I was reading Brad DeLong’s take on the whole affair, and found this excerpt revealing:
By contrast [with the Fed buying assets with new money], the alternative expansionary policy is for the government to print money and spend it buying useful things. Then:
1. The buying of useful things raises spending.
2. Financing it by printing money rather than issuing bonds means no increase in interest rates to crowd out private spending.
3. Financing it by printing money rather than promising to levy future taxes means no increase in the present value of future tax liability to crowd out private spending.
4. Financing it by printing money means no worries about any increase in fears of some future government default.
To try to target nominal GDP using either only monetary policy or only fiscal policy seems hazardous. To coordinate–monetary and fiscal expansion, money printing-financed purchase of useful things–seems to be the winner.
Maybe I’m naive, and these views were always lurking in the background. But before this crisis–and the ascendancy of the “market monetarist” view–I don’t recall economists pointing out the advantages of running the printing press to literally pay the government’s bills. I think that would have been routinely denounced as incredibly irresponsible and a recipe for (yes) hyperinflation.
But 9/15 changed all that, apparently.