The organisation of economic policy: Is it monetary policy or fiscal policy that must be countercyclical and fight inflation?
This question is very important, and now sets the United States apart from the euro zone. With the first organisation, fiscal policy aims to achieve the necessary public spending, it is therefore structurally expansionary, while cyclical stabilisation is achieved by monetary policy, which must in particular fight inflation. This is how the euro zone is organised today, and it has the disadvantage that the entire burden of fighting inflation falls on monetary policy, which must then become very restrictive to be effective. Moreover, if high interest rates are needed to combat inflation, expansionary fiscal policy becomes costly. With the second organisation, fiscal policy is highly countercyclical, which is the organisation of the United States today. The advantage is that, in the event of inflation, monetary policy has to act less drastically, and interest rates do not have to become very high. The downside is that useful government spending would have to be delayed in periods of inflation, but this is not very serious if those periods are short with strong countercyclical fiscal policy action.