This blog looks favorably upon a more aggressive monetary policy from the Fed, so it behooves me to pay attention when economist Joseph Stiglitz comes out saying that urging the Fed toward looser interest rates and quantitative easing would be "sheer folly." But it turns out that he's not really arguing against this approach per se, but rather against the subset of people who have been arguing that aggressive monetary policy will allow the U.S. to pursue budget austerity. I have no idea who's making that argument (Stiglitz doesn't say), and normally I see the same people who argue for budget austerity also arguing that the monetary policy should be tighter.
Nonetheless, the point is valid: Fiscal policy is better understood and a surer path to economic stimulus than the bank-shot financial effects of quantitative easing. But Congress, moving to the right, isn't going to approve further economic stimulus any time soon -- for years, perhaps -- so many commenters have been focused on what the Fed can do, since Chair Ben Bernanke seems inclined to take some new steps after the election. That focus on the Fed doesn't mean, however, that proponents of monetary action favor austerity in budgeting. It just means we favor action.
-- Tim Fernholz
