As a Market Monetarist, himself, it's not hard to guess which side he's on, however, Glanser's analysis is often quite insightful. Here he is on Krugman-Sumner:
"For some reason – maybe he is still annoyed with Scott Sumner – Paul Krugman decided to channel a post by Mike Konczal purporting to show that Market Monetarism has been refuted by the preliminary first quarter GDP numbers showing NGDP increasing at a 3.7% rate and real GDP increasing at a 2.5% rate in Q1. To Konczal and Krugman (hereinafter K&K) this shows that fiscal policy, not monetary policy, is what matters most for macroeconomic performance. Why is that? Because the Fed, since embarking on its latest splurge of bond purchasing last September, has failed to stimulate economic activity in the face of the increasingly contractionary stance of fiscal policy since them (the fiscal 2013 budget deficit recently being projected to be $775 billion, a mere 4.8% of GDP)."
http://uneasymoney.com/2013/04/29/they-come-not-to-praise-market-monetarism-but-to-bury-it/#comments
For some reason. In the 4 years that Scott has had his blog at Money Illusion how many times has Krugman called out Sumner compared to the reverse? Does Glasner ever wonder what reason it is that Sumner keeps tweaking Krugman and why he is sitll annoyed after all this time?
Glasner does give us some interesting elaborations on the Sumner Critique-basically it amounts to that if monetary policy is done properly there's no role in demand stabalization for fiscal policy. He admits that it may not be operative here:
"If we posit that we are still in something akin to a zero-lower-bound situation, there are perfectly respectable theoretical grounds on which to recommendboth fiscal and monetary stimulus. It is true that monetary policy, in principle, could stimulate a recovery even without fiscal stimulus — and even in the face of fiscal contraction — but for monetary policy to be able to be that effective, it would have to operate through the expectations channel, raising price-level expectations sufficiently to induce private spending. However, for good or ill, monetary policy is not aiming at more than a marginal change in inflation expectations. In that kind of policy environment, the potential effect of monetary policy is sharply constrained. Hence, the monetary theoretical case for fiscal stimulus. This is classic Hawtreyan credit deadlock (see here and here)."
"For some reason – maybe he is still annoyed with Scott Sumner – Paul Krugman decided to channel a post by Mike Konczal purporting to show that Market Monetarism has been refuted by the preliminary first quarter GDP numbers showing NGDP increasing at a 3.7% rate and real GDP increasing at a 2.5% rate in Q1. To Konczal and Krugman (hereinafter K&K) this shows that fiscal policy, not monetary policy, is what matters most for macroeconomic performance. Why is that? Because the Fed, since embarking on its latest splurge of bond purchasing last September, has failed to stimulate economic activity in the face of the increasingly contractionary stance of fiscal policy since them (the fiscal 2013 budget deficit recently being projected to be $775 billion, a mere 4.8% of GDP)."
http://uneasymoney.com/2013/04/29/they-come-not-to-praise-market-monetarism-but-to-bury-it/#comments
For some reason. In the 4 years that Scott has had his blog at Money Illusion how many times has Krugman called out Sumner compared to the reverse? Does Glasner ever wonder what reason it is that Sumner keeps tweaking Krugman and why he is sitll annoyed after all this time?
Glasner does give us some interesting elaborations on the Sumner Critique-basically it amounts to that if monetary policy is done properly there's no role in demand stabalization for fiscal policy. He admits that it may not be operative here:
"If we posit that we are still in something akin to a zero-lower-bound situation, there are perfectly respectable theoretical grounds on which to recommendboth fiscal and monetary stimulus. It is true that monetary policy, in principle, could stimulate a recovery even without fiscal stimulus — and even in the face of fiscal contraction — but for monetary policy to be able to be that effective, it would have to operate through the expectations channel, raising price-level expectations sufficiently to induce private spending. However, for good or ill, monetary policy is not aiming at more than a marginal change in inflation expectations. In that kind of policy environment, the potential effect of monetary policy is sharply constrained. Hence, the monetary theoretical case for fiscal stimulus. This is classic Hawtreyan credit deadlock (see here and here)."
"If monetary policy can’t do all the work by itself, then the question is whether fiscal policy can help. In principle it could if the Fed is willing to monetize the added debt generated by the fiscal stimulus. But there’s the rub. If the Fed has to monetize the added debt created by the fiscal stimulus — which, for argument’s sake, let us assume is more stimulative than equivalent monetary expansion without the fiscal stimulus — what are we supposed to assume will happen to inflation and inflation expectations?"
"Here is the internal contradiction – the Sumner critique, if you will – implicit in the Keynesian fiscal-policy prescription. Can fiscal policy work without increasing the rate of inflation or inflation expectations? If monetary policy alone cannot work, because it cannot break through the inflation targeting regime that traps us at the 2 percent inflation ceiling, how is fiscal policy supposed to work its way around the 2% inflation ceiling, except by absolving monetary policy of the obligation to keep inflation at or below the ceiling? But if we can allow the ceiling to be pierced by fiscal policy, why can’t we allow it to be pierced by monetary policy?"
"Perhaps K&K can explain that one to us."
Well, I hope they do as they're clearly asking for it. This is why I so welcomed Krugman's piece-he so seldom calls out Sumner. I really don't get the problem here. It seems to be that if we use fiscal policy here, the mechanism will be expectations which is just monetary policy so that the benefit in fiscal policy will actually have a monetary cause so that it will really be a fiscal policy. If fiscal stimulus is really monetary stimulus then why fight it?
This is reminiscent of when Lucas said that fiscal policy can't help because if the government builds a new bridge, the stimulative aspect is not the bridge but the money spend for the bridge-ie, monetary stimulus.
At a minmium though it could be argued that fiscal policy is better able to fire up expectatons-as once the Treasury is pledged it can't renege on fiscal sitimulus. What's key though, I think is a comment by J.W. Mason who argues that fiscal stimulus doesn't need expectations to be effective.
Can fiscal policy work without increasing the rate of inflation or inflation expectations?
"I can’t see why not. What do inflation expectations have to do with anything?"
"The underlying assumption of the multiplier is that economic actors are NOT in general operating on anything like an intertemporal budget constraint, but instead that current expenditures are closely linked to current incomes. This could be because liquidity constraints are pervasive, or because expectations are adaptive or backward looking, or because there are multiple equilibria, or for some other reason. The important thing is that in a world where current expenditure is tightly bound to current income, fiscal policy doesn’t have to change anyone’s expectations of anything in order to be effective.
"The beginning of wisdom here, IMO, is to remember that intertemporal optimizing and budget constraints are analytic tools that may (or may not) be useful tools for analyzing certain questions. They are not true facts about the world."
What's not clear to me is why the Market Monetarists are so opposd to even trying fiscal stimulus. What could be the risk at this point? Why not let's just give it a try as it often seems they're arguing it's just monetary policy in another guise?
HT: Tom Brown of course
HT: Tom Brown of course
No comments:
Post a Comment