Further thoughts on federal lines of credit
When we contacted U-M Professor Miles Kimball about William Greider’s column, he sent us a number of links to his blog.supplysideliberal.com and further thoughts on the idea of using federal lines of credit as economic stimuli:
• In particular, here is my reply to Bill Greider, which has some important clarifications:
• The last paragraph of this one has links to posts about some other reactions:
• And here is another one:
• My academic paper on this is quite accessible as academic papers go.
• And the story of how well it worked to let World War I veterans borrow against their veteran’s bonuses during the Great Depression is important evidence that Federal Lines of Credit would work:
• My second post ever on my blog was a post on Federal Lines of Credit:
In that post I had this important paragraph from my paper about the relevance for Europe. In Europe, a program of national lines of credit could be especially helpful, because it allows countries in the Eurozone that need more stimulus to be stimulated more. By contrast, since there is only one currency, the Euro, in the Eurozone, there can only be one monetary policy, and the monetary policy that would be right for Spain, for example, would be too stimulative for Germany:
Austerity and traditional fiscal stimulus can only be reconciled by the difficult two-step of spending more or taxing less now while promising to spend less or tax more in the future. By contrast, it is perfectly possible to combine an immediate or relatively quickly-phased-in austerity program with the issuance of large national lines of credit to counteract the negative aggregate demand effects of the austerity program. (Some countries may be close enough to being shut out of credit markets themselves that they might need an outside loan to be able to provide national lines of credit to their citizens.) Politically, these lines of credit could be explained as a way to cushion the blow of an austerity program on household budgets as well as providing macroeconomic stimulus.
I plan another post on it soon to answer some recent criticism from Mike Konczal. In general I have not heard much criticism of the proposal. Most economists react favorably.