Wednesday, January 7, 2009

Bob Lucas on the Best Stimulus Plan: Monetary Policy

The Wall Street Journal has an article written by Bob Lucas (HT Selva Brasilis) that discusses the role of monetary policy during the current recession and supports the stance of Fed Chairman Bernanke. Here's the main point of the article:
There are many ways to stimulate spending, and many of these methods are now under serious consideration. How could it be otherwise? But monetary policy as Mr. Bernanke implements it has been the most helpful counter-recession action taken to date, in my opinion, and it will continue to have many advantages in future months. It is fast and flexible. There is no other way that so much cash could have been put into the system as fast as this $600 billion was, and if necessary it can be taken out just as quickly. The cash comes in the form of loans. It entails no new government enterprises, no government equity positions in private enterprises, no price fixing or other controls on the operation of individual businesses, and no government role in the allocation of capital across different activities. These seem to me important virtues.

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