Larry Summers is a VSCO girl. On central banks, fiscal stimulus, and why you should read Eric Lonergan

In case you’re not familiar with teen culture, VSCO girl is a fashion trend.

Surely, the Very Serious People who think about central banks are not susceptible to such fads, right?

I regret to inform you that the Very Serious economists and central bankers are just as prone to trends as teens on TikTok.

Recently, influential economists have been parroting that central banks need fiscal support. Mario Draghi, the Financial Times, Larry ‘TalleyrandSummers, Vitor Constâncio, Paul De Grauwe and Yuemei Ji, Olivier Blanchard… They all throw their hands up and cry uncle. ‘Our precious central banks are out of ammo, the government should fix the economy!’

But wait a minute. Weren’t independent technocrats supposed to be better at ensuring macroeconomic stability than politicians?

Leaving aside the question why the Very Serious People now ‘know’ that they sometimes need fiscal help, and didn’t realize this thirty years ago, is it even true?

Trump’s deficits support the US economy. In the euro area, calls for fiscal stimulus are ignored by finance ministers. So should Christine Lagarde‘s ECB just stop trying?

In Reply to Larry Summers, Eric Lonergan (politely) points out that the Very Serious People are cowards. Central bankers already have the tools needed to spur aggregate demand.

Economists dream up all kinds of complications, while millions of people suffer from un(der)employment.

Some economists will get hung up on how the Bundesbank will react, or what the effects are on the central banks’ balance sheets. That is precisely the problem we face – an abnegation of duty hidden behind a lack of political and intellectual courage.

Eric Lonergan

Paul Romer wrote “our profession needs to be open to the possibility that in a few cases, a few of its members are doing enormous harm”. Before we get rid of central bank independence, let’s immunize the community against paralyzing zombie ideas. Reading Eric Lonergan is a good place to start.

Further reading:

Helicopter money part I: where does it come from?

Central banks will always be political

Should central banks have an Independent Evaluation Office?

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