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Chris Hayes makes the case for a more aggressive Fed

And he does it with folksy analogies!

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The idea that the Fed should shift its stance and do everything possible to get the recovery moving is still a minority position. But the argument doesn't seem to have joined: I haven't seen members of the Fed, or people who agree with members of the Fed, explaining clearly why the Fed should hold back, what the downsides of a more aggressive intervention would be, why the risk of a soft and slow recovery isn't greater than the risk of the Fed pushing into the market. Instead, they're just not doing any of it.

I'm sure the Fed has reasons for its reluctance, and it's possible that its members have made their arguments in forums I've not noticed. But I'd like to understand the other side of this debate in more detail than I currently do.

Update: This Economist roundtable airs both sides of the argument, and is well worth a read.

By Ezra Klein  |  August 17, 2010; 10:31 AM ET
Categories:  Federal Reserve  
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Comments

"The idea that the Fed should shift its stance and do everything possible to get the recovery moving is still a minority position."

If you put it that way, I suppose that is a true statment. But I think a major unanswered question in the minds of most observers is why the Fed makes no adjustment in its policies when it consistently fails to meet its own targets, and many increasingly question the inflation target that is in place, given the current conditions.

Posted by: Patrick_M | August 17, 2010 10:49 AM | Report abuse

Lewis Ranieri at the Treasury Housing Finance shindig is worth a listen, on the origins and initial rationale for the GSEs in the mortgage markets -- national standardization of mortgage products, etc

Posted by: bdballard | August 17, 2010 10:53 AM | Report abuse

unrelated questions for dylan:
there's a story in the NYT referencing a study into the relative rates of utilization of routine medical care during recession in countries with strong social safety nets. could you give a more wonkish analysis of the paper?
also, the medical cost component of CPI also dropped for the first time in a long, long, long time this month. i'm wondering if you could give a rundown of how this number is calculated and whether the decreased utilization of medical care affects it.
from a concerned medical student, thanks.

Posted by: strobes | August 17, 2010 12:14 PM | Report abuse

I think the best argument is the pushing on the string argument. You and others have said that the situation is so bad, that we should do anything and everything we can. The Fed might be thinking, as bad as things are, it's not bad enough that action would make a significant difference, but if we shoot our bullets now, then we won't have anything left if the economy double dips, which is when action could make a difference.

I think other strong arguments are that the Fed will receive significant criticism if it acts to expand its balance sheet, which can have significant effect on its independence, and that if action doesn't work, then it definitely will take a big political hit.

Although I'm not sure that any of these arguments are correct, I do think that they are reasonable, which makes it grating when certain people like Matt Yglesias just assume it must be because Bernanke is a cold-hearted Republican who doesn't give a damn about the unemployed.

Posted by: JamesCody | August 17, 2010 1:32 PM | Report abuse

The case made by Chris Hayes is a solid economic argument, yet they only address part of the problem.

Much has been written about corporate unwillingness to make investments, but much has also been written about the need for increased demand. The larger issue is about both supply and demand (or corporate investment and consumer spending). In our current economic situation supply may not be enough to drive demand.

Fed action may be warranted, but the case still exists for measures to stimulate demand.

Posted by: MassachusettsLiberalinDC | August 17, 2010 7:02 PM | Report abuse

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