Monday, December 27, 2010

Not Using AutoCAD

We have two policy goals. We want growth, and we want stable prices.

We have two policy tools: We have fiscal policy, and monetary policy.

We have one arrangement of tools-and-goals that we use all the time: We use monetary policy to fight inflation, and fiscal policy to encourage growth.

To fight inflation, monetary policy takes money out of circulation. To encourage growth, fiscal policy encourages spending and credit-use.

Our policies remove money from circulation, but encourage spending and credit-use. Because of these policies, nobody has much money and everybody has a lot of debt.

This problem is about as difficult to solve as the problem I talked about yesterday in the AutoCAD post. That problem was a typo. This one is a failure to notice a conflict in policy. The mistakes are not similar. But neither is difficult to fix.

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