I have done a number of posts on two closely related themes.  In this recent post I discussed the common perception during each recession that “it’s different this time.”  In particular, each recession is supposed to have special characteristics that make it unlike the normal garden variety recession—you know what I mean, the kind we learn about in our intro to macro textbooks.  Here are some recent “special” recessions:

1.  1970:  Inflation isn’t falling like other recessions; wages are not responsive this time.

2.  1974:  The big oil shock, this one is supply-side.

3.  1980:  This one is caused by Carter’s credit card restrictions.

4.  1982:  No bounce back this time, the rust belt jobs are gone forever.

5.  1991:  The S&L bubble burst, many banks failed, and commercial real estate was overbuilt.

6.  2001:  This time it was the tech bubble bursting, not a drop in AD.  Plus 9/11.

7.  2008:  The housing/financial crisis.

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Sometimes when I post on an unfamiliar topic, I preface my comments by stating that I am pretty sure that I have overlooked something important, as the standard view can’t be as silly as it seems.  And I have never had greater doubts than in this post.   Mainstream economists can’t have overlooked something so basic.  And fiscal multipliers are something I rarely even think about.  So I hope you guys can set me straight.

Update 10/10/09: Alex and Leigh did set me straight.  I thought the long run multiplier of 1.5 meant that if you increase G by $1, then in the long run Y would rise by $1.50.  Instead, it looks like a long run multiplier of 1.5 means that in the long run the effect of G on real GDP is zero.  Indeed, I am pretty sure that if Alex and Leigh are right, and if G had a permanent effect on the LRAS curve, then the long run multiplier would be positive or negative infinity.  Thus you might want to skip the rest of the post.  (This will teach me to stay out of hydralic Keynesianism.)  Others are free to offer insights, but I no longer have confidence in my interpretation of the paper in question.
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Is the title sentence a logically monstrosity?  I think so.  How can one not expect something to happen, but nonetheless expect to expect it in the near future?  I’ll leave that to the epistemologists but in some weird way I think this post’s title reveals how monetary policy went off course.
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Doc Merlin just left this comment in the post on the German elections:

Keep doing these posts, if only for the reason that Socialists and pessimistic libertarians will always be with us, and need to be shown wrong constantly.

OK, let’s consider the objections raised by those awful pessimists and socialists.  One argument is that these elections don’t mean what I think they mean.  Just because a particular party wins, and just because the stock market is enthusiastic, doesn’t mean reforms actually occur.  And that is the bottom line—are market reforms continuing?  Unfortunately this quotation from The Economist doesn’t use the term “market reforms” but in context it seems to me that that is what they are talking about:

WITH falling sales, rising public indebtedness and surging anti-business sentiment, the past year has been a tough one both for business people and for pro-business policymakers. “It is not just a crisis of the economy,” says Mahmoud Mohieldin, Egypt’s minister of investment. “It is a crisis of economic thinking. It is a crisis that is confusing many reformers.”

Even so, the World Bank’s annual Doing Business report*, which tracks changes to the regulations that affect business, suggests that governments have handled the storm well. In the year since June 2008, 131 countries introduced 287 pro-business reforms””20% more than in the previous 12 months and more than in any year since the World Bank started the survey in 2004.

.   .   .

Encouragingly, reform seems to be contagious. Countries try to emulate leaders in their regions. Many African governments, for example, have taken note of the success of Mauritius’s deregulated economy. They also respond to competition. Germany introduced laws to make it easier to establish joint-stock companies, scrapping ancient regulations, because so many German companies were taking advantage of the single European market and incorporating in Britain. Amazingly, given the fiscal pressure on governments, only one country increased its corporate income-tax rate: Lithuania, from 15% to 20%.

How much does all this reform matter? A good deal, according to a growing body of academic literature (so far there are 405 articles in academic journals and 1,143 working papers devoted to studying the impact of the Doing Business reforms).

And it isn’t just the basket cases, the two most free market economies keep getting freer:

The best reformers have several things in common. Their reforms are part of a broad agenda of boosting competitiveness. Over the past five years such pace-setters as Rwanda, Egypt, Colombia and Malaysia have each implemented at least 19 reforms. And they never stop. Those paragons Hong Kong and Singapore introduce substantial reforms each year.

At first I thought the crisis would be just a temporary setback for neoliberalism.  But I was wrong, it wasn’t even a temporary setback.  Yes, the US isn’t doing well, but there are 199 more countries out there.  We Americans can’t ignore these worldwide trends forever.
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I put the term ‘debate’ in quotation marks, as it is not clear what, if anything, is actually being debated.  Much of the debate proceeds as if “the multiplier” is some sort of objective parameter of the universe, sort of like the cosmological constant.  In fact, there is no such thing as “the multiplier,” and indeed much of the debate is total nonsense.
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