Without committing myself to one theory or ideology, I think I see the merits of an economic approach that doesn't fall back on bad habits to solve our problems. Having said that, the likelihood of a policy similar to that which came under President Harding in 1920-21 seems incredibly unlikely. Which leaves us with what's left.
On the one hand, there are those who believe that we are in a liquidity trap, and think that monetary policy alone can't generate the inflation, err, growth, that is needed to get the economy back on the pre-bubble-bursting trajectory. There is a need for "unconventional" fiscal policy -- in other words, more government programs to stimulate jobs.
Then you have the folks who believe that the monetary authorities have the power to get NGDP ramped up again, which will lead to the inflation, errr, growth, that is preferred. They don't necessarily believe in the idea of a liquidity trap, and think it is more a matter of central bank conviction to convince the masses that they will do whatever is necessary to get NGDP cranking at some pre-determined target level.
With the requisite disclaimer that I offered up-front, I think the second group is making better use of historical precedent. The example of a liquidity trap most often cited by the first group is Japan, which has been stuck in multiple lost decades at this point. But, as Scott Sumner (perhaps the most interesting voice for the second group) points out, the BOJ always basically stepped on the brakes at the first hint of inflation. Contrast that with the recent moves by the SNB -- they wanted to devalue the Franc, and lo and behold they did it by promising to print as much money as needed. There is something to be said for aggressive action.
So, I think in the end that one of these theories will prevail -- jawboning from the Republican presidential candidates aside. Unfortunately, though, in this battle of economic ideas, it is similar to watching two teams that I don't really like playing each other -- in other words, I'd rather change the channel.
