A New Fallacy

I'm coining a new fallacy in discussions of economics and politics: the Central Government Fallacy. Committed by those who forget that we live in a federal republic, and in so doing make fallacious claims about policy. People are very prone to committing the Central Government Fallacy when talking about macroeconomic policy.

How significant is the Central Government Fallacy for today's public discourse? Very significant. If you're one of those people that thinks the United States is engaging in Keynesian macroeconomic policy, then you haven't been paying attention.

There's been a lot of talk about Keynesianism lately - and that's good. And there are a lot of policymakers that have been taking Keynes seriously lately - and that's also good. But if you think we've been practicing Keynesianism, you're quite simply wrong. How would I characterize our policy response to the economic crisis? Tepid monetarism. That works tolerably well in most circumstances, but not when nominal interest rates are at record lows, inflation is low, and demand is weak.