Sumner affects to agree with Krugman with 'just one quibble.' This quibble is a doozy. Sumner has reacted incredulously when I've argued that he's in fact a proponent of fiscal austerity. Why would I think that? Just because he's constantly claiming that the sequester has done no harm-and so implicitly it's a fine thing?
Here Sumner sort of claims to agree with Krugman in damning fiscal austerity in eurozone.
"So the ECB made a big mistake in 2011 by not offsetting fiscal austerity. Krugman and I agree on that point. The eurozone was not at the zero bound, so austerity should not have reduced demand, even using Krugman’s model. One irony here is that Krugman may be partly right about the fiscal multiplier, but for essentially supply-side reasons. One problem in 2011 was that inflation was running above target. And that was partly due to various tax and fee increases designed to close the large budget deficits. The ECB reacted to these tax increases by raising rates several times in 2011. In an AS/AD model the tax increases shifted AS to the left, raising inflation and reducing output, and the ECB reacted by shifting the AD curve to the left. So fiscal austerity was a mistake."
http://www.themoneyillusion.com/?p=24702
Ok, so Sumner thinks fiscal austerity was a mistake?! Well, actually... no:
"Or perhaps the real problem was the specific type of fiscal austerity. My analysis, combined with the ECB’s insane preference for inflation targeting, suggests that demand-side fiscal austerity would have been desirable. Raise the employee-side payroll tax by 4 percentage points and lower the employer-side payroll tax by 2 percentage points. That sort of fiscal reform would have lowered inflation and thus caused the ECB to cut rates in 2011, instead of raising rates."
Now that's the Sumner I know and love. Demand side fiscal austerity is all to the good. We should increase the employee side payroll tax while cutting it for their employers. He hasn't like it when I've compared him to Alesina, but this is exactly the same fiscal policy Alesina called for.
"In March 2011, the new Tea Party had taken over the House, and it needed a plan for what it would do about the deficit. It proposed that the effects of imposing austerity, even when the economy is weak, "may be strong enough to make fiscal consolidation programs expansionary in the short term." How did it propose we cut the budget? We can look at Joint Economic Committee (JEC) Republican report, "Spend Less, Owe Less, Grow the Economy," for the answer:
Here Sumner sort of claims to agree with Krugman in damning fiscal austerity in eurozone.
"So the ECB made a big mistake in 2011 by not offsetting fiscal austerity. Krugman and I agree on that point. The eurozone was not at the zero bound, so austerity should not have reduced demand, even using Krugman’s model. One irony here is that Krugman may be partly right about the fiscal multiplier, but for essentially supply-side reasons. One problem in 2011 was that inflation was running above target. And that was partly due to various tax and fee increases designed to close the large budget deficits. The ECB reacted to these tax increases by raising rates several times in 2011. In an AS/AD model the tax increases shifted AS to the left, raising inflation and reducing output, and the ECB reacted by shifting the AD curve to the left. So fiscal austerity was a mistake."
http://www.themoneyillusion.com/?p=24702
Ok, so Sumner thinks fiscal austerity was a mistake?! Well, actually... no:
"Or perhaps the real problem was the specific type of fiscal austerity. My analysis, combined with the ECB’s insane preference for inflation targeting, suggests that demand-side fiscal austerity would have been desirable. Raise the employee-side payroll tax by 4 percentage points and lower the employer-side payroll tax by 2 percentage points. That sort of fiscal reform would have lowered inflation and thus caused the ECB to cut rates in 2011, instead of raising rates."
Now that's the Sumner I know and love. Demand side fiscal austerity is all to the good. We should increase the employee side payroll tax while cutting it for their employers. He hasn't like it when I've compared him to Alesina, but this is exactly the same fiscal policy Alesina called for.
"In March 2011, the new Tea Party had taken over the House, and it needed a plan for what it would do about the deficit. It proposed that the effects of imposing austerity, even when the economy is weak, "may be strong enough to make fiscal consolidation programs expansionary in the short term." How did it propose we cut the budget? We can look at Joint Economic Committee (JEC) Republican report, "Spend Less, Owe Less, Grow the Economy," for the answer:
"The Tea Party's study called for 85 percent spending cuts and 15 percent revenue increases. This was based largely off a 2009 study by Alberto Alesina and Silvia Ardagna of Harvard titled "Large changes in fiscal policy: taxes versus spending." This is the ur-text of expansionary austerity, which made the case, for example, "On the demand side, a fiscal adjustment may be expansionary if agents believe that the fiscal tightening generates a change in regime that 'eliminates the need for larger, maybe much more disruptive adjustments in the future.'"
Anyone want to tell me there's any difference-on fiscal policy between Sumner, Alesina and the Tea Party's study? You could say they're separated at birth.
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