Friday, February 19, 2016

Can And Should The US Economy Grow Faster Than Current Forecast?

The former president of the Minneapolis Fed argues that the US economy can grow at a 5% rate as some presidential candidates have suggested.  There are no technical reasons why that can't happen.  The questions is whether the benefits of stimulating the economy exceed the cost of doing so,  He answers that question in the affirmative because of two strong price signals:  low interest rates suggest that there is an excess of savings, and wage growth is well below productivity growth.  He believes that the benefits from faster growth exceed the cost of stimulating investment.  Moreover, monetary stimulus can't do it alone.  Fiscal policy is the only viable way to deal with the the lack of demand that would be required.  He concludes that there has been no better time to take the necessary steps in recent memory.  Of course, his conclusion would require a political response that it is out of the question in the US.

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