Martin Wolf on current policy (with a note on inflation)

Martin Wolf's recent column in the Financial Times is an interesting and instructive read, debunking those views (here and here) that are hostile to expanding fiscal deficits and expansionary monetary policy. Wolf clearly states the case for sustained expansionary policy in the short term, while reminding us why public deficits will not "crowd out" private investment in times of economic downturn:

A deep recession proves there is a huge rise in excess desired savings at full employment, as Prof Krugman argues. At present, therefore, fiscal deficits are not crowding the private sector out. They are crowding it in, instead, by supporting demand, which sustains jobs and profits.

He then goes on to describe the "tightrope" being walked by policymakers:

The exceptional policies used to deal with extreme circumstances are working. Now, as a result, policymakers are walking a tightrope: on one side are premature withdrawal and a return to deep recession; on the other side are soaring inflationary expectations and stagflation. It is irresponsible to insist either on immediate tightening or on persistently loose policies. Both the US and the UK now risk the latter. But their critics risk making an equal and opposite mistake. The answer is both clear and tricky: choose sharp tightening, but not yet.