Monetary Policy

(MoneyWatch) 

Can monetary policy save the economy?

In rarefied economic circles, that's a hotly debated question. On one side you'll find a group of economists — call them "monetarists" — who think that the Federal Reserve has enough tools to pull us out of the recession. Lined up on the other side are Keynesian economists, who contend that monetary policy alone falls short; Congress and the president need to employ fiscal stimulus (i.e., spend billions and billions of dollars) to get the economy moving again.

Monetarists such as Tyler Cowen and Scott Sumner argue that given time, creative monetary policy will work — and that most other government meddling is likely a waste of money. But the Keynesians, notably Paul Krugman and Brad DeLong, point out that the federal funds rate — the Fed's primary monetary tool — is already close to zero and other monetary strategies are of dubious value. To dive into the debate, follow the links below.

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• The Real Lesson of the Great Depression

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• How Spending Will Save Us

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• I Beg to Differ, Mr. Krugman

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• In Bernanke We Trust

  A federal funds rate of zero is no problem according to University of Chicago economics professor Robert Lucas, who says the Fed can still stimulate spending plenty.