In weak economies, these two policy behemoths are complements, not substitutes. Over at PostEverything–it’s a summary from a chapter from my book, out in a few weeks!
Special tabular bonus for OTE’ers:
Source: Bernstein, The Reconnection Agenda: Reuniting Growth and Prosperity (forthcoming)
Very important to be in box 1 in downturns. We started out there but too quickly moved to box 7, which is pretty much the austerity box these days, as central banks push toward more growth while governments push the other way through fiscal consolidation (e.g., Europe, though they’ve also had bouts of box 8, as their ECB was slow and spotty out of the gate). In 2014, the US moved from box 7 to box 4, and that helped set the stage for the labor market improvements that began last year.
Going forward, the concern is that the Fed moves us from box 4 to box 5 too soon. And, of course, with sequestration and the austere R budgets out there, that means box 6 is not out of the question.