tag:blogger.com,1999:blog-1740670447258719504.post1787140080809866023..comments2024-03-27T03:00:27.024-04:00Comments on Facts & other stubborn things: Beckworth responds (and confuses me)Evanhttp://www.blogger.com/profile/12259004160963531720noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-1740670447258719504.post-70542624842539022482012-12-09T10:49:38.138-05:002012-12-09T10:49:38.138-05:00Daniel,
Meant to reply to you earlier. My origin...Daniel,<br /><br />Meant to reply to you earlier. My original post could have been clearer as to the main point I was originally making, so let me try to clarify here.<br /><br />My main point was that the fiscal policy multiplier, even if it is large, is usually offset by Fed actions. In this case, the fiscal contraction was being offset by the Fed ability to keep private spending stable. So my claim that the fiscal policy multiplier was low was in this context, not in its full potential. <br /><br />A secondary point is that we are far from full employment and contrary to Keynesian thinking, fiscal contraction does not seem to be detrimental. The output gap is still large, unemployment properly measured is high, and the demand for safe assets remains elevated. Given these existing conditions, the Keynesian prescription would not be a reduction in federal expenditures. If someone told Krugman that hypothetical country x had all these conditions and that government expenditures were being cut, I doubt he would agree with them. Yet that is what is happening now. Now again, this does not mean the full potential size of the fiscal multiplier is necessarily low, but that it is being offset by Fed actions.<br /><br />With that said, I am convinced by Valerie Ramey's survey article in the JEL that we really don't know the true size of the fiscal multiplier. And then there are questions of the political and economic efficiency of fiscal spending. So I am not a big fan of fiscal policy that increases government spending. I do, however, believe fiscal policy can pack a big punch with its creation of safe assets and its ability to do helicopter drops. David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-55724295829213216332012-12-08T16:42:53.406-05:002012-12-08T16:42:53.406-05:00And he can make that argument - and it's a rea...And he can make that argument - and it's a reasonable one - but that doesn't really say fiscal policy doesn't work - it says central bankers counteract good fiscal policy. And the graph still doesn't tell us that.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-87426352084368075942012-12-08T16:34:37.625-05:002012-12-08T16:34:37.625-05:00Unless his argument is the Fed can counteract any ...Unless his argument is the Fed can counteract any fiscal reductions and maintain ngdp so fiscal policy is unimportant and the austerity slope doesn't matter. Lordnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-23855684886452916422012-12-08T15:19:15.412-05:002012-12-08T15:19:15.412-05:00He also seems to think there is some kind of eithe...He also seems to think there is some kind of either/or we're facing between stabilization by the Fed vs. benefits of fiscal policy. Of course a big reason why NGDP has been growing stably (aside from the recovery that would have occurred in some fashion) is because the Fed wanted it to (and it's not up to NGDP trend because the Fed doesn't want it to be). None of that shows fiscal policy is a bad idea. And none of this says anything about fiscal policy efficacy without a plausible counter-factual.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-32072593164215286692012-12-08T15:16:09.734-05:002012-12-08T15:16:09.734-05:00Beckworth's graphs hardly disprove the Keynesi...Beckworth's graphs hardly disprove the Keynesian policy prescription of counter-cyclical fiscal policy. It could simply be that market expectations have been steadily improving, and private autonomous expenditures are responsible for the current level of NGDP. To concur with you, Daniel Kuehn, the level of unemployment could be lowered if a large fiscal stimulus was enacted.Blue Auroranoreply@blogger.com