Here’s Mark Sadowski from the comment section:
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:
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:
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?
There is no such thing as a liquidity “trap.”
And how many jobs have actually been lost? Zero. If we get a lousy employment number next month how many jobs will have been lost? Still roughly zero. We are far enough above the 2012 trend in job growth that we could get a mediocre report next month (131,000 jobs), and the Keynesian multiplier model would still have been a complete failure—predicting huge job losses where there were none.
PS. There are some people claiming that I am “pro-austerity.” That’s a bit misleading as my position has always been more nuanced:
1. I favor monetary stimulus combined with fiscal austerity.
2. If the central bank continues to stubbornly target inflation, I’ve advocated cuts in employer-side payroll taxes and/or the VAT as a way of reducing inflation, and encouraging more monetary stimulus. So if monetary policy refuses to play ball I’ve advocated effective forms of fiscal stimulus. I don’t favor ineffective stimulus, such as bloated military spending merely to give us more “empty GDP calories.”