From Scott Sumner, but endorsed by me in full:
Take the current situation in the UK. If I’m not mistaken, the British political system is different from that in America. British governments are basically elected dictatorships, with no checks and balances. Even though the Bank of England is independent, the government can give it whatever mandate it likes. If I’m right then both fiscal and monetary policy are technically under the control of the Cameron government.
So I read the UK austerity critics as saying:
“Because you guys are too stupid to raise your inflation target to 3%, or to switch over to NGDP targeting, fiscal austerity will fail. We believe the solution is not to be less stupid about monetary policy, but rather to run up every larger public debts.”
Is that right? Is that what critics are doing?
Some will argue that my views are naive, that Cameron would be savagely attacked for a desperate attempt to print money as a way of overcoming the failures of his coalition government. Yes, but by whom? Would this criticism come from Ed Balls? Perhaps, but in that case he would essentially be saying:
“It’s outrageous that the Cameron government is trying to use monetary stimulus to raise inflation from 2% to 3%, whereas they should be using fiscal stimulus to raise inflation from 2% to 3%.”
I’m sorry to have to repeat this over and over again, but what 99% of pundits on both sides of the Atlantic are treating as a debate about “stimulus” and “austerity” is actually a debate about stupidity. I’m not saying the pundits are stupid (Krugman certainly understands what I’m saying) but rather they are addressing their audience as if the audience was stupid.
Don’t talk down to Cameron and Osborne! Don’t say “austerity will fail.” Say “austerity will work, but only if the BOE becomes much more aggressive, otherwise it will fail.” That sort of advice would be USEFUL. Instead we are getting a bunch of pundits getting ego boosts because they can say “I told you so.”
Scream it from the rooftops!