Thread by @delong

@paulkrugman brookings.edu/bpea-articles/…

https://twitter.com/paulkrugman/status/1323622727467573248

Absolutely brilliant.

The sad thing is that so few got what I think is the principal message: In a full-employment flex-price economy, when you hit the zero lower bound the economy deals with it by generating inflation. If 1/

@paulkrugman think—as I do—that the task of the central bank is to make Say's Law true in practice even though it is false in theory & to mimic what a full-employment economy would do, that means: when you hit the zero lower bound, generate inflation.

But lots of people did not get that. 2/

@paulkrugman I find myself particularly thinking about Bernanke, whose take on Japan
princeton.edu/~pkrugman/bern… was that its depression was self-induced, and that claims of monetary-policy impotence violated an arbitrage condition. So prolonged depression was the central bank's fault.

Yet 3/

@paulkrugman when Bernanke got into the hot seat, he did not understand your major point: that a central bank can get an economy out of a liquidity trap not by force-feeding the economy liquidity and relying on arbitrage to do the job, all the while saying that he does not want to see the 4/

@paulkrugman inflation rate rise above 2%.

You get out of liquidity traps by saying: The Storm God of the Semites made inflation for a reason, and the reason is that we need it now—to take seriously the idea that a stabilizing central bank mimics the operations of a flex-price economy 5/

@paulkrugman in its essentials.

**Sigh**

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