A new paper by Jason Furman and Larry Summers has attracted a lot of interest. They advocate the increased use of fiscal policy, largely because they view monetary policy as ineffective during recessions:

First, fiscal policy must play a crucial role in stabilization policy in a world where monetary policy can counteract financial instability but otherwise is largely “pushing on a string” when it comes to accelerating economic growth. The roughly 600 basis point reductions in rates that have been found necessary to counteract recessions will be infeasible for the foreseeable future. Limitations on how far interest rates can be reduced given the zero lower bound and the possible inefficacy of lower rates in stimulating demand raise the possibility that full employment may be infeasible with overly restrictive fiscal policies.

Keynesians focus too much on the target interest rate as a transmission mechanism for monetary policy. The effect of monetary policy on the natural interest rate is far more important that small tweaks in the policy rate.

The estimated 600 basis point rate cut is only necessary when a tight money policy lowers the natural rate of interest by 600 basis points. If the Fed were to adopt a 5% NGDP level targeting regime, with a “target the forecast” approach to policy, there would be no need for fiscal policy at all. Just buy bonds until the market expectation of NGDP growth will put us back on the 5% trend line. Under that sort of regime, the natural rate of interest would be much more stable than under the current regime, and you would not need those 600 basis point rate cuts.

To a much greater extent than Furman and Summers realize, the Fed has been an arsonist, not a firefighter. (Here I’m thinking of earlier recessions, I agree with those who suggest that the current recession is largely non-monetary.)

PS. I strongly encourage people to read George Selgin’s new paper discussing the 2015 rate hike. He makes his case very persuasively.

HT: David Levey

Manitoba’s conservative leader is about as far from Trump as it is possible to be, without entirely leaving the human race. Check out the 1 1/2 minute video at this link:

How does Canada end up with people like Brian Pallister while we end up with Donald Trump and Lindsey Graham?

BTW, at a time when hospital workers in many parts of the country are overwhelmed with work, Trump retweets a nutty conspiracy theory that the hospitals are not actually flooded with Covid patients. How sick does a person have to be to do something like that?

America’s GOP seems to favor “freedom” and “liberty” as long as you use that freedom to do things that the GOP approves of. Otherwise you can rot in jail for all they care:

The Marijuana Opportunity Reinvestment and Expungement Act (MORE Act), made it through the House by a 228 to 164 vote. Nearly every Democrat supported the measure, while just five Republicans voted for it. Six Democrats voted against the bill.

The bill, introduced by Rep. Jerry Nadler (D., N.Y.), would eliminate conflict between state and federal law and allow states to set their own marijuana policies.

States rights? Why that’s positively un-American!

Trumpistas like to imagine that Trump represents “the people” against “the elites”. Actually, among 21st century candidates only McCain was less able to get “the people” to vote for him, and McCain would have easily surpassed Trump’s vote share if he’d been running against Hillary rather than Obama:

Not to mention that McCain had to run in 2008, when Iraq and the Great Recession made the GOP highly unpopular.

Biden’s 51.3% is the most by a challenger since 1932, when FDR won by a landslide over Hoover. And Biden did something even FDR failed to do in 1932, he won Pennsylvania.

On the lighter side, watch this 2 minute video of Trump’s crack legal team in action. These days, it’s hard to tell reality from SNL.

On March 18, I asked these questions:

PS.  If you are in an investment area where liquidity doesn’t matter, say a company investing for insurance or pension obligations 10 years out, why wouldn’t you prefer TIPS over Treasuries right now? Isn’t PCE inflation likely to exceed 0.3% over 10 years?  I’d be interested in responses from someone in the investment community.

Just to be clear, TIPS spread were 0.63% that day; I was referring to the implied prediction of roughly 0.3% PCE inflation, as PCE inflation runs a few tenths of a percent below the CPI inflation used for TIPS compensation.

Today, 10-year TIPS spreads are up to 1.88%.

To America’s insurance and pension industry I say, “You’re welcome”.

I’m trying to defend the EMH, and you financial market people are making it so hard for me.

Trump is at it again:

Trump, with less than two months remaining in office before he’s replaced by president-elect Joe Biden, stepped up his campaign seeking to revoke Section 230 of the Communications Decency Act. The law grants internet companies broad legal protections for content shared on their services and allows companies like Facebook, Twitter and YouTube to moderate content on their services as they see fit.

Matt Yglesias says he couldn’t continue with his moderated blog without section 230:

Here’s my question. If Section 230 is repealed, could I be sued for statements made by random people in the comment section of this blog?

(BTW, I certainly don’t want the government to “address” either big tech or little tech.)

Off topic, the Biden win margin is up to 4.3%, and continues to widen. That means the Electoral College bias, which I predicted would expand to 3.5% in this election, is already up to 3.7%, and may hit 4%. The national vote margin is up to 6.9 million, and will widen further as more and more votes get counted. And BTW, isn’t it kind of embarrassing for America still to be counting votes a month after the election?

PS. General Flynn was one of the criminals that Trump hired to run his administration. Today he shared an interesting tweet:

Of course sharing a tweet doesn’t mean one endorses it. Nonetheless, there’s a side of me that would kind of like to see Trump do this. Let’s have the public vote once and for all on whether people prefer America remain a constitutional republic or become an authoritarian state. And let’s have a vote done using a method with no possibility of fraud.

It might “clarify” things. Which is of course is why its proponents don’t actually favor this idea, and are promoting it with the knowledge that there is zero chance it will be implemented.

It’s like the Ukraine thing. Obviously Trump didn’t want Ukraine to investigate Biden; they would have exonerated him. Trump wanted Ukraine to say they were investigating Biden. Similarly, Trump knows who won, which is why he won’t do this. But he wants people to believe that only a re-vote would establish who actually won.