As we saw in the last post, while Sumner claims that Friday's solid job numbers show that the sequester is not a problem, Bernanke's Fed doesn't see it that way. What's becoming clearer is Sumner believes in the Fed's omnipotence much more than Bernanke.
http://diaryofarepublicanhater.blogspot.com/2013/05/the-fiscal-multiplier-sumner-vs-bernanke.html
While Sumner is always claiming that a belief that stimulus works is an article of faith, his opposition to it has an element of the Holy War in it.
Delong simply decimated another Sumnerian Holy Warrior, today, Alan Reynolds. It is a thing of beauty, the surgical dismantling he does to Reynold's phony arguments and cant here. Check it out.
http://delong.typepad.com/sdj/2013/05/i-debated-alan-reynolds-on-fiscal-policy-at-k-state-in-manhattan-last-night.html
What interested me was that in a recent debate Delong had with Reynolds it turns out that Reynolds showed a shocking illiteracy on the basics of monetary and fiscal policy.
"the extent to which those who don't know IS-LM are blind persons in the country of the one-eyed. Reynolds said: "In fiscal policy the government prints bonds, in monetary policy the government--the central bank--buys bonds, if one of these is stimulative, how can the other be?" And he was genuinely puzzled."
http://delong.typepad.com/sdj/2013/05/i-debated-alan-reynolds-on-fiscal-policy-at-k-state-in-manhattan-last-night.html
There's so much confusion about what monetary vs. fiscal policy even is. Sumner is not as ignorant as Reynolds-he's actually very knowledgeable, but he takes advantage of the ignorant out there to promote his Holy War Against Fiscal Stimulus.
As I mentioned in my previous post-linked above-Sumner suggested that the unemployment rate would be lower right now if the the ARRA stimulus in 2009 hadn't been passed. His reasoning is that if Congress had been unable to pass it, this would have put incredible pressure on the Fed to do a lot more which would have led us to a better present than we got.
I think Delong's answer to Reynolds is also helpful as an answer to Sumner:
"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."
http://diaryofarepublicanhater.blogspot.com/2013/05/the-fiscal-multiplier-sumner-vs-bernanke.html
While Sumner is always claiming that a belief that stimulus works is an article of faith, his opposition to it has an element of the Holy War in it.
Delong simply decimated another Sumnerian Holy Warrior, today, Alan Reynolds. It is a thing of beauty, the surgical dismantling he does to Reynold's phony arguments and cant here. Check it out.
http://delong.typepad.com/sdj/2013/05/i-debated-alan-reynolds-on-fiscal-policy-at-k-state-in-manhattan-last-night.html
What interested me was that in a recent debate Delong had with Reynolds it turns out that Reynolds showed a shocking illiteracy on the basics of monetary and fiscal policy.
"the extent to which those who don't know IS-LM are blind persons in the country of the one-eyed. Reynolds said: "In fiscal policy the government prints bonds, in monetary policy the government--the central bank--buys bonds, if one of these is stimulative, how can the other be?" And he was genuinely puzzled."
http://delong.typepad.com/sdj/2013/05/i-debated-alan-reynolds-on-fiscal-policy-at-k-state-in-manhattan-last-night.html
There's so much confusion about what monetary vs. fiscal policy even is. Sumner is not as ignorant as Reynolds-he's actually very knowledgeable, but he takes advantage of the ignorant out there to promote his Holy War Against Fiscal Stimulus.
As I mentioned in my previous post-linked above-Sumner suggested that the unemployment rate would be lower right now if the the ARRA stimulus in 2009 hadn't been passed. His reasoning is that if Congress had been unable to pass it, this would have put incredible pressure on the Fed to do a lot more which would have led us to a better present than we got.
I think Delong's answer to Reynolds is also helpful as an answer to Sumner:
"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."
"It's not possible to get confused if you have the IS-LM diagram in front of you…"
Maybe this is the real reason Sumner doesn't like the IS-LM model.
Sumner often construes his problem with fiscal stimulus in terms of that while it could in theory raise AD it will be at least somewhat offset by monetary policy in it's fight against inflation; we'll leave to one side the fact that the Fed is now explicitly asking the fiscal authorities to take their feet off the brakes.
Delong shows us here clearly that fiscal policy doesn't work at cross purposes with monetary policy but in fact can work in concert with it, complement it. Delong also clearly refutes the Sumner claim that because fiscal stimulus increases the debt we therefore have to suffer higher taxes later.
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