In my second post, “Getting the Biggest Bang for the Buck with Fiscal Policy,” I wrote about my interview with Bill Greider and promised I would let you know when his article came out. Bill Greider is national affairs correspondent for The Nation, and the author of Secrets of the Temple, a history of the Federal Reserve. And at the link under the picture, you can see a short clip of Bill Greider talking to Bill Moyers that will give you some of the experience I had in meeting Bill Greider. Bill’s article is out now, on The Nation’s blog. Here it is. The simple summary is that Bill is pushing my proposal of Federal Lines of Credit as hard as he can, while connecting it to some of his own longstanding interests.
Let me say what I hope is obvious: this blog and my relatively accessible academic paper “Getting the Biggest Bang for the Buck in Fiscal Policy” are authoritative about what I am proposing in relation to Federal Lines of Credit, not Bill Greider’s post. (See also the Powerpoint file for my presentation at the Federal Reserve Board.) But though Bill’s nuances are very different from mine, the only serious issue I have with his post is that Bill makes it sound as if I want to have a less independent Fed. Far from it! What I actually said in my paper “Getting the Biggest Bang for the Buck in Fiscal Policy” is this:
The lack of legal authority for central banks to issue national lines of credit is not set in stone. Indeed, for the sake of speed in reacting to threatened recessions, it could be quite valuable to have legislation setting out many of the details of national lines of credit but then authorizing the central bank to choose the timing and (up to some limit) the magnitude of issuance. Even when the Fed funds rate or its equivalent is far from its zero lower bound at the beginning of a recession, the effects of monetary policy take place with a significant lag (partly because of the time it takes to adjust investment plans), while there is reason to think that consumption could be stimulated quickly through the issuance of national lines of credit. Reflecting the fact that national lines of credit lie between traditional monetary and traditional fiscal policy, the rest of the government would still have a role both in establishing the magnitude of this authority and perhaps in mandating the issuance of additional lines of credit over the central bank’s objection (with the overruled central bank free to use contractionary monetary policy for a countervailing effect on aggregate demand).
Let me explain that “National Lines of Credit” is just another name for “Federal Lines of Credit” that I use in the paper because that name of the program works better in Europe, where it is most likely to be done by individual nations rather than by the Eurozone as a whole.
What I want is amore powerful, but still fully independent Fed. In particular, I want a Fed that is in charge of aspects of policy that are in between traditional fiscal policy and traditional monetary policy and a Fed permitted by law to purchase a wider range of assets, as the Bank of Japan is. (See my post “Future Heroes of Humanity and Heroes of Japan.”) I believe that the Fed is doing less stimulus than it otherwise would because it is not fully comfortable with balance sheet monetary policy on the scale required. (See my post “Trillions and Trillions: Getting Used to Balance Sheet Monetary Policy.”) In other words, I am claiming that if the Fed had been given the authority by Congress to use Federal Lines of Credit as a tool, it would have done more stimulus, and the economy would be in better shape. (On my respect for the Bernanke Fed, see the lead-in to my first list of “save-the-world” posts.)
Two things I hope that Bill mentions if he returns to this topic in the future, as I hope he does, are
- the evidence from history that Federal Lines of Credit will work that is flagged in my post “Brad DeLong and Joshua Hausman on Federal Lines of Credit,” and
- my proposal to use the timing of the Federal contributions for Medicaid as a way of getting States to spend more in recessions. See my post Leading States in the Fiscal Two-Step, and the comparison with Mark Thoma’s related proposal in my post “Mark Thoma on Rainy Day Funds for States.”
I hope to have many more interactions with Bill Greider in the future, both in cyberspace and in person.