce potential GDP. They also reject the hypothesis that the use of austerity, to increase investor confidence, is the best path for growth when monetary policy is constrained by the zero bound.

This link is to the full article posted on the DeLong blog.