Market Monetarism and Supply Side Fiscal Policy: Two Sides of the Same Coin

     Trying to get a Market Monetarist to explain why they support fiscal austerity is an interesting game. They play every word game and throw up every subterfuge to deny that they do. No, they are not for fiscal austerity but it doesn't matter as long as the Fed does QE or forward guidance, As the Fed is all powerful to hit any inflation or NGDP target it wants, it doesn't matter whether we do austerity or not.

   Yet they only criticize those who criticize austerity never those who argue for it. Notice that when Republicans call for more fiscal austerity the MMers are silent. However, when anyone criticize these calls, then they speak up. Don Geddis has left a huge amount of comments here recently-for which though I totally disagree with him, I welcome nevertheless-as is the same with Mark Sadowski or whatever fiscal austerians want to drop by.

   Mark recently left a comment that insulted me personally as a 'liar'-but he went on this is not surprising based on what I do for a living-I'm a telemarketer. This I found rather insensitive. I mean, I wish I had a better job than a telemarketer-my education was supposed to get me more-I'm actually have a bachelor's in accounting and am one class away from a Master's in finance. However, thanks to the terrible shape of the economy I had to get into telemarketing. It's conservatives like him who are so against the kind of policies that might give me and millions of others better alternatives to bugging him at home-or at work which has actually become my speciality

   This is why I honestly don't feel any sympathy for people who complain about telemarketing. After all, most of the people I call have much better jobs and make much more money than I do-though it's my goal for this to change. If I get them to buy something they don't wholly need or perhaps shove them a little into it, why should I feel guilty? These same people don't give a crap about my struggles and if they elected better politicians we might have more socially beneficial things for people to do than telesales.

    Listen, I'll admit, I quite like what I do. I find it very interesting for instance, that reading to people word for word from a script can actually be much more effective than those telesales jobs where they tell you to pretend to be 'spontaneous' like you're 'having a real conversation' and 'empathize' with them to the point of agreeing with them it's a pain to have so many telemarketers calling them all day. 

    However, when  I listen to the MMers they sound like telemarketers with a script, much as they insist otherwise. Listen to Don Geddis here when I asked him-yet again-why we want fiscal austerity in the middle of a deep slump:

   "So if austerity subtracts from AD why do it in the middle of a recession?"

    "That's a totally separate question, from everything else we've been talking about. The main discussion is: aggregate demand matters a lot, but the Fed controls it absolutely, so fiscal policy doesn't matter at all for aggregate demand (because of the power of monetary offset) -- a least, with a well-run central bank."

    "Now you've asked a completely independent question: given that the Fed can reach any AD it wants, regardless of the setting of fiscal policy, why might you want fiscal austerity? Especially, in the middle of a recession?"

     "We can talk about that if you want, but it has NOTHING to do with controlling aggregate demand."

      "I don't think it's productive to get into it, but that secondary discussion would be about improving the supply-side of the economy (rather than the demand-side, which is what the Fed controls). I.e., the deadweight losses from taxes, the disincentive effects from government interference in the economy, etc. None of this is specific to recessions, but it's the general arguments that conservatives (or libertarians) make, about controlling the size of government, spending within your means, etc."

      "In the abstract, if fiscal policy doesn't matter for controlling demand, then you probably want to settle on a long-term budget structure of balanced budgets, with deficits dropping to near zero, and expenditures balanced by tax receipts."

      "But again, this argument is completely independent of the different argument, over whether fiscal policy is a useful tool in combating depressed aggregate demand."

    http://diaryofarepublicanhater.blogspot.com/2014/02/turns-out-bernanke-doesnt-believe-in.html?showComment=1393685229712#c2991910979083624228

      Yes, he doesn't see it as 'productive' to get into it. That's obvious, as when you ask this of MMers they always dodge the point. Don is actually the first one who actually answers it here. What is interesting is why is it so unproductive to get into it here? Again, Sumner's hook has always been clear. He doesn't preach like Alesina or Reinhart and Rogoff about the virtues of fiscal austerity, however, he just handicaps MM theory so that if you follow him step by step fiscal austerity 'just happens.'  

     He then goes onto claim that it's possible to be a 'liberal Market Monetarist.'

    "It's easy to be a liberal Market Monetarist. I don't know how else to say it: fiscal policy is IRRELEVANT to controlling aggregate demand. That doesn't mean that MM requires fiscal austerity. It means that your arguments for or against austerity, have nothing to do with whether we're in a demand-side recession.

        "If your politics suggests that you want larger government, large deficits, whatever ... then by all means, go ahead. The only single thing I don't want you to use in your fiscal debate, is the Keynesian claim that we need large fiscal deficits today, in order to boost aggregate demand. MMs want you to throw away that claim."

      "Right, and if you do throw away that claim as a liberal you'll have very little left. In theory you could argue for liberal policies anyway. Yet this isn't very likely. You'll mostly be stuck with 'Supply Side' fiscal policies like Sumner-just happens to praise here."

       "I am viewed as being an opponent of fiscal stimulus, but I’ve always argued that an employer-side payroll tax cut would “work.”  It just seems kind of pointless.  If it’s a lower W/NGDP ratio that you need, just boost NGDP!  Christina Romer has also advocated this sort of payroll tax cut.  It lowers a country’s labor costs in much the same way as a currency devaluation.  If you add on a VAT increase it can even be revenue neutral, which keeps the Very Serious People on board. Since it’s supply-side, no monetary offset problem.  What’s not to like? "

     "http://www.themoneyillusion.com/?p=26278

      Oh, I don't know Scott! You've stumped mere there. Ok, it's a totally regressive fiscal policy-what's not to like? Nothing, if you're a supply sider or a wealthy employer. On the other hand those with low or middle income won't do so well as they're consumption costs will go up. You'll never convince me that this is not the real goal of Sumner, and all his conservative-or 'libertarian' which is a distinction without a difference-regressive supply side policies at any price.

       The idea of a liberal Market Monetarist is even less plausible when you remember that the GOP uses the budget as an excuse to cut important social programs. Essentially the point of MM is to give liberal opponents of Ryan as little leg to stand on as possible.  If we were to buy that balancing the budget during a recession doesn't hurt as long as the Fed does QE that would a tremendous boon to Ryan which is what the real goal is. 

   Geddis talks about the ability of the Fed to hit any target, or achieve any goal as if it's a fait accompli. Actually there is wide divergence on this argument that the Fed can hit any target it wants. Don's argument for how we know that it can is right out of Sumner. The existence of hyperinflation proves it. What we have is the classic Sumner 'Then how do you explain Zimbabwe argument.'

        "It's fine to not be convinced about this. But then this is the only question you should be exploring. It's silly to ask about fiscal austerity, if you're not yet on the same page about the power of monetary policy. EVERYTHING else in MM, depends on this understanding. If Krugman was right about the ZLB, then he would also be right about fiscal stimulus / austerity."

     "So you shouldn't get distracted by all the fiscal questions. Just try to resolve this one, very simple, focused disagreement. MMs have claimed that the Fed allowed NGDP to be too low after 2007, and should have raised it. Some people think that the Fed doesn't have the power to raise NGDP. Are you one of those people? What, exactly, do you think prevents the Fed from debasing the currency? Do you agree that hyperinflation is possible? If we can have the current nominal level, and we can have hyperinflation, then what, exactly, prevents the Fed from targeting some level of nominal spending in between?"

      Notice how he thinks he can actually pigeonhole me here.  Yes, I guess I'll just study the question of whether the Fed is all powerful or not for the next 5 years but not get 'distracted by all these fiscal questions', meanwhile the GOP will be doing fiscal austerity.  

       As to the how do you explain Zimbabwe argument it's been debunked many times before but here we go again. Hypeinflation is not the result of a CB trying to goose the economy but political instability. I think it's very questionable if the Fed can hit either an inflation or a NGDP target all by its lonesome. There is no proof that says otherwise. 

       P.S. When Sumner says he's viewed as an opponent of fiscal stimulus he doesn't have to mention me to know that he was thinking of me then.