I don’t know how to directly post Youtube videos yet, so please play along and click on the link below.  Before watching the one minute video, please pay close attention to the instructions—you are to count only the number of times the three people wearing white pass the ball.  Ignore the three people wearing black.  Pay close attention, as the action moves along at a good pace.

http://viscog.beckman.illinois.edu/grafs/demos/15.html

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If you have watched the video, you may be wondering what it has to do with monetary policy.  The three people in white represent the banking crisis, and also the efforts by Congress, the adminstration and the Fed to solve the problem during September-December 2008.

The other visitor who wanders into the picture represents the Fed’s passivity in the face of sharply falling NGDP expectations during late 2008.  I’d guess 99% of economists focused on he banking crisis and overlooked this important event.  Only the very few who are singlemindledly obsessed with looking for gor . . ., I mean looking at NGDP growth expectations as an indicator of the stance of monetary policy, actually noticed the problem.  By 2010, however, many economists noticed the “800 pound gorilla in the room.”

HT:  Lorne Smith

Commenters have been asking me for my views on Wisconsin, but I’ve been holding back because instant reactions to emotional issues are usually wide of the mark.   (Remember the Gifford shooting reactions?)  Now Will Wilkinson has taken an appropriately above the fray look at the situation.  You’d be better off reading his excellent short post and skipping my meandering long one, but if you insist:

I actually grew up in Madison, so I suppose I should know something about the situation.  But I’ve lived in Boston for most of my life.  Nevertheless, I’ll try to describe why Wisconsin ended up in this predicament.

When I was young, Wisconsin was a strongly Democratic state.  In 1988 the Democratic candidate (Dukakis) lost California and won Wisconsin.  That’ll never happen again as long as I live.  But why not?

In the past few decades politics have shifted in several ways.  Well-paid professionals have drifted toward the Dems, and people who make things have drifted toward the GOP.  Well-paid professionals have also grown in number, and have flocked to big cities on the coast, and also a few interior places like Chicago and Minneapolis.  The state of Wisconsin doesn’t have one of those sophisticated big cities (although my hometown arguably punches above its weight.)

A few years ago I read that Wisconsin was number two in percentage of jobs in manufacturing (Indiana was one.)   That surprises people, who picture lots of dairy farmers.  Manufacturing has mostly left America’s big cities and gone to small cities, of which Wisconsin has plenty.  Wisconsin is a pretty boring state in a statistical sense, fairly average in total population, urbanization, income, you name it.  Why hasn’t it suffered as much as the manufacturing belt from Detroit to Buffalo?  I don’t know.

There is a strong Northern European social democratic vibe in Wisconsin history–it led the US in adopting all sorts of progressive legislation.  I believe they outlawed the death penalty about 100 years before the barbaric French got around to it.

At the risk of sounding racist, it may be that Wisconsin has done better that the eastern rust belt because the German and Nordic immigrants brought in a tradition  of relatively good governance, and skill at making the sorts of sophisticated capital goods that rich countries can still export.  But I don’t want to oversell this success.  They aren’t doing well, they are merely avoiding doing badly like Detroit/Northern Ohio/Erie/Buffalo, etc.

As highly educated young people leave Wisconsin for cities like Boston, you are left with lots of people who make physical things–farmers and manufacturing workers.  And of course all the ordinary service jobs that support them.  The Democrats actually aren’t doing badly in Wisconsin, it still leans slightly Democrat.  But they aren’t doing as well as they should be doing, because white voters in small and mid-size towns don’t perceive the modern Democratic party as offering much to them.  That’s why states like West Virginia have trended Republican, as big wealthy urban areas trend Democrat.

The really interesting message from Wisconsin is that Governor Walker is able to mount this challenge to unions, not whether he “wins” or loses (which I see as an issue of minor importance.)  This battle is a symbol that the old Democratic Party that I knew when I was younger is very much weakened.  The party of people like Hubert Humphrey, for you older readers.  It’s not gone, but it is more and more confined to public sector workers, who work with their minds.  My dad liked Humphrey a lot.  He was a Dem because when he was young the GOP was the party of deflation and prohibition.  And he like to drink and have fun, and as a realtor he liked seeing house prices going up.  He didn’t much care for public sector workers.

In smaller cities in Wisconsin you don’t have lots of rich people like here in Boston.  So the Dems in Wisconsin can’t easily say “look at those rich fat cats, we need to take their money and redistribute it to the rest of us.”  Factory managers and factory workers mix socially at cookouts before Packer games.   In many cases the struggling factory and service sector workers find that the public employees that they know are in much better shape–decent salaries, safe jobs with no layoffs, great pensions, etc.  Liberals write books like “What’s wrong with Kansas,” implying that lower income voters in middle America don’t know that their economic interests lie in voting Democratic.  But it’s not obvious why that is the case.  Extremely few Wisconsinites are on welfare, so that’s not a big factor.  The Dems obviously aren’t going to do anything about imports that steal factory jobs.  I suppose the health care bill could be a plus, but many working class people don’t want to be forced to buy health insurance, even with subsidies.  And although Wisconsin voters are more socially liberal than Southern voters, those aren’t big issues for struggling working class people.

In the last election the GOP made huge gains in the area between the two coasts that is not part of a big sophisticated city like Chicago, or a big African-American city like Detroit.  Because Wisconsin has only a modest number of highly paid professionals, and also a modest number of minority voters, it was exactly the sort of place the GOP made large gains.

Keep in mind that almost all generalizations about Wisconsin are slightly inaccurate, as it’s hard to make generalizations about highly average places.  For instance Wisconsin does have some professional jobs in insurance, biotech, etc.  But Wisconsin is un-average enough in one dimension to make at least a few generalizations possible.  And that dimension isn’t dairy farming, it’s lots of cities with 50,000 people that make things.  It’s easy to convince foolish rich people in West LA to waste $300,000,000 on boondoggle high schools, they even think teachers are poorly paid.  But in a community of 50,000 people, most folks pretty much know what’s going on, and they accurately perceive that the public employees are currently doing better than they are.  In the end the GOP may over-reach, as Wisconsin still has that strong Northern European social democratic tradition.  It’s still a Democratic state.  But the fact that the battle in Wisconsin is even this close should be a wake-up call that there are some internal contradictions in modern liberalism that are a long way from being resolved.

How do I feel about public sector unions?  Let me put it this way, I oppose public sector jobs.  If I had my way there’d be nothing to unionize except police, judges, soldiers, EPA and IRS workers.  Having said that, I have nothing against teachers unions, as long as the teachers don’t work for the public sector.

Universal education care!  Single-payer!  Bring Swedish-style socialized education to the Badger state!

Confession: I was once a public sector teacher in Wisconsin (albeit for only one semester.)

Madison fun facts:  America’s two greatest artists lived there.  One for just a year, the other grew up there.  (Our greatest film director was born in Kenosha.)  It’s on an isthmus (a word I still can’t pronounce.)  The UW was the most fun university in America when I was young–15 year olds could drink in bars with no IDs.  I suppose that’s changed.  But I think Wisconsin still leads America in alcohol consumption.  Believe me, growing up in Madison in the 1960s and early 1970s makes ever other place and era in America seem like a bunch of insufferable Puritans.  There are towns around me (near Boston) that ban alcohol!  Professors can’t drink wine at Bentley faculty parties!

In 1948 Madison was the cover story of Life magazine–the best place to live in America.  Used to be the second most educated city above 150,000, but recently has slipped a bit.  Has the best state capital building.   Has a brand new suburb where the architecture is non-ugly.    Wisconsin has a far more egalitarian culture than Massachusetts.

When I was young I couldn’t get out of Wisconsin fast enough.  Now as I think back to my youth it seems like a kind of paradise.

Keynesians like Paul Krugman have complained that the US didn’t really do any fiscal stimulus; partly because of “50 little Hoovers,” and partly because Congress got cold feet after the first stimulus package ballooned the deficit.  At times it seemed like he thought America was just too unenlightened to see the wisdom of Keynesian stimulus.  Too much Fox News and too many Republicans.

That got me thinking about a line in the Swedish monetary report that I discussed in my previous post:

Denmark’s GDP increased by about 4 per cent during the third quarter compared with the previous quarter on an annual rate (see Figure 3:13). This was slightly more than expected for December. The recovery of consumption and strong exports contributed to the high growth. However, growth is expected to be dampened this year, among other reasons as a consequence of the fiscal policy austerity package adopted in May last year.

Denmark’s recovery has certainly been much more sluggish than Sweden’s.  I attributed the difference to monetary policy, but I suppose fiscal policy might also have played a role.  Yet that just leads to a deeper question, why would a civic-minded social welfare state like Denmark have pursued fiscal austerity in 2010, a period when output was still quite depressed?  Maybe Alex Tabarrok is right, fiscal policy is much more endogenous than we assume.

In recent versions of the Keynesian model discussed by Eggertsson and Krugman, austerity during a recession can be self-defeating, leading to deflationary expectations that worsen the downturn.  But unless I am mistaken, that result assumes a large closed economy.  Because Denmark chose to fix its currency to the euro, it has little control over its price level, which is set by the ECB in Frankfort.  In that case an internal devaluation might just work, or at least might be worth a shot.  In other words, Denmark behaves more like an American state than an autonomous country.  (Of course that begs the question of why didn’t Denmark devalue.  Does anyone know why Denmark joined the ERM II, but Sweden didn’t?)

In contrast, Sweden has its own monetary policy, and was able to engineer more rapid GDP growth than Denmark.  Their public finances were in better shape because faster NGDP growth means more revenue and less unemployment compensation:

Strong public finances

General government net lending has shown a remarkable degree of strengthening over the first three quarters of 2010. This can primarily be explained by the rapid turnaround of the labour market. Expenditure on unemployment benefit is decreasing, as is expenditure related to sickness and ill-health. Preliminary tax payments also indicate that corporate taxes increased during 2010. For the full year 2010, general government net lending is expected to become positive and to amount to 0.6 per cent of GDP.

I probably shouldn’t spin such an intricate theory based on a few scraps of information.  Perhaps some Nordic readers can tell me whether I have my facts right.

I also found some pretty shrewd observations about the US recovery:

Developments on the US housing market may have led to structural problems on the US labour market. Many unemployed workers need to turn to new industries and regions. At the same time, many of the unemployed are reluctant to move due to the risk of making a loss on the sale of their
homes. .  .  .

In addition, the period during which unemployment benefit may be received has been extended, which may have decreased willingness among the unemployed to seek work. This may have had a negative effect on matching. If these extended benefit periods are seen as a temporary element of a cyclical policy, this effect will be transitory. All in all, it is too early to reach any clear conclusions regarding matching efficiency over the longer term, although an abnormal deterioration of matching cannot be ruled out during the current cycle.

The first point relates to Arnold Kling’s recalculation argument.  The second argument has been made by RBC-types like Casey Mulligan.  I’ve always agreed that there is some truth to these two arguments, but have also insisted that our problems are mostly demand-side.  And I’ve made another argument that I think people have overlooked—that supply and demand shocks get “entangled.”  Both of the problems cited above occurred partly because America’s NGDP fell 8% below trend between mid-2008 and mid-2009.  If that doesn’t happen, there is little chance that Congress extends UI to 99 weeks, and the housing market would have been somewhat stronger.  The Riksbank is exactly right in assuming that the 99 week UI is transitory, and (by implication) that a faster economic recovery would help improve the “supply-side” of the US economy.

Supply and demand shocks are often treated separately in our textbooks.  In practice they are entangled in all sorts of ways.  The mid-2008 energy price bubble hurt energy-intensive capital goods makers, such as car companies.  That reduced the Walrasian equilibrium real rate, and made monetary policy effectively tighter.  Even worse, the high headline inflation rates frightened the Fed away from cutting rates after Lehman failed in mid-September, even though all the forward-looking indicators suggested a weakening economy and falling inflation.   BTW, the Riksbank seems to have been influenced by the “target the forecast” approach of Lars Svensson–not as much as he or I would have liked, but more so than the Fed.

In recent days the world’s been hit by an adverse supply shock, as worries about Libya drive up oil prices.  Less obvious is the effect on AD.  Although one might assume that high oil prices lead to high inflation, and high inflation leads to high nominal interest rates, nominal bond yields have actually plunged sharply, indicating an expected slowdown in NGDP growth (as compared to the strong growth expected just a week ago.)  Let’s hope the Fed reacts appropriately, and doesn’t repeat its tragic error of September 2008.

In Sweden, labor market flexibility seems to be moving in exactly the opposite direction as the US:

In recent years, the government has implemented a series of measures aimed at getting more people into work. Among other objectives, these measures are aimed at increasing incentives to seek work, which is contributing towards the increase of the labour force.

Whereas the US labor force is growing more slowly than our population, in Sweden it is expected to grow more rapidly for every single year from 2009-13.  Any conservative who favors neoliberal policy reforms should pray for faster NGDP growth—it will speed up the day when we can start to put some flexibility back into the US economy.

A couple items yesterday got me thinking again about Swedish monetary policy.  Here’s a comment Michael Bordo made at The Economist’s “By Invitation”:

If the central bank is successful in maintaining a stable and credible nominal anchor then real macro stability should obtain. But in the face of real shocks central banks also need to follow short-run stabilisation policies consistent with long-run price stability. The flexible inflation-targeting approach followed by the Riksbank and the Norges Bank seems to be a good model that other central banks like the Federal Reserve, should follow.

I strongly agree, but nevertheless was a bit surprised to see Michael Bordo make this argument.  I recall that he had been somewhat more skeptical about QE2 than I was, and I pegged him as being a bit more conservative, or hawkish on inflation.  In previous posts I argued that the Riksbank engineered a more rapid reconomic recovery precisely because they were more stimulative than the Fed, ECB, and BOJ.  So why do we both agree on Sweden?

I think it was Tolstoy who once said:

Successful central banks are are all alike, every unsuccessful central bank is unsuccessful in its own way.

Or maybe it was Dostoevsky.

At any rate, in previous posts I’ve argued that unsuccessful policy makes the stance of monetary policy very difficult to read.  If you are successful in stabilizing inflation expectations, then interest rates might be able to provide a reasonably reliable indicator of the stance of monetary policy.  The same is true of the monetary base.  On the other hand if you run a highly deflationary monetary policy then interest rates may fall to very low levels.  Tight money might look “easy.”  Deflation can also cause the real (and nominal) monetary base to rise sharply, as people and banks hoard base money.   Thus a deflationary monetary policy might look excessively expansive to some, and excessively contractionary to others.  The policy instruments that economists rely on become much less informative under extreme conditions.

Stefan Elfwing recently sent me the newest monetary policy report from the Riksbank.  Here (p. 30) they contrast recent trends in Swedish and US monetary policy:

In December and January, the Riksbank’s final extraordinary loans to the banks (which totalled SEK 5.5 billion) matured. This meant that all of the extraordinary measures implemented by the Riksbank during the crisis have now been completely wound up. As a result of this, the Riksbank’s balance sheet total has come close to the level prevailing before the crisis in 2008. The remaining difference in the balance sheet total is due to the strengthening of the foreign currency reserve carried out by the Riksbank in 2010.

In conjunction with its monetary policy meeting in November, the Federal Reserve announced that it would start to buy government bonds in an amount of up to USD 600 billion until the end of the second quarter of 2011. These purchases are proceeding as planned and are contributing to the continued increase of the Federal Reserve’s balance sheet total.

In addition, the Riksbank has actually been raising interest rates in recent months, and just announced an intention to accelerate the pace of rate hikes.  So how can I argue that the Riksbank has pursued a more stimulative monetary policy than the Fed?  After all, the Fed is continuing its zero rate policy, and just recently announced another $600 billion in QE, to add onto the roughly trillion dollars of assets purchased in 2008-09.

In my view the more rapid return to normalcy in Sweden reflects the success of Riksbank policy during 2008-09.  But how do we measure the policy stance of the Riksbank, if both interest rates and the monetary base are partly endogenous?  I favor NGDP expectations, but I’m obviously in the minority.  Fortunately there are two other widely accepted indicators that also point to the expansive nature of Riksbank policy.

When the world crisis became severe in late 2008, the Riksbank allowed the krona to depreciate sharply against the euro:

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This cushioned the blow from sharply declining world demand for Swedish exports, and helped keep Swedish inflation close to the Riksbank’s 2% target during 2009-10.

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And all this was done without any loss in credibility of the Riksbanks’ 2% inflation target, as evidenced by the fact that yields on 10 year Swedish government bonds continue to closely track German yields.

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One argument against my hypothesis is that Sweden did suffer a severe recession in 2009, with real GDP falling slightly faster than the eurozone.  However it is important to keep in mind that just as an individual worker or firm cannot shield itself from unemployment via complete wage and price flexibility, the same argument applies to small open economies that are exposed to a severe worldwide demand shock.  Sweden’s goods exports are close to half of GDP, if one counts goods and services they are well over 50% of GDP.  Swedish goods exports plunged more than 15% in late 2008 and early 2009.  There is simply no way Sweden could avoid a severe recession under those world economic conditions, regardless of whether they did NGDP targeting or not.

You might ask why the big depreciation of the krona didn’t prop up Swedish exports.  It may have to some extent, but consider the following example. Say a casino project  to create one of the best casino sites in Vegas orders a central air conditioning unit from Sweden. However online casinos are transforming rapidly, and a reliable site similar to casinoslotsforum.com aims to keep the readers up to date with all the latest trends and bonus promotions online! Now, assume that the construction project gets canceled because of economic problems in the US.  How much would Sweden have to cut the price on the AC unit to prevent the sale from being canceled?  Would any price cut be enough?  Sticky wages and prices in the aggregate turn nominal shocks into real recessions.  But unfortunately once that happens, price and wage flexibility at the micro level can only do so much.

Here’s some evidence from the Swedish report that supports the preceding hypothetical:

During the crisis, exports of investment and input goods in particular fell dramatically. These sectors are now primarily responsible for the strong increase in Swedish exports. The [recent] development of exports is connected with the increase of investments we now see in large parts of the world.

The depreciation of the krona might have bought Volvo, Saab and Electrolux a few more sales of cars and vacuums, as those prices fell relative to their German competitors.  But modern sophisticated economies like Sweden and Germany tend to focus on complex capital goods and inputs, which depend less on price than on demand conditions in their export markets.

If Sweden suffered a sharp fall in GDP during 2009 (slightly faster than the eurozone), what evidence do I have that monetary stimulus was successful?  I don’t have any conclusive evidence, but the report does indicate that Swedish GDP is expected to rise 5.5% in 2010 and 4.4% in 2011.  Even Germany, often regarded as the most successful of the eurozone economies, is only expected to grow 3.5% and 2.6%, that’s almost 4% less over two years.  Another interesting comparison is Denmark, which like Sweden suffered a sharp fall in GDP in 2009, and yet has a much slower recovery (2.0% GDP growth in both 2010 and 2011.)

Why did the krona rebound in 2010?  There could be a number of reasons, including sound public finances.  But one additional factor may have been the strong economic recovery in Sweden.  Recall that in late 2008 real interest rates soared in the US, but then plunged in 2009.  The original increase was partly due to tight money, and the later decrease may have reflected the weak economy in 2009.  It wouldn’t surprise me if a similar short- and long run dynamic occurred with the Swedish krona.

The Swedish report is a model of elegance, logic, and transparency.  I couldn’t help wondering why our Fed could not produce similar reports.  They clearly lay out their policy goals (2% inflation and output stability), their expectations for the economy, and the expected path of their policy instrument.  When members dissent, the reasons are clearly laid out and explained (as in the abbreviated report):

Forecasts for inflation in Sweden, GDP and the repo rate

Annual percentage change, annual average

	2009	2010	2011	2012	2013
CPI	-0.3	1.3 (1.3)	2.5 (2.2)	2.1 (2.0)	2.6 (2.6)
CPIF	1.9	2.1 (2.1)	1.9 (1.7)	1.5 (1.4)	2.0 (1.9)
GDP	-5.3	5.5 (5.5)	4.4 (4.4)	2.4 (2.3)	2.5 (2.4)
Repo rate, per cent	0.7	0.5 (0.5)	1.8 (1.7)	2.8 (2.6)	3.4 (3.3)

Note. The assessment in the December 2010 Monetary Policy Update is shown in brackets.
Sources: Statistics Sweden and the Riksbank

Forecast for the repo rate.  Per cent, quarterly averages

	Q4 2010	Q1 2011	Q2 2011	Q1 2012	Q1 2013	Q1 2014
Repo rate	1.0	1.4 (1.4)	1.7 (1.6)	2.5 (2.2)	3.2 (3.1)	3.6

Note. The assessment in the December 2010 Monetary Policy Update is shown in brackets.
Source: The Riksbank

Deputy Governor Karolina Ekholm and Deputy Governor Lars E.O. Svensson entered a reservation against the decision to raise the repo rate by 0.25 percentage points to 1.5 per cent and against the repo rate path of the main scenario in the Monetary Policy Report.They preferred a repo rate equal to 1.25 per cent and a repo rate path that then gradually rises to 3.25 per cent by the end of the forecast period. Such a repo rate path implies a CPIF inflation closer to 2 per cent and a faster reduction of unemployment towards a longer-run sustainable rate.

Sweden shows the importance of focusing on your policy goals, and doing what is necessary to achieve those goals.  Michael Bordo had some very good observations in his aforementioned essay:

BASED on the history of central banking which is a story of learning how to provide a credible nominal anchor and to act as a lender of last resort, my recommendation is to stick to the tried and true””to provide a credible nominal anchor to the monetary system by following rules for price stability. Also central banks should stay independent of the fiscal authorities.  .  .  .

The historical examples of the Wall Street crash of 1929 and the bursting of the Japanese bubble in 1990 suggests that the tools of monetary policy should not be used to head off asset-price booms. Following stable monetary policy should avoid creating bubbles. In the event of a bubble however, whose bursting would greatly impact the real economy, non-monetary tools should be used to deflate it. Using the tools of monetary policy to achieve financial stability (other than lender-of-last-resort actions) weakens the effectiveness of monetary policy for its primary role to maintain price stability.

Thus a strong case can be made for separating monetary policy from financial stability policy. The two should be separate authorities which communicate closely with each other. However if the institutional structure does not allow this separation and requires the FSA to be housed inside the central bank then it should use tools other than the tools of monetary policy to deal with financial stability concerns. The experience of countries like Canada, Australia and New Zealand which largely avoided the recent crisis, shows that some countries got the mix between monetary and financial policy right.

Even if Mike Bordo and I don’t see exactly eye to eye on what went wrong in America, we both recognize successful monetary policy when we see it.  Set a nominal target, and do what is necessary to hit the target.  Let others worry about the financial industry.

PS. As in the UK, interest rate changes distort the CPI in Sweden.  Thus the CPIF is the better indicator, as it removes the effects of interest rates on mortgage costs.

It’s hard to find anyone who doesn’t think Britain needs more NGDP.  I’m pretty sure both Osborne and Balls (actual and shadow Chancellors) think NGDP growth was too slow in 2010:Q4, as does Bank of England Governor King.  Paul Krugman probably thinks so, as do I.  Britain needs faster NGDP growth.

And yet Britain is apparently about to tighten monetary policy, even though King probably thinks it’s a bad idea.  What’s to blame?  Inflation targeting.  This was an idea dreamed up by academic economists who have little idea how the real world works.  It was supposed to be “symmetrical,” low inflation was just as bad as high inflation.  And it was supposed to be “flexible,” taking into account transitory supply shocks.  Most of all, it was supposed to give policymakers the right signal–when the inflation targeting indices said tighten, it was time to tighten.  This led people to look to the central bank whenever they were unhappy about inflation.  But if people are unhappy about inflation, and if a county also needs faster NGDP growth, it’s almost impossible for the central bank to deliver faster NGDP growth.  Even in the US it was a struggle to get QE2 approved, and we had 9.8% unemployment, 0.6% core inflation, and only 1.2% headline inflation last fall.

We need to stop targeting inflation, and start targeting the variable that policymakers actually care about; aggregate demand, aka NGDP.

Part 2.  NGDP targeting bleg

People have asked me for a list of economists and other prominent pundits who have supported NGDP targeting.  If you have some names, please add them to the comment section.  I can recall Bennett McCallum, and I know that there are others who have mentioned the idea.  In the blogosphere we have a number of quasi-monetarists, as well as people like Matt Yglesias.  I’m not sure about Brad DeLong, but he did talk a lot about NGDP at the recent AEA meeting.  Who else?

Let’s also include people like George Selgin, who are somewhat sympathetic but prefer a slightly different target.  I recall Selgin once did a study of interwar proponents of nominal income rules, and found a bunch of prominent names (including Hayek.)  I wouldn’t even be surprised if Keynes said something good about it—at one time or another he was on every side of almost any given issue.  When I collect enough names I’ll make a list and put it in a new post.  Thanks.

Part 3:  Fiscalist bleg

OneEyedMan wins the naming contest for the bizarre new mutation of Keynesianism that has recently arisen.  But I don’t quite agree with his using the term in opposition to monetarism.  It seems to me that the post Keynesians are closer to being the opposite of monetarist—believing fiscal (not monetary) policy drives AD.  Fiscalists seem to believe that monetary stimulus can raise NGDP, but not RGDP.  They believe only fiscal stimulus can raise RGDP.  This is different from post Keynesians who don’t think monetary policy can even boost NGDP.  And also different from RBC-types who agree on the ineffectiveness of monetary stimulus, but don’t agree that fiscal stimulus boosts RGDP.

Whereas “folk Austrianism” became the de facto conventional wisdom of the right, I see signs of fiscalism becoming the left’s version of voodoo economics.  Joe Stiglitz and Robert Reich were somewhat opposed to QE2, arguing that it would create higher asset prices (which is obviously not a liquidity trap argument.)  It would be great if someone could find some other names.  I’d like to exclude people who make “reallocation” arguments against the idea of using monetary stimulus to offset dramatic and precipitous cutbacks in public sector jobs during a slump.  Even I can accept that argument to some extent.

HT:  I’d like to thank many commenters for helping to slightly reduce my immense ignorance of UK macroeconomics.  Among others, Britmouse, Ashwin, W. Peden, Left Outside, and Richard W. helped out.