Lunchtime Must-Read: Simon Wren-Lewis: On the Stupidity of Demand Deficient Stagnation

…should not occur, because it is easy to solve technically…. The huge waste of resources that we see in the long and incomplete US recovery, the even slower UK recovery and the absence of recovery in the Eurozone are all unnecessary…. We have become fixated by the labels ‘monetary’ and ‘fiscal’ policy, and created an independent institution to handle the former…. Within the existing institutional framework, there is plenty to be done to convince fiscal policy makers that reducing deficits should not be a priority in the short term, or in trying to improve the monetary policy framework so liquidity traps happen less often. Yet it would be better still if we had an institutional framework which was a little more robust to failures on either front. We need to regain the possibility of money-financed fiscal stimulus in a liquidity trap…