Really good links - Milton Friedman - Tax cuts - Backloaded deficit reduction - Wen's put - Higher expected inflation

David Beckworth and William Ruger - What would Milton Friedman say? - "Had he been alive, Friedman would have been shocked to see the Fed in late 2008 and early 2009 allow nominal income, as measured by nominal GDP, to experience its sharpest downturn since the Great Depression. He would also be amazed to learn that nominal GDP forecasts are once more headed down.
        Given these developments, Friedman would likely be calling on the Fed again to do a better job stabilizing nominal income."

Karl Smith - Please endorse tax cuts as an option - "Tax cuts. I know for many of my liberal readers this is increasingly becoming a bad term. However, the point is not whether we concede to a so called “republican” idea, the point is whether we reduce unemployment for those in need.
        I have argued and will continue to argue if that for some reason, that I don’t completely understand, the markets fail to take the Fed seriously we still have the option of injecting large amounts of liquidity quickly through tax cuts.
        Please, lets not get hung up on whether tax cuts are an excuse to hand out money to the rich. We can cut payroll taxes. We can even provide a payroll tax credit where you get back the first 5000 your family paid in payroll taxes."

Christina Romer - Backloaded deficit reduction - "While immediate fiscal tightening isn’t wise for the United States, we do need to address the deficit. The best thing would be for Congress to pass a plan now that will reduce deficits when the economy is back to normal. France’s recent plan to gradually raise its retirement age to 62 from 60 is a classic example of such “backloaded” reduction.<..>
        Such backloaded deficit reduction would not hurt growth in the short run — and could raise it. If uncertainty about future budget policy is harming confidence, as some business leaders suggest, spelling out future spending and tax changes could be helpful."

Arthur Kroeber (via FT Alphaville) - Wen’s put - "For the last two months we have unkindly compared Chinese premier Wen Jiabao to the later Alan Greenspan, who helped inflate the US housing policy with his ultra-low interest rate policy which financial markets dubbed “the Greenspan put.” Premier Wen’s put option was his government’s implicit guarantee that GDP growth would never be permitted to fall below 8%. This guarantee destroyed the credibility of all government commitments to structural reform (whose cost is likely to be lower growth), and stoked fears that Beijing simply wanted to buy short-term growth through an endless expansion of credit, and was oblivious to the risk of asset bubbles in the short term and a structurally dysfunctional Japan-style economy in the long term.
        We believe that the official and unofficial statements emanating from last weekend’s annual Communist Party plenary meeting ended the Wen Jiabao put option and signaled that structural reformers are in the saddle (although not with unbridled power). Tuesday night’s surprise interest rate hike, coming immediately after the meeting’s close, strongly amplified this signal. While we do not expect dramatic policy shifts, we do anticipate that the pace of reform measures will visibly accelerate over the next 6-12 months, and that the pace of GDP growth will gradually slow from the current 9% clip to a more sustainable rate of 7-8% over the next two years."

Bill Woolsey - Higher expected inflation - "Only from the point of view of central bankers, with their irrational attatchment to targeting short term and safe nominal interest rates, does higher (expected) inflation provide “benefits.” Their approach to policy, combined with their policy of issuing zero nominal interest currency on demand, has left them stuck. Higher expected inflation would pull them out of this trap of their own construction.
        Well, I guess higher inflation makes the real yield on zero nominal interest hand to hand currency more negative, and so provides more income to the central bankers who borrow by issuing it immediately, and their government owners indiredtly."