Josh Hendrickson on British austerity

I need to start reading Josh’s posts more often.  He is a good blogger and much less long-winded than me.  Here Josh discusses how the new British government is following a quasi-monetarist policy:

The reason that one should be interested in the Bank of England is because they are following a policy roughly consistent with those advocated by folks like me, David Beckworth, Scott Sumner, Bill Woolsey, and others: anchor expectations with an explicit goal “” preferably for nominal income “” and use quantitative easing when interest rates fall near zero.

Then he quotes this very interesting passage from the WSJ:

Another quarter, another surprisingly strong U.K. growth figure. Growth of 0.8% in the third quarter smashed the consensus estimate, pitched at just half that level, and also demolished any thought that the Bank of England might move towards more quantitative easing at its meeting next week. The U.K. economy is looking resilient.

[…]

The U.K. economy has now expanded 2.8% in the last year, a little above the average for the pre-crisis decade of 2.6%. Encouragingly, growth is broad-based across services, construction and manufacturing; the latter has now racked up annual growth of 5.3%, the strongest year-on-year rise for 16 years, Barclays Capital notes. Despite concerns, service-sector growth held up at 0.6%, the same pace as the second quarter. Indeed, worries that the U.K. is experiencing a particularly bumpy recovery are starting to look overdone. That should help unlock corporate spending and hiring.

Investors hadn’t expected such strong growth: sterling shot up against the dollar and 10-year gilt yields rose more than 10 basis points as markets judged that more BOE bond purchases were a vanishing prospect. Of course, the fiscal tightening set out in last week’s comprehensive spending review may drag on growth in coming months. But there is no case for the BOE to be loosening policy now, with inflation stubbornly above target and nominal growth close to 6%; Citigroup notes this means that policy makers are above the trend growth rate of 5% that the BOE targeted in undertaking round one of quantitative easing.

So here’s my question to Keynesian readers:  What is the Keynesian argument against British austerity?  I thought the New Keynesians accepted the fact that fiscal policy was superfluous if the central bank was targeting inflation or NGDP.  Yes, if monetary policy is impotent then there may be a case for fiscal stimulus.  But one could hardly argue that the BOE is currently powerless, indeed they seem to have nominal growth about where they want it and are refraining from additional steps because they don’t think the economy needs any more stimulus.  So why do so many Keynesian bloggers think the Conservative/LD coalition is making such a tragic error?  I don’t get it.

Gordon Brown’s policies increased government spending and raised the top MTR to 50%.  So I don’t expect Britain to do as well over the next 20 years as it did from the mid-1980s to about 2006.  But if growth is disappointing, it won’t be because of austerity.

Josh also has a new post that elegantly demolishes the argument that because Milton Friedman favored stable money growth, he would have opposed the current round of QE.

PS:  In answer to your question, you can be Pippin.  The guy who wrote Pop Internationalism was Smeagol.


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37 Responses to “Josh Hendrickson on British austerity”

  1. Gravatar of JTapp JTapp
    6. November 2010 at 16:28

    Scott, Exhibit A: Brad Delong writing at Project Syndicate. Making a clear Keynesian case without a mention of a central bank.

    And yet at the same time he published that, he’s been a pretty firm proponent of QE, reposting Beckworth’s Friedman article and more. I tweeted him last week with the same question you’re asking and got no response.

  2. Gravatar of Mark A. Sadowski Mark A. Sadowski
    6. November 2010 at 16:33

    “But one could hardly argue that the BOE is currently powerless, indeed they seem to have nominal growth about where they want it and are refraining from additional steps because they don’t think the economy needs any more stimulus. So why do so many Keynesian bloggers think the Conservative/LD coalition is making such a tragic error? I don’t get it.”

    The failure is due to the fact that the public doesn’t see the monetary-fiscal policy response function. Monetary policy is hardly impotent. It’s only that the people want more than can be delivered in this timefrain.

  3. Gravatar of 123 – TheMoneyDemand Blog 123 - TheMoneyDemand Blog
    6. November 2010 at 16:55

    I’m not a Keynesian, but I know that the current secret Keynesian principle is “Government bond bubble good, housing bubble bad”. I have just quoted Kocherlakota in my blog who made this point in his latest speech.

    Whereas Conservative/LD coalition still believes that the old Bush era Krugman was right when his position was “Housing bubble good, government bond bubble bad”.

    (Here is Krugman (2002): “To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”)

  4. Gravatar of Shane Shane
    6. November 2010 at 17:02

    In the long run, the fired workers will be employed again. But in the long run…

  5. Gravatar of ssumner ssumner
    6. November 2010 at 17:04

    JTapp, He didn’t respond because there is no good answer to that question.

    Mark, That hits the nail on the head. One of the things that has so shocked me about the past three years is that almost no one (and I’m including distinguished economists) seemed to see monetary and fiscal policy as two ways of boosting AD in 2009. Do you recall a single conservative economist who said it would be a bad thing if fiscal stimulus boosted AD? I don’t, they all said it would “fail” by not boosting AD. Yet they say monetary policy will “fail” by boosting AD.

    And on the left they say:

    1. The Fed can do no more.
    2. The Fed needs to do lots more.

    Some on the right also say both things.

    123, Maybe, but I’m confused by the term “bond bubble.” I thought it meant high bond prices (i.e. low yields.) Are you saying it means a large quantity of bonds–from deficit spending?

  6. Gravatar of ssumner ssumner
    6. November 2010 at 17:05

    Shane, The BOE doesn’t seem to think there is a lack of AD.

  7. Gravatar of 123 – TheMoneyDemand Blog 123 - TheMoneyDemand Blog
    6. November 2010 at 17:11

    Scott, you should read the whole Kocherlakota’s piece. Bubble means high price even though the quantity is large.

  8. Gravatar of Shane Shane
    6. November 2010 at 17:30

    And eventually that AD will create jobs for the 500k newly unemployed workers. Eventually.

  9. Gravatar of scott sumner scott sumner
    6. November 2010 at 17:33

    123, I can’t make heads or tails of that. He doesn’t seem to think exchanging money for bonds matters, i.e. he doesn’t believe there is such a thing as monetary policy. Or have I misunderstood him? I have no idea what his bubble comment means. Since I don’t believe in bubbles, I can’t mind read what others are thinking about when they talk about bubbles.

    If a high price of bonds is a bond bubble, and bond bubbles are good, does that mean that Keynesians support QE? After all, QE creates bond market bubbles, but (right now) not housing bubbles.

  10. Gravatar of scott sumner scott sumner
    6. November 2010 at 17:36

    Shane, Fiscal policy also works through AD, so there is no difference in terms of jobs. If one is worse for jobs, it would show up as being worse for AD. But the BOE says Britain has all the AD they need. So what is the problem?

    BTW, I thought the idea was to reduce public jobs gradually? In which case your argument would be a moot point for two different reasons.

  11. Gravatar of Mark A. Sadowski Mark A. Sadowski
    6. November 2010 at 17:40

    Yes Indeed!

    …we are all dead.

    Shane has a very good point.

    I spend no end of time explaining to my students that the LR is a pure abstraction. That is, it is the only sense that their poor brains will ever accept.

  12. Gravatar of Shane Shane
    6. November 2010 at 17:51

    You can fire 500k people overnight. But it takes years to hire them again. Fiscal plays defense, monetary plays offense.

  13. Gravatar of 123 – TheMoneyDemand Blog 123 - TheMoneyDemand Blog
    6. November 2010 at 17:55

    Scott, I guess Kocherlakota would say that QE1 mattered. But now commercial banks are exchanging money for bonds at a very low price, and it is unclear if Fed can do it any better. Other kinds of monetary policy matter, but are not available to Fed.

    Keynesians (should) support QE when it is needed to support government bond bubble from bursting (Stiglitz was very angry about Greek bond bubble). There are no signs of bursting now, so the Keynesian answer is that we have to use fiscal policy to expand the bubble.

  14. Gravatar of Morgan Warstler Morgan Warstler
    6. November 2010 at 18:06

    Ahem…

    How far back do you have to go to see me saying…. eventually the guys who want to see more QE, have to cheer austerity? have to cheer for falling house prices?

    And what’s more… certain kinds of austerity are better, productivity gains in public employees, tying UI to tax-deductible worker training, etc.

    THE MORE aggressive you are about keeping government services running but spending less and less money, the more justified you are when you need QE – because the deflationary effects are driven by positive longterm trends… 22M public sector jobs just became 19M jobs, but Grandma’s still getting her check.

    One last note… I also think its time Friedman style monetarists to recognize the immense value of Progressive Corporate Taxes (first $10M tax free).

    We have reached a nadir in Bankster / Corporatists relations with the Democrats – where we are seeing OBVIOUS use of regulations to kill off little guys… Obama realizing 1099 for everything might suck wind – is the tip of the ice berg.

    New jobs come from new companies. JOLTS data make clear that when we’re losing 4M jobs a month, we aren’t gaining any. It’s the when the turnover is towards 5-6M that we’re left with positive gains.

    To me this means, we need to look at Local Wealth, successful small business owners, the folks who’s habits are towards newcos and FAVOR them.

    A PCT encourages them to keep profits inside, use it anyway they want – no nudgy tax credits, just keep your first $10M, they’ll take smaller salaries and they’ll go chew up Fortune 1000 companies.

    This will force the big guys to start spending their horded cash much more than fear of inflation.

  15. Gravatar of Mark A. Sadowski Mark A. Sadowski
    6. November 2010 at 18:43

    Morgan,
    Do you really believe that if the Republicans take control of everything it will be any different? Then you truly are a moron.

    You’re a victim of the same bankster/corporatist rap that you so profusely verbally spew. In fact, you must be one of them.

  16. Gravatar of Richard W Richard W
    6. November 2010 at 18:54

    The liquidity trap and ‘ pushing on a string ‘ folks need to explain why the British economy is not in a liquidity trap and apparently the US is in one? Moreover, no one has offered a good explanation why the US compared to the rest of the G7 suffered larger falls in employment. There was a peak to trough 6% fall of British output. Yet, only a 2% fall in employment. Switching to part-time working helps to explain why unemployment has not risen as fast as forecast. However, why did that not happen in the US? Many economist say firms are hoarding labour and as a consequence growth will have limited effects on reducing unemployment. Why did they hoard labour this time when they did not hoard when labour markets were more inflexible and it was more difficult and expensive to lay workers off?

    I suppose people will point to the large depreciation in sterling as an explanation for not being in a liquidity trap. However, does that not suggest that ‘ pushing on a string ‘ is not valid? Although the fiscal deficit was large through a collapse in tax revenues. The actual discretionary fiscal stimulus was modest. Therefore, monetary policy must explain the upside surprises.

    Although CPI could rise to around 4% early next year. The impression I get is the BoE are still worried about later next year. The contrast is quite striking between conservatives in the UK and US. Just last week the chancellor who is a conservative said if the economy deteriorates the BoE could conduct more QE. In the US conservatives appear to be getting hysterical about monetary policy.

    I do not doubt that the BoE are able to offset austerity. However, I worry that going too fast could lead to a self-fulfilling downward spiral. If the policy of the Fed forces an accommodative policy on the ECB all the better. At the moment they seem to be heading for tight fiscal and tight monetary.

  17. Gravatar of John Paul Lewicke John Paul Lewicke
    6. November 2010 at 19:21

    Is Stiglitz officially now Saruman?

  18. Gravatar of Full Employment Hawk Full Employment Hawk
    6. November 2010 at 19:34

    “I thought the New Keynesians accepted the fact that fiscal policy was superfluous if the central bank was targeting inflation or NGDP.”

    It is superfluous if, with short term interest rates at the zero bound, the central bank is WILLING TO AND CAN SUCCEED in making NGDP grow at the desired rate. The controversy is whether it can actually do so, and if so, has the will to do it. If not, expansionary fiscal policy is needed. Clearly Krugman does not think it can succeed. In any case it would take a much, much more agressive monetary policy to make NGDP grow at the needed rate, much more than the Fed has shown any indication of being willing to engage in.

    I agree that the Fed should make a much greater effort to make NGDP grow fast enough. Not only a much more agressive policy of quantitative easing, but also ceasing to pay interest on bank reserves, and imposing a penalty on excess reserves. Hopefully this will AT LEAST move monetary policy to the desired result. But unless and until it has been shown that expansionary monetsry policy by itself can achieve the necessary NGDP growth under current economic conditions, expansionary monetary policy must be supplemented by expansionary fiscal policy.

  19. Gravatar of Full Employment Hawk Full Employment Hawk
    6. November 2010 at 19:42

    “The liquidity trap and ‘ pushing on a string ‘ folks need to explain why the British economy is not in a liquidity trap and apparently the US is in one?”

    The Brown government engaged in a strongly Keynesian fiscal policy and the growth that the economy is currently enjoying can be explained as primarily the result of that. It is not self-evident that it was primarily the result of expansionary monetary policy. This is an area that can be debated and requires serious objective research not distorted by economic dogma.

    Incidentally, since the relevant long-term rates in the United States are still significantly above zero, the U.S. economy is not in a liquidity trap.

    The liquidity trap, as Keynes described it in the Genaral Theory, is a situation in which the LONG-TERM interest rate reaches a floor ABOVE ZERO below which it will not go. This has clearly not happened in the United States at the present time.

  20. Gravatar of Full Employment Hawk Full Employment Hawk
    6. November 2010 at 19:56

    Just because the prices of bonds have sharply increased does not imply that there is a bond bubble.

    In order for their to be a bond bubble, the bond market has to be dominated by people who buy bonds,not because of market fundamentas, but, rather, because they expect their prices to increase, so that if they buy them now they can sell them at a higher price to a “grater fool,” therefore enjoying a capital gain.

    At the present time the low nominal yield on bonds, and therefore their high prices, is a rational response by the market to market fundamentals: The weak state of the economy, and the disinflationary expectations, combined with the expansionary monetary policy of the Fed.

  21. Gravatar of Full Employment Hawk Full Employment Hawk
    6. November 2010 at 19:59

    “I spend no end of time explaining to my students that the LR is a pure abstraction.”

    “In the long run, we are in another short run.” Joan Robinson.

  22. Gravatar of Full Employment Hawk Full Employment Hawk
    6. November 2010 at 20:05

    With the U.S. economy currently in a Little Depression the issue is not whether we need expansionary monetary policy or expansionary fiscal policy. We need BOTH. Above everything we need a lot less ideological dogma and a lot more pragmatism if we are going to get the economy out of the present hole.

  23. Gravatar of Morgan Warstler Morgan Warstler
    6. November 2010 at 20:37

    Mark calling me a victim, flays your psyche wide open and begs inspection.

    First the personal attack…

    Eggheads are WORTHLESS. Got it? You have wasted your life, you won’t make a dent, affect a change, matter.

    Now an assertion of my mad skilz…

    When I say, “excuse me the Tea Party is ready to draw a CLEAR line between banksters / corporatists and Local Wealth” – you either make a very logical argument, or you make notes.

    —-

    Instead what happens is… you are the liberal here who kinda really liked that Scott was calling for stealing from the savers… that’s what you are about… you can’t think much deeper.

    I’m the guy who doesn’t waste his life eggheading, and ONLY locked on to Scott insisting he’s free market… and came around to challenge that single assertion… over and over make him PROVE his Friedman bonafides.

    The difference is: you thought Scott was so stupid, that he couldn’t possibly truly be anti-government, and your are going to find there’s QE3 is ANTI-OBAMA. So choose wisely.

    Bill Clinton – end welfare as we know it… Yeah!
    Bill Clinton – balance the budget, after running on “investing” public funds, to instead lower short term interest rates… Yeah!

    Bill Clinton is Sumner’s perfect Monetary Democrat. Whether Scott has the stones to be the next Greenspan, we don’t know yet… but the crux isn’t NGDP, it is free markets.

  24. Gravatar of Shane Shane
    6. November 2010 at 21:48

    If the BOE is driving down rates on govm’t debt, why fire needed workers? The cost is so low. 2.8 is not stellar growth.

  25. Gravatar of 123 – TheMoneyDemand Blog 123 - TheMoneyDemand Blog
    7. November 2010 at 05:15

    By the way this is how their politicians talk on BBC – let’s preserve low interest rates (and housing bubble) by making fiscal sacrifices.

  26. Gravatar of Ram Ram
    7. November 2010 at 05:39

    I don’t have a strong opinion on the British austerity program, but it seems to me that it’s unnecessary to front-load so much of the deficit reduction. Even in the U.S., I would be all in favor of large cuts to Medicare and Social Security that will take a decade to be fully implemented. What matters is not the budget deficit today, but the present value of the Treasury’s current and future obligations. Whether deficit reduction takes place today or in ten years doesn’t really matter from a present value perspective, and yet delaying implementation would avoid the unnecessary risk that the central bank (the BOE or the Fed) will not offset the contractionary impact of these cuts. You may wonder why the central banks wouldn’t offset the impact of these cuts, but then, you’ve spent a couple of years now blogging about why the central banks didn’t offset the sharp rise in money demand in 2008Q3. So until we have a central bank that is more or less governed by a computer program, I think front-loading deficit reduction is unnecessarily risky from the point of view of macroeconomic stabilization.

  27. Gravatar of scott sumner scott sumner
    7. November 2010 at 08:08

    Mark and Shane, The British government is not talking about firing 500,000 people overnight. So it’s a moot point. Employment is determined by AD. If the BOE thought the gradual public sector job losses would reduce AD below their target, they’d act. But they don’t think that. Their target is probably too low–but that’s another issue.

    123. The markets don’t agree with him. I trust the markets, not freshwater economists. BTW, aren’t freshwater economists supposed to believe in market efficiency?

    Morgan, I agree that regs are an especially big burden on small business. Hence those favoring more regulations are big business’s biggest friends.

    Mark, After 8 years of Bush, you have a very good point.

    Richard, Those are good points. If NGDP really is growing at 6% in Britain, then I’d say they are not in a liquidity trap. Of course no central banks is truly “trapped” as there are always other options.

    My only fear is that the BOE may not move aggressively enough. The fact that they are not trapped, doesn’t mean Britain won’t have a double dip. It very easily could if monetary policy is too tight. But right now it doesn’t seem to be likely.

    John, As I recall, they both have grey beards.

    Full Employment Hawk, Nothing about Krugman is clear. And it certainly isn’t clear that he thinks the Fed doesn’t have the tools to strongly boost AD.

    I thought the UK deficit as a share of GDP was similar to ours? And yet Krugman claims our growth is slowing because of not enough stimulus.

    I agree that we are not in a bond bubble, but then I don’t believe bubbles exist.

    The Joan Robinson quotation exemplifies everything that is wrong with old-style Keynesianism. The long run is most certainly not another short run. Old style Keynesians seemed to believe “long run” meant “in the future” which of course has nothing to do with long run. We are currently in the long run for policies conducted in past years. Long run is not a point in time, it is a temporal relationship between cause and effect.

    1921 was a Little Depression, this is a Great Recession. We don’t need more fiscal stimulus, and if we had it it wouldn’t help. It would simply cause the Fed to do less QE. We need more monetary stimulus.

    I don’t agree with your interpretation of Keynes. His views on the liquidity trap are so contradictory and convoluted that they are hardly worth even thinking about.

    shane, You said;

    “2.8 is not stellar growth.”

    I agree, so they should do more QE. BTW, you need to look at NGDP growth, RGDP tells you NOTHING about whether the economy needs more stimulus.

    123, Monetary policy controls NGDP, it has nothing to do with bubbles. The so-called housing bubble in the US occurred under monetary policy conditions that were essentially the same as the 1960s, 1980s and 1990s, when there was no bubble. NGDP didn’t show any abnormal behavior. It’s our banking system, not the Fed, which is to blame.

    Ram, If the BOE expects NGDP growth to be on target, then I don’t see the risk. The budget has very little impact on NGDP, whereas a banking crisis has a massive influence unless offset with aggressive monetary policy. So I don’t see the two cases as being at all similar. Indeed it is very possible the BOE will not have to cut rates at all to offset the impact of the budget cuts.

    Having said all that, you obviously might be right. Until they switch to level targeting, we are all flying blind.

  28. Gravatar of 123 – TheMoneyDemand Blog 123 - TheMoneyDemand Blog
    7. November 2010 at 09:37

    Scott, you said:

    “Monetary policy controls NGDP, it has nothing to do with bubbles.”
    Good monetary policy imposes a budget constraint on bubbles. A NGDP target would have restrained the bubble a little bit in 2006. UK is in the situation where monetary policy is on target, and politicians have to choose between housing moral hazard subsidies and fat public sector. I know that according to EMH both NHS’es (National Health Service and National Housing Service) are efficient, but in reality they both are bubbles.

    You said:
    “It’s our banking system, not the Fed, which is to blame.”
    I agree.

    You said:
    “The markets don’t agree with him. I trust the markets, not freshwater economists. BTW, aren’t freshwater economists supposed to believe in market efficiency?”

    There is no doubt that he believes in EMH and trusts markets He believes that risk-adjusted returns on housing were equal to other assets during the housing bubble era. Here is Kocherlakota:
    “How can I say that risk-adjusted land returns were equalized to those of other assets in the 2000s, when land prices were growing so fast? An asset’s price may grow rapidly even if the asset’s risk-adjusted return is the same as other assets’ returns. However, in the equilibrium of an efficient market, an asset’s price can only grow rapidly from one year to the next if there is a nontrivial probability that it might fall. In other words, a strong believer in efficient market theory who watched land appreciate rapidly in the 2000s would have said that there must be some probability of a big fall in land prices. An even more sophisticated believer in efficient markets might have speculated that land’s high returns are only possible because land has a large beta. Such a true believer in efficiency would have predicted that a fall in land prices would take place simultaneously with a large stock market crash and/or a deep recession”

  29. Gravatar of Full Employment Hawk Full Employment Hawk
    7. November 2010 at 09:45

    “And it certainly isn’t clear that he thinks the Fed doesn’t have the tools to strongly boost AD.”

    I read Krugman’s column regularly. Combining the material in this one and Krugman’s together gives me a good view of what economic policy is needed to get us out of the current hole. And I can come up with many quotations in which he has stated his doubts that the Fed, under current conditions, has the needed the tools.

    For example, in “Bernanke and the Shibboleths” “it’s possible , though not certain, that you can get at least some traction by buying long-term bonds.”

    I am closer to your position than Krugman’s on what the Fed can do, and have repeatedly posted comments on his blog arguing that the economy is not in a liquidity trap.

  30. Gravatar of Full Employment Hawk Full Employment Hawk
    7. November 2010 at 09:52

    “1921 was a Little Depression, this is a Great Recession.”

    According the NBER the recession ended this Summer. Therefore we are no longer in a Great Recession. But with the unemployment rate projected to remain high for many years we are now in a Little Depression. During much of the Great Depression the economy was growing, just as it is now. But nevertheless those years are classified as part of the Great Depression because output continued to be far below potential output and the unemployment rate remained high.

  31. Gravatar of Ted Ted
    7. November 2010 at 12:53

    Even ignoring monetary policy entirely – isn’t there also a perfectly logical argument that fiscal austerity could boost aggregate demand through the permanent income channel? If a government commits to future austerity measures to bring down large future expected deficits, if the commitment is credible, this should cause an upward revision of expectations in future disposable income since they will anticipate a lower future tax liability than they thought they were going to have. This should boost both future AND current consumption. This would imply that if you have large future deficits and you do a large enough austerity, the permanent income channel could plausibly overwhelm the short-run AD drop from a decrease in government spending.

    Of course, this begs the question why you would need to do austerity now as long as you promised to do it in the future? Simply, I don’t think a commitment to reduce deficits would be believed unless some of the pain started immediately.

  32. Gravatar of Morgan Warstler Morgan Warstler
    7. November 2010 at 19:34

    Ted, I think it is more than simply generic “austerity” it is who is in the driving seat. To put it in terms lefties understand:

    When the perception is that the US is being run by and for the “haves”, in the immediate term, with the “have nots” receiving their upside as new inventions and lower prices in long term… this is very strong indication that taxes are going to be down now and in the future.

    Whereas the kind of administration that would promise austerity “later” are the kind of people who worry about the “have nots” in the immediate term…. and since there will always be have nots – it is VERY hard to imagine any real austerity.

  33. Gravatar of Lee Kelly Lee Kelly
    7. November 2010 at 20:38

    Ted,

    While government austerity is surely good for the economy, it shouldn’t really change nominal income. Though individuals have more of their income to spend on current and future consumption, the government simply reduces its spending in proportion as per “austerity”. There is a shift in the composition of spending (relative prices and the allocation of resources) away from wasteful government programs to goods and services produced by private businesses.

  34. Gravatar of Edwin A Edwin A
    8. November 2010 at 03:41

    Keynesians can actually use monetary policy’s effectiveness as a reason against austerity. What imperative is there to cut government spending specifically at this point in time when the fed could get us out of this recession quickly? Once the economy starts to recover and tax revenue starts flowing again, these so called fiscal crises that “coincidently” coincided with the recession stop existing. Taking advantage of this recession to push government spending cuts as if it’ll somehow help cure the recession is equally ideologically driven as increasing government spending to try to cure the recession. The same reasons Keynesian had for regular government spending before the recession can and should be used today against austerity.

  35. Gravatar of Morgan Warstler Morgan Warstler
    8. November 2010 at 07:07

    See Edwin, the Fed won’t ever provide QE again, if Obama doesn’t get bendy.

    So there’s really no argument to make.

  36. Gravatar of scott sumner scott sumner
    8. November 2010 at 17:33

    123, I generally agree with those comments.

    Full Employment Hawk, I agree that Krugman emphasizes the Fed’s impotence at some times. Mostly in regard to specific options like QE. Less so regarding inflation targeting. I find him hard to read at time, as it’s not clear whether he is talking about what can be done with monetary policy in the abstract, and what can be done with this particular group of central bankers.

    To me the term “Great” suggests prolonged. The 1921 recession was called a depression at the time, so I’d consider it a little depression.

    Ted, I suppose that’s possible, but the standard theory (Ricardian equivalence) says that applies more to taxes than spending.

    Edwin, Yes, you can argue for maintaining government spending if you think the recession will be brief.

  37. Gravatar of Mark A. Sadowski Mark A. Sadowski
    11. November 2010 at 20:57

    Morgan wrote:
    “Mark calling me a victim, flays your psyche wide open and begs inspection.

    First the personal attack…

    Eggheads are WORTHLESS. Got it? You have wasted your life, you won’t make a dent, affect a change, matter.

    Now an assertion of my mad skilz…

    When I say, “excuse me the Tea Party is ready to draw a CLEAR line between banksters / corporatists and Local Wealth” – you either make a very logical argument, or you make notes.”

    No Morgan. It flays YOUR psyche wide open and exposes IT to wide open inspection.

    If eggheads are so worthless why are you so afraid of us? If your “mad skilz” as you put it were so important why whaste so much time debating eggheads on this blog?

    You’ve become a shrill troll for the corporatists, even if you are too stupid to know better.

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