Sumner had a great time spiking the ball on the allegedly "embarrassed" Keynesians last week who supposedly had egg on their faces because the job numbers and first quarter GDP didn't fall off the face of the earth.
http://diaryofarepublicanhater.blogspot.com/2013/05/sumners-continues-to-spike-ball-on.html
I don't really understand the triumphalism as nothing the numbers showed that the sequester raised the job numbers or GDP. Yet Sumner admits he favors:
1. Monetary easing
2. Fiscal austerity
http://diaryofarepublicanhater.blogspot.com/2013/05/sumners-nuanced-support-of-austerity.html
Why do we need austerity in the middle of a recession or a tough recovery? Lars Christensen has a new post that quotes a commentator he read on another blog who presumably has made a devastating case against fiscal stimulus.
"By a complete accident I found a online debate about fiscal policy versus monetary policy in Australia. One of the commentators – “Grim23″ – surely is a convinced Market Monetarist. I thought what he is writing is so good that I want to reproduce it here on my blog – I hope he won’t mind…"
"Here is Grim23 going back and forth with somebody – I don’t care who the other guy is and this is only Grim23′s (unedited) comments:
Right away, I notice Lars doing something that Sumner always does: he won't let Grim23's opponent get a word in edgewise. It's great to say that the other guy has no answer to what you're saying when you've cut his mic.
"Monetary policy in the US, UK and Europe has been extremely tight since mid 2008. Australia had much more effective monetary policy than Britain during the crisis. Fiscal policy has nothing to do with it. Every serious new keyensian macroeconomist will tell you that if interest rates are above zero the fiscal multiplier is zero."
This is the usual Sumner special. Somehow Australia having better monetary policy than Britain proves something. Australia had fiscal stimulus-in 2009 they sent almost $1000 to each taxpayer in the country. So how does Sumner, Lars, and Grim23 know this had "nothing to do with it?" Apparently because the Australian central bank-RBC-had an interest rate considerably above the zero bound.
Basically the MMers have it both ways. When they don't like what Krugman-Delong say they pilliorize it. However they're right about what happens above the Zero Bound. Of course, the fact is that even a NK model says the multiplier is zero above the ZB doesn't mean it is. This only works on the assumption that NK is right about monetary policy above the ZB.
" …Ultimately the point is that because fiscal stimulus boosts aggregate demand, inflation must also rise as well as GDP. If the RBA is targeting inflation (or preferably nominal GDP) then any fiscal stimulus is cancelled out by monetary policy, leaving a “fiscal multiplier” of zero."
Yet, right now we have inflation that is much closer to 1% than to 2%. Wouldn't this indicate that something's missing? As it's about 1.1% and the stated rate is 2%-and Bernanke indicated that he will accept as high as 2.5% before tightening there's actually plenty of room for fiscal stimulus. In any case, there's no fiscal stimulus on the table. All we're talking about is why fiscal austerity-in particular the sequester-should be off the table. The 1.1% inflation rate could be read as showing the sequester is depressing the economy relative to what it otherwise would be.
Another thing that could be so read is that the Fed itself says the same thing:
"Things are so grim that the Federal Reserve's policy-setting Open Market Committee, nobody's idea of a left-wing shop, felt the need to put out a statement Friday after the jobs numbers came out warning bluntly that "fiscal policy is restraining economic growth" and suggesting that inflation, if anything, is too low. The Fed vowed to keep interest rates extremely low, and suggested that the executive and legislative branches should take their feet off the brake. It's quite a situation when the Federal Reserve is the most fiscally left-wing outfit in town."
http://diaryofarepublicanhater.blogspot.com/2013/05/the-fiscal-multiplier-sumner-vs-bernanke.html
So the Fed disagrees that it's all-powerful. More from Grim23:
"Yes, fiscal stimulus can “work”, but only because the central bank allowed it to. Do you really think the RBA would let Australia fall into recession? Particularly when they started off from a much better position than other central banks, with interest rates not even close to zero here. Monetary stimulus would have done the job anyway, without any waste or extra debt. That’s why fiscal policy never “saved” us."
"Fiscal stimulus in unnecessary. Money always wins."
This definitely tries to make it onesided: fiscal policy works only if the CB lets it. In other words, it only works if the CB cooperates. The Fed at present is suggesting it will in fact cooperate. Certainly the Fed won't offset the end of the sequester.
The relationship between fiscal and monetary policy is more mutual than the MMers think though. Clearly the Fed agrees as it's said that the sequester has slowed the recovery and they've appealed to the fiscal authorities to take the brake off. Del "The answer is that in expansionary fiscal policy the government prints bonds and uses them to buy stuff, and that in expansionary monetary policy the government prints money and uses it to buy bonds. If you do both together they don't cancel each other out, but rather the economy is left with (i) the government buying more stuff (and no tendency for private agents to buy less stuff out of fear of extra future taxes because there are no extra future taxes coming because there are no extra bonds left to pay off) and (ii) private agents having more money which they will tend to spend (and no tendency for spending to stay constant as people take their extra cash and hide it under the mattress because the government has already spent the money once). Expansionary fiscal policy makes it a sure thing that expansionary monetary policy is effective. Expansionary monetary policy makes it a sure thing that expansionary fiscal policy is effective by removing the channels for interest-rate and tax crowding out."ng aruges that both fiscal and monetary policy work better when done together. "
http://diaryofarepublicanhater.blogspot.com/2013/05/more-on-sumnerian-holy-ware-against.html
This is in direct contradiction to the MM gloss that makes the relationship between fiscal and monetary policy entirely mutually exclusive.
Today the report card for Abenomics comes out. The results are expected to be quite impressive:
"Gross domestic product data for the January-March quarter will serve as the first report card on the "Abenomics" policy direction since the prime minister took office in December. The data will likely show that the economy expanded at an annualized pace of 2.8% during the three months, compared with the previous quarter, according to a median forecast of 13 economists surveyed by Dow Jones Newswires.
http://diaryofarepublicanhater.blogspot.com/2013/05/sumners-continues-to-spike-ball-on.html
I don't really understand the triumphalism as nothing the numbers showed that the sequester raised the job numbers or GDP. Yet Sumner admits he favors:
1. Monetary easing
2. Fiscal austerity
http://diaryofarepublicanhater.blogspot.com/2013/05/sumners-nuanced-support-of-austerity.html
Why do we need austerity in the middle of a recession or a tough recovery? Lars Christensen has a new post that quotes a commentator he read on another blog who presumably has made a devastating case against fiscal stimulus.
"By a complete accident I found a online debate about fiscal policy versus monetary policy in Australia. One of the commentators – “Grim23″ – surely is a convinced Market Monetarist. I thought what he is writing is so good that I want to reproduce it here on my blog – I hope he won’t mind…"
"Here is Grim23 going back and forth with somebody – I don’t care who the other guy is and this is only Grim23′s (unedited) comments:
Right away, I notice Lars doing something that Sumner always does: he won't let Grim23's opponent get a word in edgewise. It's great to say that the other guy has no answer to what you're saying when you've cut his mic.
"Monetary policy in the US, UK and Europe has been extremely tight since mid 2008. Australia had much more effective monetary policy than Britain during the crisis. Fiscal policy has nothing to do with it. Every serious new keyensian macroeconomist will tell you that if interest rates are above zero the fiscal multiplier is zero."
This is the usual Sumner special. Somehow Australia having better monetary policy than Britain proves something. Australia had fiscal stimulus-in 2009 they sent almost $1000 to each taxpayer in the country. So how does Sumner, Lars, and Grim23 know this had "nothing to do with it?" Apparently because the Australian central bank-RBC-had an interest rate considerably above the zero bound.
Basically the MMers have it both ways. When they don't like what Krugman-Delong say they pilliorize it. However they're right about what happens above the Zero Bound. Of course, the fact is that even a NK model says the multiplier is zero above the ZB doesn't mean it is. This only works on the assumption that NK is right about monetary policy above the ZB.
" …Ultimately the point is that because fiscal stimulus boosts aggregate demand, inflation must also rise as well as GDP. If the RBA is targeting inflation (or preferably nominal GDP) then any fiscal stimulus is cancelled out by monetary policy, leaving a “fiscal multiplier” of zero."
Yet, right now we have inflation that is much closer to 1% than to 2%. Wouldn't this indicate that something's missing? As it's about 1.1% and the stated rate is 2%-and Bernanke indicated that he will accept as high as 2.5% before tightening there's actually plenty of room for fiscal stimulus. In any case, there's no fiscal stimulus on the table. All we're talking about is why fiscal austerity-in particular the sequester-should be off the table. The 1.1% inflation rate could be read as showing the sequester is depressing the economy relative to what it otherwise would be.
Another thing that could be so read is that the Fed itself says the same thing:
"Things are so grim that the Federal Reserve's policy-setting Open Market Committee, nobody's idea of a left-wing shop, felt the need to put out a statement Friday after the jobs numbers came out warning bluntly that "fiscal policy is restraining economic growth" and suggesting that inflation, if anything, is too low. The Fed vowed to keep interest rates extremely low, and suggested that the executive and legislative branches should take their feet off the brake. It's quite a situation when the Federal Reserve is the most fiscally left-wing outfit in town."
http://diaryofarepublicanhater.blogspot.com/2013/05/the-fiscal-multiplier-sumner-vs-bernanke.html
So the Fed disagrees that it's all-powerful. More from Grim23:
"Yes, fiscal stimulus can “work”, but only because the central bank allowed it to. Do you really think the RBA would let Australia fall into recession? Particularly when they started off from a much better position than other central banks, with interest rates not even close to zero here. Monetary stimulus would have done the job anyway, without any waste or extra debt. That’s why fiscal policy never “saved” us."
"Fiscal stimulus in unnecessary. Money always wins."
This definitely tries to make it onesided: fiscal policy works only if the CB lets it. In other words, it only works if the CB cooperates. The Fed at present is suggesting it will in fact cooperate. Certainly the Fed won't offset the end of the sequester.
The relationship between fiscal and monetary policy is more mutual than the MMers think though. Clearly the Fed agrees as it's said that the sequester has slowed the recovery and they've appealed to the fiscal authorities to take the brake off. Del "The answer is that in expansionary fiscal policy the government prints bonds and uses them to buy stuff, and that in expansionary monetary policy the government prints money and uses it to buy bonds. If you do both together they don't cancel each other out, but rather the economy is left with (i) the government buying more stuff (and no tendency for private agents to buy less stuff out of fear of extra future taxes because there are no extra future taxes coming because there are no extra bonds left to pay off) and (ii) private agents having more money which they will tend to spend (and no tendency for spending to stay constant as people take their extra cash and hide it under the mattress because the government has already spent the money once). Expansionary fiscal policy makes it a sure thing that expansionary monetary policy is effective. Expansionary monetary policy makes it a sure thing that expansionary fiscal policy is effective by removing the channels for interest-rate and tax crowding out."ng aruges that both fiscal and monetary policy work better when done together. "
http://diaryofarepublicanhater.blogspot.com/2013/05/more-on-sumnerian-holy-ware-against.html
This is in direct contradiction to the MM gloss that makes the relationship between fiscal and monetary policy entirely mutually exclusive.
Today the report card for Abenomics comes out. The results are expected to be quite impressive:
"Gross domestic product data for the January-March quarter will serve as the first report card on the "Abenomics" policy direction since the prime minister took office in December. The data will likely show that the economy expanded at an annualized pace of 2.8% during the three months, compared with the previous quarter, according to a median forecast of 13 economists surveyed by Dow Jones Newswires.
If the actual figure—set for release next week—matches the forecast, it will represent a big jump from the 0.2% growth seen in the October-December period and the 3.7% shrinkage marked in the quarter before that."
"Thanks to the effects of Abenomics, which can be seen particularly in consumer spending, the Japanese economy likely staged a V-shaped recovery," said Yuji Shimanaka, chief economist at Mitsubishi UFJ Morgan Stanley Securities.
The MMers are fans of Abe-as are Krugman and Delong. Here's a piece from Noah Smith admitting he 'misunderestimated' Abe.
Here's what I don't understand. How can Abenomics work as it also uses fiscal stimulus? Aren't the strong expected numbers egg in Sumner's eye? After all, where's the monetary offset?
Grim23 also accused his opponent of not getting the correlation-causation distinction. Sumner just recently claimed that's just a distinction of Keynesians. However, where in this entire post did Grim23 demonstrate causation? All the Sumner Critique amounts to is pointing out correlations.
No comments:
Post a Comment