Can the world economy continue to float on a cushion of debt?

Monetary policy is difficult.

Economist Scott Sumner describes in his blog how the thinking of an intellectual giant like John Maynard Keynes evolved through three distinct phases in the 1920s and 30s.  As the man himself is reputed to have said “When the facts change, I change my mind.  What do you do?”.  Sumner then argues that the thinking of the economics profession repeated pretty much the same pattern of evolution over the last decades of the twentieth century.  

It makes a persuasive case for intellectual humility in general, and in monetary policy in particular.  Even more so in unusual times.  The forcefulness and fluency of experts can conceal the fact that they are testing new ideas when they make policy.

Continue reading “Can the world economy continue to float on a cushion of debt?”