Sumner and I are optimists (amv)

There seem to be two approaches to macro policy, once interest rates hit the zero bound:

1. The pessimistic view: In this view, monetary policy can do no more. Trade balances become a zero sum game. The US gains from some (not all) contractionary policies adopted by other countries, such as currency revaluation. If China sharply revalues its currency, it may cost millions of jobs in China, and hurt countries that export materials and machines to China, but it will boost jobs here. It might not be accurate to claim this is a zero sum game view of the world, but it comes pretty close. (By the way, I used the term ’sharply revalue’, as I think a gradual revaluation is in China’s own interest.)

2. The optimistic view: Even at the zero bound monetary policy is still the most important factor driving NGDP growth. It’s not a zero sum game. A sharp Chinese revaluation might reduce world AD. A dramatic easing by the Fed would not just depreciate the dollar against goods and services, it would sharply raise world AD, and world RGDP if there is slack in labor markets. This could easily help overseas firms, even in countries whose currencies might rise a bit against the dollar. In this view, you don’t look for jobs by trying to take them away from other countries, even countries that might be “misbehaving” according to some sort of arbitrary “rules of the game” that never did and never will exist, but rather you try to generate jobs in your own country by boosting your own AD.

The link.