Thread by @BruceBartlett

I see that @LHSummers is concerned about the impotence of monetary policy in the current macro environment. Maybe I'm just an old-fashioned Keynesian, but I don't think fiscal policy has really yet been mobilized.

@LHSummers One problem is that economists focus too much on the deficit without examining how the deficit is used. Fiscal policy needs to stimulate SPENDING to work--either through private consumption or business investment in capital goods.

@LHSummers The reality is that tax cuts don't stimulate spending because the people who would spend the additional income don't pay income taxes and investors are not buying capital goods, but engaging in share buybacks.

@LHSummers The wealthy don't spend any of their additional after-tax income because they already have everything they want. The money is just saved. This means that tax cuts are essentially just a transfer that is saved. Therefore, no stimulus to aggregate demand.

@LHSummers What Keynes said is that in such circumstances, the government must buy "stuff"--goods and services. This is best done through public works because it will stimulate both long- and short-term growth.

@LHSummers And we need lots of stuff--especially projects to deal with climate change and global warming. Rising sea levels and more intense storm activity are going to create flooding, and we know exactly where. All that's missing is the money--which at current rates is almost free.

@LHSummers We will know when we have spent enough when inflation and real interest rates rise. Those two things will also make monetary policy effective and fix the problems that Larry is concerned with. In the meantime, we should spend, spend, spend.

@LHSummers The only constraint is political. Lying Republicans will once again become "deficit hawks" and the media will solemnly repeat their lies and demand action. Democrats are too feckless to fight back. That only leaves us with the Fed pushing on a string.