Scott Sumner Tells Us How to Make Fiscal Policy Work

       In a post he wrote during the summer he tells us that he is not saying that it is logically impossible for fiscal stimulus to work but simply that based on the likely Fed response it won't:

      "I do believe fiscal stimulus might be able to boost NGDP, because I don’t believe (as a matter of logic) that the Fed would necessarily create the right amount of money.  (I’m skeptical of fiscal stimulus for “likely Fed response” reasons, not as a matter of logic.)"

       http://www.themoneyillusion.com/?p=10124

       "if you have an inflation targeting central bank, there really isn’t anything for the fiscal authorities to do (again, on the demand side.)  The “Treasury view” holds in an inflation targeting world."

        So he's not arguing that the Treasury view is true-the intellectual equivalent of the horse and buggy age-but that due to a Fed who is so focused on low inflation it can't work. So then there's your answer. James Galbraith himself has argued that Fed policy jumped the shark right around 1970 or so.

      Fiscal policy could work if Marriner Eccles was Chairman. In all seriousness Sumner's argument here-though his reasons against fiscal policy tend to be ever shifting and adapting-suggests that if the Fed had different policies then fiscal policy would be effective. The argument is more about Fed policy then.