Sumner's open letter to conservatives (amv)

Click here. Teaser:

4. “Doesn’t printing money just paper over real (structural) problems in the economy?” There are structural problems, but there is also a shortfall of nominal GDP. The structural problems showed up when growth slowed in late 2007 and early 2008 as a result of sharply lower housing construction. This is necessary re-allocation of resources and should not be resisted. But even Friedrich Hayek suggested that we needed to avoid a “secondary deflation”, which would show up as falling NGDP, and would depress output in even those healthy industries that had not over-expanded. In late 2008 output fell across the board as NGDP declined. Monetary policy can only address the insufficiency of total nominal spending, not the structural problems. Furthermore, more nominal spending would boost employment, which would speed up the time when Congress eliminates the 99 week extended UI benefits–which is one of the structural problems.