Scrap the stimulus, says Allan Meltzer
Wall Street Journal last week, Allan Meltzer argued that comparisons of the current recession to the Great Depression are “greatly overstated and highly misleading.” After explaining why he thinks “many opinion makers insist on inaccurate and frightening analogies that overstate the severity of present conditions,” Meltzer goes on to argue that “with recovery in sight,”
A sensible administration would revise its policy. It should start by scrapping what remains of the stimulus. As the world economy recovers, the United States should choose to expand its exports so that it can service its large and growing foreign debts. That means reducing corporate tax rates to increase investment. Instead of implementing policies that increase regulation and raise business costs, we need to increase productivity. And the Fed should soon begin to reduce the massive volume of outstanding bank reserves, which is the raw material for future money growth.
Of course, Meltzer also discusses needed reforms of the financial system in the latest volume of his acclaimed History of the Federal Reserve, which tells the story of one of America’s most influential but least understood public institutions. With an eye on the present, Meltzer offers solutions for improving the Federal Reserve, arguing that as a regulator of financial firms and lender of last resort, it should focus more attention on incentives for reform, medium-term consequences, and rule-like behavior for mitigating financial crises.