“There is no other policy tool available [besides quantitative easing],”‘ Laura Tyson, a former chairwoman of the Council of Economic Advisors, said at this morning’s Reuters/YouTube live debate on how to fix the economy. Tyson argues that additional Fed purchases of long-term bonds is the most viable way to energize the U.S. economy since a new fiscal stimulus bill is unlikely to pass Congress:
She appears alongside Glenn Hubbard, another former CEA chairman, who maintains the Fed will spend another $1 trillion to lower rates by 20 basis points. “We can’t inflate our way to prosperity,” he said.
Tyson disagrees and thinks the risk to inflation is low. She admits we have to convince the rest of the world that the U.S. has no intention to inflate away its debt.
Their conversation then turned to China. Both agree that the increasingly fiery rhetoric Washington directs toward Beijing is counterproductive and that the U.S. is better served by enacting policies to reduce its trade deficit:
HUBBARD: If [the U.S. and China] both keep beating up on each other and try to beggar our neighbor, we’ll get into a very bad place. China does have a protectionist policy. It does have a mercantilist policy. And I think focusing on those things quietly rather than from the hilltops, as the administration is doing, would be the right answer.