Here’s Mark Sadowski from the comment section:

Tax change multipliers used used by private forecasting firms and by government models such as the Federal Reserve’s FRB/US suggest that about half of the ultimate level economic effect of the payroll and income tax increase should be felt by the second quarter. Similarly government purchase multipliers suggest that two thirds of the ultimate level economic effect will be felt during the first three months (in aggregate) of the sequester, which is now more than two months old. See Appendix A for example:

http://otrans.3cdn.net/45593e8ecbd339d074_l3m6bt1te.pdf

In November 2012 the CBO estimated that the maximum level employment effect would be a decrease of about 200,000 jobs, 640,000 jobs (80% 0f combined payroll and UI effect of 800,000 jobs lost) and 800,000 jobs for the high income tax increase, payroll tax increase, and sequester respectively:

http://www.cbo.gov/sites/default/files/cbofiles/attachments/11-08-12-FiscalTightening.pdf

In other words, according to these estimates, the sequester should already have decreased employment by over 500,000 jobs relative to baseline, and the tax increases should decrease employment over 400,000 relative to baseline by the next employment report at the latest.

What happened to the liquidity trap?

There is no such thing as a liquidity “trap.”

And how many jobs have actually been lost? Zero. If we get a lousy employment number next month how many jobs will have been lost?  Still roughly zero.  We are far enough above the 2012 trend in job growth that we could get a mediocre report next month (131,000 jobs), and the Keynesian multiplier model would still have been a complete failure—predicting huge job losses where there were none.

PS.  There are some people claiming that I am “pro-austerity.”  That’s a bit misleading as my position has always been more nuanced:

1.  I favor monetary stimulus combined with fiscal austerity.

2.  If the central bank continues to stubbornly target inflation, I’ve advocated cuts in employer-side payroll taxes and/or the VAT as a way of reducing inflation, and encouraging more monetary stimulus.  So if monetary policy refuses to play ball I’ve advocated effective forms of fiscal stimulus.  I don’t favor ineffective stimulus, such as bloated military spending merely to give us more “empty GDP calories.”

Here’s Ryan Avent:

There is little reason to expect the economy to accelerate in the near term. Barack Obama desperately wants to scrap the sequester, but unless congressmen heard a groundswell of protest in their districts during this week’s recess, they are unlikely to return to Washington motivated to fix it. The Federal Reserve had expected to start tapering off quantitative easing (QE), under which it buys $85 billion of government bonds a month with newly created money. The March air pocket prompted it to reconsider, and this past week it opened the door to ramping up QE. But the April report does not show the sort of stall that would prompt the Fed to pull the trigger. The year 2013 has so far held less economic drama than 2012, 2011 or  2010, but it has not given any reason to expect the final result to be different.

And here’s Matt Yglesias:

The Federal Reserve Seems to be Doing an OK Job of Counteracting Tight Fiscal Policy

Mike Konczal had an interesting weekend column arguing that the 2013 data we’ve had so far shows that the Federal Reserve can’t counteract the negative impact of contractionary fiscal policy. The more I think about it, the less convinced I am.

.  .  .  according to the advanced estimate in the first quarter of 2013, real GDP grew at a 2.5 percent annual rate. That compares to 2.4 percent average growth in 2010, 1.8 percent average growth in 2011, and 2.2 percent average growth in 2012. Your Keynesian prior is presumably that the combination of a large tax increase on a small number of wealthy people, plus a small tax increase on a broad mass of wage earners, plus a sharp across the board cut in government spending would lead to slower economic growth than we’d seen in previous quarters. But based on the advanced estimate, we actually just saw an above-average quarter. Frankly, I hesitate to draw any sweeping conclusions from GDP data that’s still subject to revision, but as far as we can tell I would come down 180 degrees from Konczal’s position””we’re seeing that the Fed has successfully put a floor beneath the economy that allows the private sector to keep growing even in the face of government cutbacks and tax hikes.

Cheers to Charles Evans, hero of the recovery.

Here’s Josh Barro:

After today’s good jobs report, my colleague Ramesh Ponnuru needles Paul Krugman: “So, I assume Krugman will now concede that market monetarism is working.”

Not quite, because the Fed is not yet targeting NGDP.  But the next part of Barro’s post explains what Ponnuru was referring to:

Market monetarism, as advanced by Ponnuru and the economist David Beckworth, among others, holds that aggressive monetary policy is a sufficient force to smooth out business cycles. They favor aggressive monetary action and fiscal austerity, on the ground that monetary forces can offset any fiscal contraction.

The Fed should have done more in late 2012, but did enough to offset the expected fiscal austerity:

The results so far are good but not great. Job growth is steady and economic growth is modest but positive. Sequestration’s human impacts are real, but a macroeconomic drag is not yet apparent. This looks a lot better than Europe, where the central bank hasn’t been so aggressive and many economies have slid back into recession.

Yet we should worry about the limits of the market monetarist approach. Monetary and fiscal policy are both constrained by political forces, not just economic ones. A full year of sequestration cuts amount to 0.5 percent of gross domestic product, which is significant but substantially less than the degree of fiscal tightening than Ponnuru and Beckworth advocate.

This is misleading, as the main issue in late 2012 was the fiscal cliff.  The tax increases were expected to shave about 1.5% off growth.  The sequester came later, and may have been partially unanticipated by the Fed.  It’s now pretty clear that economic growth in 2013 is not going to fall by 1.5%, rather it looks like it will be similar to 2012.  Indeed so far job growth is ahead of the 2012 pace.  Of course other things are never equal, but the main “other thing” has been the very disappointing performance of Europe, even worse than expected. That’s a “headwind.” It’s increasingly clear that the main difference between the US and Europe is monetary policy.  So why not do even more?

Josh Barro agrees:

Ponnuru admits their case isn’t won yet either: “I don’t think the latest growth number is strong evidence for the arguments Beckworth and I made about the primacy of monetary policy, but it is certainly not evidence against them.” That tentativeness is right — and it’s a reason to act on market monetarists’ calls for more monetary easing and see how that works before trying their proposed fiscal tightening.

Yes, please do more monetary stimulus, until nominal rates are positive, and then even the (smarter) Keynesians like Paul Krugman won’t be concerned about fiscal austerity.

I think the recent jobs numbers are a huge embarrassment to Keynesians.  If we’d gotten 50,000 jobs a month for the first 4 months, they’d be crowing that their model is vindicated.  So what’s the criterion for testing it?  Are we to assume that favorable data can prove Keynesianism and discredit other models, but unfavorable data is inconclusive?  That’s a recipe for never rejecting Keynesianism.  Which is exactly the point I guess.

On the other hand it doesn’t prove market monetarism is correct.  The Fed offset the austerity this time, but perhaps on other occasions they won’t.  And it doesn’t prove NGDPLT is a good policy regime.  Market monetarism has many more battles to fight, but this is a huge victory.

Suppose there had been a futures market in the life expectancy differential between the US and Europe in the year 2030.  Does anyone seriously believe that the passage of Obamacare would have reduced the expected differential?  Liberals sometimes point to the higher life expectancy in Europe in support of health care reform, but I doubt that even they actually believe that’s what drives the difference.  Until a few years ago Denmark and the US had the same life expectancy.

I’ve always thought the Rand study was the gold standard of health care research, and hence it’s good to see the Oregon study confirm the results.  Robin Hanson is right, health care is not about health.  BTW, I agree with people like Mickey Kaus and Matt Yglesias that health care is partly about peace of mind.  But then I’m a hypochondriac, so I’d say that, wouldn’t I?

It’s quite possible that a 100% laissez-faire health care regime is optimal, or at least better than the current system.  But that’s not politically feasible, and I’m not all that sure it’s optimal.  However I am certain that we can do much better than our current regime, and I also believe that any move to a more sensible system would have to include universal health care.  I happen to support the following:

1.  Eliminating all tax subsidies (which amount to roughly 40% of private health care costs.)

2.  Universal health insurance at the catastrophic level, and HSAs for smaller procedures.  Subsidies for the poor.

3.  A Singapore-style high savings regime, which means I’d probably never once in my entire life have to dip into the government catastrophic insurance system, as I’m a high saver with a good income.  I’d also never have to deal with annoying insurance companies.  And I wouldn’t be forced to buy coverage I don’t want.  I suppose I’m OK with companies keeping their current health care benefits programs (insurance, HMOs, etc) as long as there was no tax subsidy.

4.  I’d also deregulate the provision of health care services.  Completely.

Because Singapore has price controls, there is currently no example of the system I propose.  But the HSA approach as been used, as has the universal coverage of major health expenses.  So I think various parts of the proposal have been tested.

Why support universal health care if it doesn’t improve health?

1.  Utilitarian grounds—it helps those who are devastated by major medical expenses, especially lower income people.

2.  Pragmatic grounds—I see it as the only way to get a sensible system that can begin to reduce the massive waste in our current system.

3.  I hate insurance companies and government bureaucracies.  I want to pay out of pocket.

Well you guys had a nice little run, but it’s all over now.  Monetary offset stands triumphant.

PS.  I should clarify that the big story is the revisions.  We are adding 196,000 jobs per month this year, which is actually more than last year, despite the austerity.