Friday, August 26, 2011

We're Screwed, Part Whatever, Plus One

Krugman.

Obviously, the U.S. economy remains deeply depressed, and under normal conditions we would expect the Fed to pump it up by cutting interest rates. But the interest rates the Fed normally targets — basically rates on short-term U.S. government debt — are already near zero. So what can the Fed do?

Well, in 2000 an economist named Ben Bernanke offered a number of proposals for policy at the “zero lower bound.” True, the paper was focused on policy in Japan, not the United States. But America is now very much in a Japan-type economic trap, only more acute. So we learn a lot by asking why Ben Bernanke 2011 isn’t taking the advice of Ben Bernanke 2000.

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