Written by Dylan Mathews, who plumps for Fischer to be the next Fed Chairman.

If Bernanke halved the value of the dollar relative to, say, the Chinese yuan, that would dramatically increase U.S. exports and probably economic growth, too, but it would also wreak havoc with the global financial system. Every dollar-denominated asset in the world, including all manner of bonds, would plummet in value.

It’s less risky for small countries. There aren’t massive piles of shekels lying around in other countries the way there are with dollars and euros, and Fischer took advantage of that fact. On May 30, 2008, a dollar was worth about 3.2 shekels. On March 6, 2009, it was worth 4.2 shekels. In less than a year, Fischer had reduced the value of the shekel by about 25 percent — a massive devaluation.

It worked. Exports soared, and 2008’s trade deficit of $2 billion became 2009’s trade surplus of $5 billion. While other countries fell deeper into recession, Israel brushed its shoulders off.

1. Early in his tenure as head of the Israeli central bank, Fischer simply kept the nominal interest rate in Israel identical to that of the United States. According to the theory of his colleague and textbook co-author Rudi Dornbusch, this would stabilize the exchange rate between the shekel and the dollar. It seemed to work out that way.

2. The quoted passages show that Israel was able to beat the liquidity trap. They suggest that the U.S. also could have beaten the liquidity trap, but doing so would “wreak havoc with the global financial system.” I doubt the “wreak havoc” part. The article does not say whether Fischer believes it, but I suspect that he does–otherwise he would have advised Bernanke to follow a looser policy, and Bernanke probably would have listened.

3. To the extent that the Israeli policy worked, it scores a point for the model of aggregate demand and a point against PSST. If you think in terms of patterns of sustainable specialization and trade, you would not expect a rapid, massive shift toward tradable goods to be something that an economy can handle easily.

4. Fischer was my professor for monetary economics, and his was one of the three signatures on my dissertation. He was a nice man and an impressive teacher, but I did not care for his course, which I thought was just typical MIT mathematical masturbation.

5. I think that Fischer’s influence on the economics profession was large and detrimental. A ridiculously high proportion of macroeconomics professors are descendants in some way of Fischer. He was their thesis adviser, or their adviser’s adviser, or their adviser’s adviser’s adviser, etc. The net result is a macroeconomics discipline dominated by mathematical technique, with relatively little thought about the real workings of the economy or whether measured national statistics actually correspond to theoretical macroeconomic variables.