Mankiw: We Need Fiscal Hawks, Monetary Doves

This post (and Mankiw's) have thrilled Scott Sumner, understandably.

Agricultural subsidies as % of GDP have been declining for years in the EU - eliminating them entirely would only get you 0.5% of EU GDP these days.

www.oecd.org/dataoecd/37/16/43239979.pdf

The net effect of a monetary expansion combined with a fiscal contraction would be to shrink the relative size of the government sector, which is why this policy will never be adopted until all other alternatives have been exhausted.

It's hard not to re-read this as "economists think that politician-led solutions should be abandoned in favor of economist-led solutions."

Democratic principles put fiscal policy mostly in the hands of elected politicians. The principle of central bank independence mostly places monetary policy in the hands of economist technocrats. Is anybody surprised economists think politician solutions are of limited effectiveness but economist solutions are appropriate? Politicians similarly focus their energy on stimulus appropriations and temporary tax rebates, not monetary solutions that (in the US, at least) they can't really control.

To rephrase myself: when all you have is a hammer, every problem looks like a nail.