The policy of coordinated monetary quantitative easing combined with more government deficit spending was what Milton Friedman's teacher Jacob Viner called for during the Great Depression, as Friedman approvingly recounted in *Milton Friedman's Monetary Framework." Greg Ip reports from Jackson Hole: >**Monetary and fiscal Stimulus make a potent, if uneasy, combination:** THE Federal Reserve Bank of Kansas City’s annual conference in Jackson Hole, Wyoming, is the big event of the year for central bankers. But defining monetary policy is far harder than it used to be. In recent years central bankers have lurched ever closer to the realm of fiscal policy, mainly by buying government debt with freshly printed money. They can justify such “quantitative easing” (QE) on monetary grounds since they have already lowered short-term interest rates to, or close to, zero. But they also worry it is a slippery slope from QE to monetising government deficits and thence, inevitably, to inflation. When Phillip Swagel, then an official with the US Treasury, was asked why he attended the conference in 2008, he shrugged: “Fiscal policy, monetary policy—what’s the difference?”... >Much as central bankers would like to ignore fiscal policy, they cannot.... A wise monetary policy aims to keep prices stable, prudent fiscal policy to stabilise government debt. This division of labour works as long as the public believes that, after running a big deficit, the government will raise taxes or cut spending enough to keep debt under control. But... if the debt is so large that the government cannot credibly commit... [i]nflation expectations soar and the central bank loses control of prices. >Mr Leeper’s warning resonates with central bankers.... Yet it is an odd thing to worry about now. Debt may be rising, yet underlying and expected inflation rates are falling in America and Europe, just as they did in Japan after its crisis. Fiscal austerity robs policymakers of a potent antidote to a deflationary slump: simultaneous fiscal and monetary expansion. By itself, QE works mainly through two channels... [higher long-term] bond prices and... [lower] yields... stimulate activity... when banks sell their bonds to the central bank they get reserves... have an incentive to swap those low-yielding reserves for something with better returns... lowers private-borrowing costs and raises asset values, boosting wealth and spending. >There is a catch, however. Supplying trillions of dollars of reserves and driving interest rates to zero cannot force banks to lend or companies and households to borrow.... This does not mean QE was useless, only that formidable headwinds have blunted its effect.... If QE cannot spur private demand on its own, combining it with looser fiscal policy may help. If the private sector will not spend, the government can do it instead.... The combination has worked before. To fight the second world war, America’s federal government increased its debt from 44% of GDP to 106%. Starting in 1942 the Fed agreed to buy as much debt as necessary to keep short- and long-term interest rates below prescribed ceilings... unemployment fell from around 15% to...