As often as he declares it dead, one gets that he's not as confident as he likes to claim. He claims this is the 213th example that the fiscal multiplier is zero:
"From today’s news:
"From today’s news:
The marked improvement in the labor market since the U.S. central bank began its third round of quantitative easing, or QE3, has added an edge to calls by some policy hawks to dial down the stimulus. The roughly 50 percent jump in monthly job creation since the program began has even won renewed support from centrists, raising at least some chance the Fed could ratchet back its buying as early as next month.
I hope I don’t have to do any more of these. The fiscal multiplier theory is as dead as John Cleese’s parrot. The growth in jobs didn’t slow with fiscal austerity, it sped up! And the Fed is saying that any job improvement due to fiscal stimulus will be offset with tighter money. They talk like the multiplier is zero, and their actions produce a zero multiplier. Has there ever been a more decisive refutation of a major economic theory?
So the multiplier is dead because some Fed hawks are talking about cutting back on QE3? This is the Fed, at any particular time there will be hawks urging the Fed to pull back. Does this really cinch the argument? In the comments I point out that the Fed seems to believe there is a fiscal multiplier:
"I guess Boston Fed Chief Eric Rosengren didn’t get the memo as he talks like it’s still alive:
“This morning, Eric Rosengren, chief executive of the Boston Federal Reserve, cautioned lawmakers against further fiscal retrenchment, lest they slow the recovery. As he said at the Global Interdependence Center’s Central Banking Conference in Italy: “Given the economic realities I would urge policymakers to consider scenarios where some elements of fiscal rebalancing take effect only after the economy has more fully improved.”
Of course, Sumner doesn't bother to answer this point. He settles for needling anonymous 'Keynesians.'
"I see Keynesians saying that 2.5% RGDP growth was what they expected the austerity to produce. Would they have admitted defeat if growth had been 0.5%? Would they have said “Our model was wrong, we predicted 2.5% RGDP growth, and we got 0.5%?”
I doubt it."
This has been Sumner's latest canard: since GDP didn't drop to .5% it shows there is no multiplier. Actually there are economists who say that without the sequester we'd see 4% GDP this year.
"Whatever the data ultimately show for April, economists like Diane Swonk, chief economist for Mesirow Financial in Chicago, say the economy would be showing much more momentum if it were not for the combination of higher payroll taxes that went into effect in January, as well as the process of automatic spending cuts known as sequestration that began to bite last month."
“What’s the biggest drag on the economy? The government,” Ms. Swonk said. “If the government simply did no harm, we could be at escape velocity.”
"Without the impact of federal cuts and higher taxes, Ms. Swonk estimates, annual economic growth would be close to 4 percent, above the 2.5 percent pace she is expecting in 2013."
As to the fiscal multiplier, I just finished Krugman's End This Depression Now. It's very good. Krugman deserves credit for being a public servant in the truest sense of the word. It's true that it's again probably a little atheoretical. He calls himself a "sort of New Keynesian" which suggests that he knows the NK model is somewhat inadequate but has nothing to replace it with. We do need theory as well.
I do think that Krugman maybe underestimates the public a little-there is considerably more economic semi-literacy at least among the public than 5 years ago. I even give Sumner some credit for bringing the issue of monetary policy to lay people. However, Sumner is also rather misleading a lot of the time.
As to Keynesianism, as Krugman always says, it's never been tried. It was rather shocking to read that the only real "natural experiments" we have for fiscal stimulus are in response to wars or natural disasters. Trying to find the multiplier is mostly about shifting through numbers amassed during wars.
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