A Textbook Perspective on Current Events
By Arnold Kling
Like a decadent buffet at an expensive hotel, securitization involves lumping together large numbers of individual financial instruments such as mortgages and then slicing and dicing them into different pieces that appeal to different types of investors.
Like a mediocre paper in a freshman lit class, writing an economics textbook involves coming up with awkward metaphors that only frustrate and annoy the reader.
current monetary policy is quite expansionary, with the fed funds rate essentially at zero. This rate is even lower than what the Taylor Rule would suggest, and this has been true throughout the recession.
Then the recession is almost over, right? I put the Taylor Rule in the same category as the Don’t Step on a Crack Rule.
On the surface, Japan’s slow growth in the 1990s might be taken as evidence of little payoff from its fiscal stimulus. On the other hand, Japan did not experience a depression in the 1990s despite enormous collapses in the stock market and the housing market. Perhaps the fiscal stimulus did its job in preventing the “lost decade” from becoming something worse.
One view of the Japanese stimulus (or multiple stimuli) is that it (they) failed because it was (they were) too small. Just as the reason that in World War I all British attacks prior to the Battle of the Somme failed was because they were too small.