Here’s Mike Konczal back in April:
We rarely get to see a major, nationwide economic experiment at work, but so far 2013 has been one of those experiments — specifically, an experiment to try and do exactly what Beckworth and Ponnuru proposed. If you look at macroeconomic policy since last fall, there have been two big moves. The Federal Reserve has committed to much bolder action in adopting the Evans Rule and QE3. At the same time, the country has entered a period of fiscal austerity. Was the Fed action enough to offset the contraction? It’s still very early, and economists will probably debate this for a generation, but, especially after the stagnating GDP report yesterday, it looks as though fiscal policy is the winner.
And here was Paul Krugman:
as Mike Konczal points out, we are in effect getting a test of the market monetarist view right now, with the Fed having adopted more expansionary policies even as fiscal policy tightens.
And the results aren’t looking good for the monetarists: despite the Fed’s fairly dramatic changes in both policy and policy announcements, austerity seems to be taking its toll.
Yup, we got a test of the market monetarist view.
Yesterday I reported that RGDP growth in 2013 was running ahead of the pace for 2012, using either the official figures or the new Philly Fed GDPplus estimates. Today we received another strong jobs number, which means that employment gains in the first ten months of 2013 are running at over 186,000/month, versus less than 183,000/month last year and 175,000/month in 2011.
Given the predictions of the Keynesian model, anything even close to 2012 results would have been a win for MM. The Keynesian model predicted a sharp slowdown from the higher income/cap gains/dividends taxes, payrolls taxes, sequester, government shutdown, etc, etc. But we are running ahead of 2012, and even if the last two months are weak we will be essentially even.
And yet on the Keynesian side of the aisle I hear a deafening silence. Where is the discussion of this great “experiment?” Could it be that academics and pundits only like to discuss experiments that validate their priors?
PS. It would be more accurate to say this was a test of one aspect of the monetarist model; monetary offset. Of course there is much more to market monetarism. The results of this test, however, also provide strong evidence in favor of another proposition—monetary policy is not ineffective at the zero bound. But then stock investors have known that since 1933, it’s academics who have been clueless.
PPS. Please don’t tell me the economy is still too weak. I know that, and favor more monetary stimulus. But I didn’t draw up the ground rules for the test; Konczal and Krugman did.