Central Bankers Hear Plea: Turn Focus to Government Spending.
GRAND TETON NATIONAL PARK, Wyo. — Central bankers who gathered here to discuss better ways of jump-starting slow economic growth received a surprising message from their lunchtime speaker on Friday: Stop. You’re making things worse.
Christopher A. Sims, a Nobel laureate in economic science, told the annual conference that increased government spending was required to lift the world’s major economies from stagnation. The pursuit of innovations in monetary policy, he said, is diverting needed attention from the inaction of fiscal policy makers.
“So long as the legislature thinks it has no role in this problem, nothing is going to get done,” said Mr. Sims, a professor at Princeton. The best hope, he said, “is that people at central banks are willing to say publicly that this is what is necessary.”
Developed nations have leaned heavily on their central banks since the 2008 financial crisis. The United States, Europe and Japan have all relied on low interest rates to encourage increased spending by businesses and consumers even as government spending has remained relatively austere. Mr. Sims is among a growing number of experts who warn that this experiment has reached its limits.
The central banks have pushed rates to historically low levels. The European Central Bank and the Bank of Japan have even imposed negative interest rates, effectively taxing savings to encourage spending. Yet job growth and inflation remain stubbornly weak. Benoît Coeuré, a European Central Bank official, drew laughter from the audience when he noted the “good news” that eurozone inflation had doubled last month — from an annual rate of 0.1 percent up to 0.2 percent.
In the United States, the Federal Reserve responded to the crisis more forcefully than other central banks, and the federal government initially spent more freely. Yet here, too, growth remains slow, inflation remains weak and millions of middle-age people are no longer working.
Mohamed A. El-Erian, the chief economic adviser at Allianz, warned in a recent book, “The Only Game in Town,” that time was running out. If developed nations do not increase spending and pursue structural reforms in the next few years, Mr. El-Erian predicted, they will be locked into a new reality of slower growth.'>>>
http://www.nytimes.com/2016/08/29/business/economy/central-bankers-hear-plea-turn-focus-to-government-spending.html?
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