Nobel Laureate Economist Peter Diamond On The Need For Both Fiscal AND Monetary Stimulus

Peter Diamond discusses a few things :

• Economic projections deal with significant uncertainty. The job of policy makers is to compare projections over a wide variety of possibilities and design policy on best projections of the time.
• Monetary Policy doesn't work instantly ("the long invariable lag").
• The labor market has to be factored into BOTH of the Fed's mandates.
• The fed cannot control the labor market. It can only influence into the direction that seems best at a given time
• There is no broader crisis, or long term trend, for why the employment population is so low today. It is the result of the economic crisis.
• This recent economic crisis cannot be represented by just one individual model.
• This recent economic crisis combined both a banking and housing market failure to create something significantly different from a standard cyclical recession. The Economy will not bounce back quickly.
• We need to focus on projects such as infrastructure spending because we have an abundance of capital, interest rates are low, and we do get a Keynesian multiplier out of it.
• The government needs to find out what it needs to be spending more on and figure out to what extent that will help us out of this economic crisis.
• The slow level at which infrastructure spending will be implemented is not a problem since all forecasts say it will take a long time to get out of this economic crises anyway.
• Obama's first priority should be fiscal stimulus for jobs
• There should be less focus on stimulus size (relative to time frame) and more focus on what Washington does with the stimulus
• We need better education, worker training, and Research & Defense Spending. The government has been cutting back on R&D spending. Yet technology drives increased wealth in the country.
• Most, but not all, of our low employment is attributable to low aggregate demand, resulting in the need for both fiscal and monetary stimulus.
• Our goal right now should be to make the economy less vulnerable to a double dip recession
• Austerity is a long run problem, not a short term one. The level of public debt is comfortably below the level it has been historically for the bond market to push up interest rates
• Policies need to have a long run effect of reducing debt growth
• Austerity TODAY will make the economy MORE vulnerable to a double dip recession, which would significantly reduce tax revenue, thereby exacerbating the problem of austerity anyway
• Cutting back the number of teachers in public schools at a time when we need to improve education is not going in the right direction

He Also discusses his nomination to the Federal Reserve's board of governors, as well as his Nobel Prize in Economics.
Video from Greg Mankiw's Blog.