From today’s news:
The marked improvement in the labor market since the U.S. central bank began its third round of quantitative easing, or QE3, has added an edge to calls by some policy hawks to dial down the stimulus. The roughly 50 percent jump in monthly job creation since the program began has even won renewed support from centrists, raising at least some chance the Fed could ratchet back its buying as early as next month.
I hope I don’t have to do any more of these. The fiscal multiplier theory is as dead as John Cleese’s parrot. The growth in jobs didn’t slow with fiscal austerity, it sped up! And the Fed is saying that any job improvement due to fiscal stimulus will be offset with tighter money. They talk like the multiplier is zero, and their actions produce a zero multiplier. Has there ever been a more decisive refutation of a major economic theory?
Yes there has; the conservative view that QE and big deficits would lead to higher inflation and higher interest rates.
PS. Saturos asked me about this exchange on twitter. The expected fiscal multiplier is roughly zero. And for policy purposes it is the expected fiscal multiplier that matters, not the actual ex post multiplier (which is impossible to calculate in any case.)