Bernanke claims he can, and will, rollback Fed interventions in such a way that the private sector can move in and take its place as the recovery moves forward. This would have to be something like a 1-for-1 switch for it to be at all coherent and not result in an immediate economic setback.
A question, then: if every dollar worth of support Bernanke removes is suddenly and magically replaced by a dollar of the private sector, what does this say about people like Brad DeLong with their "government stimulus is not crowding out the private sector" theories?
*UPDATE*
My friend Allen follows the thought to its logical end and asks:
if the federal reserve can just replace its dollars with the private sector... why do we need the private sector at all?Precisely. If government spending is as good as private spending (in the Keynesian model)... why ever have the flighty, easily-scared private spending in the first place? Why not make the economy 100% government-spending driven and just go with full-blown communism? Anyone who responds to this question must also explain how they calculate the optimal mix between the two types of spending in their <100%-government scenario.
