Tuesday, December 18, 2012

Jeff Sachs Argues That US Economy Requires Something Other Than Keynesian Stimulus

Jeff Sachs argues that the US economy does not suffer from a short term drop in aggregate demand.  That is why the US economy was not helped by the Keynesian approach to demand stimulation.  He is also critical of monetary policy.  He does not believe that low interest rates are a solution, and he also argues that low interest rates helped to create the real estate boom and bust.  He believes that structural changes in the economy are our real problem, and that we need a longer term plan to address the structural changes over 20 year period.  Policies designed to influence demand over the business cycle are not what the doctor should be ordering. 

The post that follows, takes issues with Sachs' arguments against the effectiveness of Keynesian stimulus, and his criticism of monetary policy.  Their criticism of Sachs is will taken.  I believe, however, that we do have underlying structural problems in the US and in Europe that need to be addressed.  In particular, globalization has not been well managed in many of the advanced economies.  Some of the investments that Sachs identified are also needed.  We do need a plan for dealing many of our problems that go well beyond the business cycle.

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