Market monetarism isn’t working (yet), but the Keynesian model is failing

Here’s Josh Barro:

After today’s good jobs report, my colleague Ramesh Ponnuru needles Paul Krugman: “So, I assume Krugman will now concede that market monetarism is working.”

Not quite, because the Fed is not yet targeting NGDP.  But the next part of Barro’s post explains what Ponnuru was referring to:

Market monetarism, as advanced by Ponnuru and the economist David Beckworth, among others, holds that aggressive monetary policy is a sufficient force to smooth out business cycles. They favor aggressive monetary action and fiscal austerity, on the ground that monetary forces can offset any fiscal contraction.

The Fed should have done more in late 2012, but did enough to offset the expected fiscal austerity:

The results so far are good but not great. Job growth is steady and economic growth is modest but positive. Sequestration’s human impacts are real, but a macroeconomic drag is not yet apparent. This looks a lot better than Europe, where the central bank hasn’t been so aggressive and many economies have slid back into recession.

Yet we should worry about the limits of the market monetarist approach. Monetary and fiscal policy are both constrained by political forces, not just economic ones. A full year of sequestration cuts amount to 0.5 percent of gross domestic product, which is significant but substantially less than the degree of fiscal tightening than Ponnuru and Beckworth advocate.

This is misleading, as the main issue in late 2012 was the fiscal cliff.  The tax increases were expected to shave about 1.5% off growth.  The sequester came later, and may have been partially unanticipated by the Fed.  It’s now pretty clear that economic growth in 2013 is not going to fall by 1.5%, rather it looks like it will be similar to 2012.  Indeed so far job growth is ahead of the 2012 pace.  Of course other things are never equal, but the main “other thing” has been the very disappointing performance of Europe, even worse than expected. That’s a “headwind.” It’s increasingly clear that the main difference between the US and Europe is monetary policy.  So why not do even more?

Josh Barro agrees:

Ponnuru admits their case isn’t won yet either: “I don’t think the latest growth number is strong evidence for the arguments Beckworth and I made about the primacy of monetary policy, but it is certainly not evidence against them.” That tentativeness is right — and it’s a reason to act on market monetarists’ calls for more monetary easing and see how that works before trying their proposed fiscal tightening.

Yes, please do more monetary stimulus, until nominal rates are positive, and then even the (smarter) Keynesians like Paul Krugman won’t be concerned about fiscal austerity.

I think the recent jobs numbers are a huge embarrassment to Keynesians.  If we’d gotten 50,000 jobs a month for the first 4 months, they’d be crowing that their model is vindicated.  So what’s the criterion for testing it?  Are we to assume that favorable data can prove Keynesianism and discredit other models, but unfavorable data is inconclusive?  That’s a recipe for never rejecting Keynesianism.  Which is exactly the point I guess.

On the other hand it doesn’t prove market monetarism is correct.  The Fed offset the austerity this time, but perhaps on other occasions they won’t.  And it doesn’t prove NGDPLT is a good policy regime.  Market monetarism has many more battles to fight, but this is a huge victory.


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35 Responses to “Market monetarism isn’t working (yet), but the Keynesian model is failing”

  1. Gravatar of Morgan Warstler Morgan Warstler
    3. May 2013 at 12:22

    Does Barro email you to get feedback before he writes?

    because he’d get a bigger deeper wonkier grasp, and that is the shit josh LOVES.

    I hate watching discussion cycles waste time.

  2. Gravatar of Ashok Rao Ashok Rao
    3. May 2013 at 15:31

    “I think the recent jobs numbers are a huge embarrassment to Keynesians. If we’d gotten 50,000 jobs a month for the first 4 months, they’d be crowing that their model is vindicated.”

    And they’d be making the same mistake I think you are, which is making a claim without considering the counterfactual. Now, the delta between America and Europe is pretty solid stuff for MM’s, and I fully cede that.

    But by looking at job numbers today someone can’t really say it’s “embarrassing” for Keynesians. And just that some of them would be doing the same thing given different circumstances doesn’t make this claim any more fair or valid.

  3. Gravatar of John Thacker John Thacker
    3. May 2013 at 16:30

    But by looking at job numbers today someone can’t really say it’s “embarrassing” for Keynesians.

    The only really “embarrassing” part is that it’s not a hypothetical that they’d be doing the same thing given different circumstances– it’s what they were doing just a couple of days ago.

    In any case, I think that Scott pretty clearly *does* consider the counterfactual in the above post. The Keynesian counterfactual offered is that the end of year tax increases (not counting the sequester) cut GDP growth by 1.5%. If you believe that, then you would have to believe that, absent the tax increases, growth would have rapidly accelerated this quarter, in a way that it has done for the last 4 years. While it’s impossible to know, it’s reasonable to consider that counterfactual unlikely.

  4. Gravatar of John John
    3. May 2013 at 17:30

    “I think the recent jobs numbers are a huge embarrassment to Keynesians. If we’d gotten 50,000 jobs a month for the first 4 months, they’d be crowing that their model is vindicated. So what’s the criterion for testing it? Are we to assume that favorable data can prove Keynesianism and discredit other models, but unfavorable data is inconclusive? That’s a recipe for never rejecting Keynesianism. Which is exactly the point I guess.”

    I don’t get why economists cannot understand that observational evidence doesn’t convince anybody. Ideologies are totally robust to observational data.

    In this instance, Scott should keep beating the dead horse about the specific pathways in which monetary policy can boost growth and jobs despite a contraction in government spending. A solid theory is much more convincing to the unconvinced than pure data which comes out of a world of high causal density where experiments are impossible.

  5. Gravatar of ssumner ssumner
    3. May 2013 at 18:17

    Morgan, No.

  6. Gravatar of marcus nunes marcus nunes
    3. May 2013 at 18:20

    Yes, MM is working. Pity that the Fed is so afraid to show it really does work!
    http://thefaintofheart.wordpress.com/2013/05/03/the-dismal-state-of-employment/

  7. Gravatar of Mark A. Sadowski Mark A. Sadowski
    3. May 2013 at 19:00

    Tax change multipliers used used by private forecasting firms and by government models such as the Federal Reserve’s FRB/US suggest that about half of the ultimate level economic effect of the payroll and income tax increase should be felt by the second quarter. Similarly government purchase multipliers suggest that two thirds of the ultimate level economic effect will be felt during the first three months (in aggregate) of the sequester, which is now more than two months old. See Appendix A for example:

    http://otrans.3cdn.net/45593e8ecbd339d074_l3m6bt1te.pdf

    In November 2012 the CBO estimated that the maximum level employment effect would be a decrease of about 200,000 jobs, 640,000 jobs (80% 0f combined payroll and UI effect of 800,000 jobs lost) and 800,000 jobs for the high income tax increase, payroll tax increase, and sequester respectively:

    http://www.cbo.gov/sites/default/files/cbofiles/attachments/11-08-12-FiscalTightening.pdf

    In other words, according to these estimates, the sequester should already have decreased employment by over 500,000 jobs relative to baseline, and the tax increases should decrease employment over 400,000 relative to baseline by the next employment report at the latest.

    What happened to the liquidity trap?

  8. Gravatar of Benjamin Cole Benjamin Cole
    3. May 2013 at 19:01

    Keynesians, and other economic theorists and modelers have a motto: “Sure, Market Monetarism might work in practice, but more importantly, does it work in theory, or my model?”

  9. Gravatar of Keaton Brownstead Keaton Brownstead
    3. May 2013 at 19:08

    What do you suppose a Taylor Rule counterfactual would look like?

  10. Gravatar of Mark A. Sadowski Mark A. Sadowski
    3. May 2013 at 19:41

    “Now, the delta between America and Europe is pretty solid stuff for MM’s, and I fully cede that.”

    Most people have been very slow to realize that:

    1) The ECB hasn’t really done any QE to speak of. (In fact its monetary base has shrunk 22.9% just since July 2012.)
    2) The U.S. has actually tightened its fiscal policy stance more than the eurozone (in aggregate) by every possible rational measure over the last few years. (For example, Belgium, Finland and the Netherlands haven’t cut spending at all, and Finland, Germany and the Slovak Republic have actually cut taxes.)

    Moreover, despite the unbelievable misery on the periphery, the Europeans themselves are suffering from severe denial, largely based on the illusion that everything can be solved simply through structural reforms, and that the core of the eurozone is performing relatively well (which I suppose it is, compared to the economic wasteland that is now the periphery).

    But the last of the eurozone wheels are about to fly off the truck.

    So far since 2008 only five eurozone countries have not had a second or third recession: 1) Austria, 2) Estonia, 3) Finland, 4) Germany and 5) the Slovak Republic. Austria, Finland and Germany each had negative RGDP growth in 2012Q4. Furthermore, the industrial production indicies for January and February for those three countries are on average lower than the 2012Q4 average. In fact they are down sharply for Austria and Finland, and the German PMIs for March indicated contraction that month.

    So what happens when the 2013Q1 RGDP report comes out showing Austria, Finland, and now even Germany, are also in a recession?

  11. Gravatar of Mike Sax Mike Sax
    3. May 2013 at 20:38

    “I think the recent jobs numbers are a huge embarrassment to Keynesians. If we’d gotten 50,000 jobs a month for the first 4 months, they’d be crowing that their model is vindicated. So what’s the criterion for testing it? Are we to assume that favorable data can prove Keynesianism and discredit other models, but unfavorable data is inconclusive? That’s a recipe for never rejecting Keynesianism. Which is exactly the point I guess.”

    Great that you think so. Yet which Keynesian was predicting 50,000 jobs a month?

    Unless your saying that the job numbers would be weaker without the sequester I don’t see where the embarrassment comes in.

  12. Gravatar of Mike Sax Mike Sax
    3. May 2013 at 20:41

    If QE Infinity is stimulating the economy why not have it and no sequester?

  13. Gravatar of Mike Sax Mike Sax
    3. May 2013 at 20:54

    The one thing Barro says that MMers are ignoring is this:

    “So while the last year provides evidence that the monetary channel for improving the economy is effective, the evidence is not so clear as to support Ponnuru and Beckworth’s advice to shut off the fiscal channel altogether. Ponnuru admits their case isn’t won yet either: “I don’t think the latest growth number is strong evidence for the arguments Beckworth and I made about the primacy of monetary policy, but it is certainly not evidence against them.” That tentativeness is right — and it’s a reason to act on market monetarists’ calls for more monetary easing and see how that works before trying their proposed fiscal tightening.”

    I’ve never gotten why there’s such a passion for austerity out of the MMers. It’s one thing to oppose stimulus. HOwever, isn’t it possible to not support stimulus and yet not call for austerity either?

  14. Gravatar of Mike Sax Mike Sax
    3. May 2013 at 22:34

    “The U.S. has actually tightened its fiscal policy stance more than the eurozone (in aggregate) by every possible rational measure over the last few years. (For example, Belgium, Finland and the Netherlands haven’t cut spending at all, and Finland, Germany and the Slovak Republic have actually cut taxes.)”

    Mark though you make it sound like the most obvious thing in the world this claim is certainly news to me-nor do I think I’m the only one. The countries you name are the core healthy EU countries. Is it true that there has been no austerity in the periphery?

    The U.S. until now with the sequester-and to an extent with the end of the payroll holiday-hasn’t actually suffered much austerity at the federal level-though there has been significant cutbacks at the state level which has slowed the recovery considerably.

    Maybe you can answer this as no other MMer seems to be intersted in giving an answer. Even if you believe that monetary policy can offset a fiscal contraction, why during a recession do you want a fiscal contraction?

    Even if the job numbers today were decent, are you telling me they would have been lower if we had no sequester? If not then why this demand for fiscal austerity?

  15. Gravatar of TravisV TravisV
    3. May 2013 at 23:07

    Dear Market Monetarists,

    This might be a dumb question but…..I’m having a hard time understanding why interest rates in Japan were so low during the 1990′s.

    Yes, Japan’s economy was stagnant with deflation, so Japanese investors expected low returns. I understand that. However, those same investors had the ability to invest in other markets for much higher interest rates.

    Shouldn’t that discrepancy have kept Japan’s interest rates up?

  16. Gravatar of TravisV TravisV
    3. May 2013 at 23:37

    A Market Monetarist needs to respond to this by Stiglitz. The illogic is just maddening! I hope Krugman rips this apart too!

    http://blog-imfdirect.imf.org/2013/05/03/the-lessons-of-the-north-atlantic-crisis-for-economic-theory-and-policy

    “The odd thing is that while just about every central banker would agree we should intervene in the determination of that price, not everyone is so convinced that we should strategically intervene in others, even though we know from the general theory of taxation and the general theory of market intervention that intervening in just one price is not optimal.”

    ………..

    “There has to be coordination across all the issues and among all the instruments that are at our disposal. There needs to be close coordination between monetary and fiscal policy.”

    ………..

    “To succeed, we must constantly remind ourselves that markets on their own are not going to solve these problems, and neither will a single intervention like short-term interest rates. Those facts have been proven time and again over the last century and a half.”

  17. Gravatar of Saturos Saturos
    4. May 2013 at 00:15

    Tyler recommends this piece on Abenomics: http://fistfulofeuros.net/afoe/the-a-b-e-of-economics/

  18. Gravatar of David Beckworth David Beckworth
    4. May 2013 at 04:37

    Here is my response to the employment report and Barro: http://macromarketmusings.blogspot.com/2013/05/is-feds-able-to-offset-austerity.html

  19. Gravatar of Scott Sumner’s counter-factual victory « J.uris D.ebtor Scott Sumner’s counter-factual victory « J.uris D.ebtor
    4. May 2013 at 05:09

    [...] Monetarist vs Keynesian battle royal.  Leading the charge for the MMers is Scott Sumner, who today declared that while Market Monetarism has not (yet) won, Keynesianism has definitely lost.  The proof? [...]

  20. Gravatar of ssumner ssumner
    4. May 2013 at 05:33

    Marcus, Yes, a very smooth offset.

    Mark, Great comment.

    Keaton, The Taylor rule breaks down at zero rates.

    Mike, There is no “passion for austerity” among market monetarists. There is a passion for the truth. I favor certain forms of fiscal stimulus, such as employer-sider payroll tax cuts, and in Europe VAT cuts.

    I don’t understand your question about who predicted 50,000 a month employment increases, I made up that number.

    TravisV, No, because the forex market showed expected appreciation of the yen.

    Saturos, Yes, I saw that. But it’s very long and I couldn’t find the punch line.

    David, Excellent reply.

  21. Gravatar of Mike Sax Mike Sax
    4. May 2013 at 05:51

    Fine. I have a passion for truth as well. Still my point is not just that you oppose fiscal stimulus but you also support austerity or at least you are critical of those who are critical of austerity.

    It’s possible that someone could oppose fiscal stimulus but yet not think that deep fiscal cuts right now are needed either.

    If we hadn’t had a sequester that would not have been stimulus.

    To put it as straightforwardly as I can: why do you think deep fiscal cuts are a good idea right now? It seems to me you could believe in the roughly zero fiscal multiplier and still not support austerity during a tough recovery. I don’t usually seem to have much luck asking you a direct question but there it is: why support austerity now.

    I interpret you as supporting it as you criticize those who criticize it.

  22. Gravatar of Suvy Suvy
    4. May 2013 at 06:12

    I think one thing the Keynesians missed was that the hit to GDP growth from spending cuts is not a linear relation(I think the same of the multiplier). If we cut 5% of GDP vs 1% of GDP over 5 years, the hit to growth will be very different.

  23. Gravatar of Mike Sax Mike Sax
    4. May 2013 at 06:27

    I understand you made the 50,000 number up, I’m not quite that simpleminded. The point is though that you seem to think we have to see that if we don’t see that level of contraction the keynesians are somehow refuted.

    If you aren’t arguing that we would have had fewer jobs created on Friday’s report without the sequester there’s no embarrassment for Keynesians.

  24. Gravatar of Mark A. Sadowski Mark A. Sadowski
    4. May 2013 at 07:03

    Mike Sax,

    You wrote:
    “The countries you name are the core healthy EU countries. Is it true that there has been no austerity in the periphery?

    The U.S. until now with the sequester-and to an extent with the end of the payroll holiday-hasn’t actually suffered much austerity at the federal level-though there has been significant cutbacks at the state level which has slowed the recovery considerably.”

    The IMF looked at changes in revenue and spending items between 2009 and 2012 (Figure 15):

    http://www.imf.org/external/pubs/ft/fm/2012/02/pdf/fm1202.pdf

    The eurozone periphery members that have raised taxes more than the US were Greece, Italy, and Portugal which together represent only about 20% of eurozone GDP. The eurozone periphery members that have cut spending more than the US were Greece, Ireland, Spain and Portugal which together represent only about 17% of eurozone GDP. (Greece, Ireland and Portugal are small countries together accounting for only about 5% of eurozone GDP.)

    And that was *before* the federal payroll and income tax increases, and the sequester. The vast majority of the eurozone has not engaged in fiscal austerity to the same degree that the US has.

    And you wrote:
    “Even if you believe that monetary policy can offset a fiscal contraction, why during a recession do you want a fiscal contraction?”

    I personally have never advocated fiscal austerity in a prolonged recovery from a deep recession. Moreover I think Josh Barro is incorrect when he states that David Beckworth favors “fiscal austerity”. Read David’s article and you’ll see what I mean.

  25. Gravatar of Mike Sax Mike Sax
    4. May 2013 at 07:25

    TK for the link Mark. I still think that saying that austerity is deeper in the U.S. than “Europe” is misleading and needs to be qualified-which is why I use the scare quotes.

    After all, “Europe” is not one economy but many different diverse economies. The countries in Europe that haven’t done deep austerity are in much better shape than those who have.

    The overall EU numbers are weak because of the weak sisters-the 20%. So when assessing why the U.S. has such better numbers than the EU it’s misleading to say that the U.S. did more austerity which shows it’s not so bad.

  26. Gravatar of Mark A. Sadowski Mark A. Sadowski
    4. May 2013 at 08:57

    Mike,
    Let me clear, I’m not talking about the entire European Union (EU27). I’m just talking about the eurozone (EA17).

    The eurozone is one currency area subject to one monetary policy. There is no separate German versus Spanish monetary policy, any more than there is a separate Texan versus Arizonan monetary policy.

    Obviously if government spends less money in a particular geographic part of a currency area, say Fargo, North Dakota, GDP goes down in Fargo, North Dakota.

    The overall eurozone economy is bad because all but five of the 17 eurozone members have now had a second or third recession. This is not just isolated to those eurozone members that have engaged in more fiscal austerity than the US.

  27. Gravatar of Mike Sax Mike Sax
    4. May 2013 at 09:11

    In theory they are all subject to one monetary policy though the countries also retain their national Central Banks. But while they are-unfortunately all subject on one monetary policy that has not worked at all well-each country is subject to it’s own fiscal policy which nevertheless has an effect on the cumulative EU numbers-growth, unemployment.

    You yourself said that “Europe has done more austerity than the US-yet this fiscal consolidation is done at the national level but has Union wide effects.

    If you look at the countries that have had a second or third recession it’s mostly about those with tax increases or spending cuts.

    How does this list look against those who haven’t done austerity?

  28. Gravatar of Don Geddis Don Geddis
    4. May 2013 at 09:46

    @Mike Sax: “I interpret [Sumner] as supporting [austerity] as [Sumner] criticize[s] those who criticize it.

    That’s not a fair interpretation. We all (Keynesians and MMs) agree that the major problem of the last few years has been lack of sufficient aggregate demand. Keynesians then write about how we need fiscal deficits now, in order to boost demand, and austerity is going the wrong way. MMs respond that this argument is silly, because it completely ignores the vastly more powerful monetary policy.

    That, by itself, just makes MMs neutral about fiscal policy. Because “it doesn’t matter” (for demand).

    why do you think deep fiscal cuts are a good idea right now?

    There’s more to macro than just MM and aggregate demand. There are also supply side factors. Even if fiscal policy is impotent about demand, it could still have an effect on the supply side (where monetary policy is impotent!). Natural rate of unemployment, real economic growth rate in the economy (vs. inflation), etc.

    This is not a part of MM, but it’s perfectly reasonable for any economist to support smaller government (lowering the share of GDP controlled by the government), in the hopes of higher growth rates. And if monetary policy CAN offset any fiscal contraction, then there’s no particular reason why not to improve the supply side of the economy “right now” as well. If the multiplier is zero, then there’s no better or worse time to improve the fiscal budget.

  29. Gravatar of Mark A. Sadowski Mark A. Sadowski
    4. May 2013 at 10:02

    Mike,

    You wrote:
    “In theory they are all subject to one monetary policy though the countries also retain their national Central Banks.”

    There are also 12 Federal Reserve Banks each with their own geographical district. But I assure you that monetary policy is in fact the same in Philadelphia as it is San Francisco.

    You wrote:
    “But while they are-unfortunately all subject on one monetary policy that has not worked at all well-each country is subject to it’s own fiscal policy which nevertheless has an effect on the cumulative EU numbers-growth, unemployment.

    You yourself said that “Europe has done more austerity than the US-yet this fiscal consolidation is done at the national level but has Union wide effects.”

    There are also 50 states in the U.S. each with their own fiscal policies which nevertheless has an effect on the cumulative U.S. numbers. What is your point?

    “If you look at the countries that have had a second or third recession it’s mostly about those with tax increases or spending cuts.

    How does this list look against those who haven’t done austerity?”

    The IMF World Economic Outlook (WEO) has estimates of the “general government structural balance” which is the total government (e.g. federal, state and local) budget balance adjusted for the business cycle. Thus any changes in this balance would be due primarily to changes in tax and spending policies and so they give us an estimate of the degree of fiscal austerity.

    The IMF projects that between 2010 and 2013 the structural balance as a percent of potential GDP will have risen by more in the US (3.86%) than in Spain (3.50%), France (3.48%), Italy (3.41%), Ireland (3.28%), Slovenia (3.22%), the Netherlands (3.17%), Malta (1.93%), Belgium (1.15%), Luxembourg (-0.11%) and Cyprus (-0.37%). All of these countries have had a second or third recession since 2008.

    The US is also projected to have done more fiscal austerity by this measure than Germany (2.30%), Austria (1.94%) and Finland (0.83%) and it is all but certain that these countries are now in recession as well.

  30. Gravatar of TheMoneyIllusion » Mark Sadowski on policy counterfacturals TheMoneyIllusion » Mark Sadowski on policy counterfacturals
    4. May 2013 at 10:03

    [...] Mark Sadowski from the comment [...]

  31. Gravatar of Mike Sax Mike Sax
    4. May 2013 at 16:51

    Don I have to disagree with you. Everything I see from Sumner suggests it’s not neutral for him. He’s not fine whether we do austerity or not, he’s taken pains to attack anyone who criticizes austerity. In the next post he says that’s his goal: monetary easing and fiscal tightening.

  32. Gravatar of Mike Sax Mike Sax
    4. May 2013 at 16:56

    “There are also 50 states in the U.S. each with their own fiscal policies which nevertheless has an effect on the cumulative U.S. numbers. What is your point?”

    Mark if you’re claiming there’s the level of union in the EU there is in the U.S. I have to disagree with you. Indeed, the whole trouble with the EU is there isn’t an equivalent fiscal and political union to go with the monetary union and so the monetary union isn’t working.

    If you claim that the EU is identical to the U.S. then I don’t take your point.

    The EU lacks this history, culture, and commonality of feeling necessary-that’s why the EU is basically a failed experiment. Each country doesn’t see itself as states in a larger nation as we do in the U.S.-again even for us it took over a century and much bloodshed to get our current level. The EU is for most Europeans still an alien concept which is why none of them will think of bailing out weak sisters like Greece, Spain, or Cyprus.

    It’s not equivalent-though the goal of the euro project was that it would be so.

  33. Gravatar of Mark A. Sadowski Mark A. Sadowski
    4. May 2013 at 18:54

    Mike,

    You wrote:
    “Mark if you’re claiming there’s the level of union in the EU there is in the U.S. I have to disagree with you.”

    Now you’re putting words in my mouth. You, however, were implying a degree of U.S. fiscal integration that simply doesn’t exist in my opinion .

    You wrote:
    “Indeed, the whole trouble with the EU is there isn’t an equivalent fiscal and political union to go with the monetary union and so the monetary union isn’t working.”

    Again I remind you there are ten EU members that are not part of the eurozone and hence not part of the monetary union.

    In 1969 Peter Kenen argued that a risk sharing system, such as an automatic fiscal transfer mechanism to redistribute money to regions which have been adversely affected by asymmetric shocks, was an important attribute of an Optimal Currency Area (OCA). And yes, this probably would necessitate greater political integration. But in my opinion that is a separate topic that is not necessarily related to the a discussion of the overall stance of fiscal and monetary policy in the eurozone.

    You wrote:
    “If you claim that the EU is identical to the U.S. then I don’t take your point.”

    Again you’re conflating the EU with the eurozone. If the fact that the eurozone is not identical to the U.S. makes it impossible to compare their fiscal and monetary policy stance then that probably would be true of any two currency areas, in which case we might as well give up any hope at all for cross-country empirical studies in monetary economics.

  34. Gravatar of ssumner ssumner
    5. May 2013 at 05:25

    Mike Sax, You said;

    “I understand you made the 50,000 number up, I’m not quite that simpleminded. The point is though that you seem to think we have to see that if we don’t see that level of contraction the keynesians are somehow refuted.”

    No at all, I never even implied that.

    And it’s always a good time for (sensible) austerity. But I opposed Obama’s tax increase on capital incomes. Did you?

  35. Gravatar of TallDave TallDave
    5. May 2013 at 17:53

    Great points Mark.

    So what happens when the 2013Q1 RGDP report comes out showing Austria, Finland, and now even Germany, are also in a recession?

    The ECB adopts NGDPLT? :) Haha. What the heck would that even look like? I guess they could try (not that they will), even that muddle would be better than what they’re doing now.

    I suppose the best we can realistically hope for is some acknowledgement that maybe current policy should be re-examined over the next couple years.

    BTW if anyone didn’t see them, Nigel Farage’s comments on the EU are a hoot. (Did you know they have an anthem? I didn’t.)

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