Friday, April 30, 2010

Larry "Tippi" Kudlow

Sir Lawrence is seeing birds everywhere, doves to be specific. Easy money, inflation-indicing doves at the Fed wot with the addition of three new Obama appointees. He points out the singular guiding principle behind these economists' thinking - the Keynesian Phillips Curve tradeoff between employment and inflation. These people believe that employment is held down by a lack of aggregate demand. Nowhere in their worldview is employment tied entrepreneurial risk taking (Keynesian "animal spirits as applied to people with energy, ambition, capital, and creativity), so they can't conceive of a vicious policy assault holding back employment. It is a classic mismatch of remedy to problem bordering on comedy. Monetary authorities will continue to flood the system with liquidity as entrepreneurs rein in risk taking and deleverage to wait for a more benign investment climate. What is the resulting economic environment called? Stagflation.

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