Fiscal policy worth getting excited about

Over the past three years I’ve become very depressed seeing economists trying to substitute demand-side fiscal stimulus for monetary stabilization policy.  The central bank must do something, so why not set policy at a level expected to produce on-target demand growth?  Even supporters of fiscal stimulus must be frustrated by how illogical it is to ask Congress to make up for the lack if stabilization finesse at the Fed.  Surely there’s a better way.  Now Alberto Alesina and Francesco Giavazzi point the way forward:

Economists have engaged in some lively debates about how to measure and evaluate the effects of large fiscal adjustments episodes in OECD countries (Europe in particular). But a careful and fair reading of the evidence makes clear a few relatively uncontroversial points, despite the differences in approaches. The accumulated evidence from over 40 years of fiscal adjustments across the OECD speaks loud and clear:

  • First, adjustments achieved through spending cuts are less recessionary than those achieved through tax increases.
  • Second, spending-based consolidations accompanied by the right polices tend to be less recessionary or even have a positive impact on growth.

These accompanying policies include easy money policy, liberalisation of goods and labour markets, and other structural reforms.

That’s right, use monetary policy to boost NGDP and supply-side fiscal reforms to produce a better P/Y split.  A&G continue:

Tax-based stabilisations not only eventually fail, in the sense that they are unable to stop the growth of the debt-to-GDP ratio. When these fiscal packages are announced entrepreneurs’ confidence falls sharply, and this is reflected in a fall in output. On the other hand, spending-based stabilisations (especially if accompanied by appropriate contemporaneous polices) do not negatively affect economic confidence contemporaneously. Moreover they are often accompanied by an increase in output within a year.

It stands to reasons that European countries where tax revenues are close to 50% of GDP do not have the room to increase revenues even more.

A paper by Harald Uhlig and Mathias Trabandt (2012) nicely shows how close many European countries are to the top of realistically measured Laffer curves. Thus any additional tax hikes would lead to relative low increases in tax revenues and could be very recessionary, through the usual supply- and demand-side channels.

Given all of the above we should stop focusing fiscal policy discussions on the size of austerity programmes. A relatively small tax-based adjustment could be more recessionary than a larger one based upon spending cuts. Likewise, a small spending-based adjustment could be more effective at stabilising debt-to-GDP ratios than a larger tax-based adjustment.

.   .   .

One should go even further in disentangling the effects of composition.

  • Which spending cuts are more likely to be effective?
  • Which kind of tax reforms could achieve the same amount of tax revenue with fewer distortions?
  • From where should market liberalisations start, and how fast should they proceed?

Some answers may be the same for all countries, others may differ.

  • For instance, in general moving taxation towards the VAT and away from income taxes is preferable.
  • In some countries there is no way out without a substantial raise in retirement age and cuts in government employment.

Incidentally this provides a clear link with labour-market reforms. Public-sector employment can only be reduced after firing constraints are moved and appropriate safety nets are put in place. Similarly the emphasis on the need and productivity of physical infrastructures is often misleading, at least in many countries.

.   .   .

We are in for a big disappointment on the centrepiece of Eurozone austerity – the fiscal compact. The fiscal compact bears the seeds of its failure:

  • The new fiscal compact that Europe has decided to impose upon itself through a treaty change makes no mention of the composition of fiscal packages.
  • European economies will remain stagnant – if not further fall into recession – if adjustments will be made mostly on the tax side and debt ratios will not come down.

And in the end, as was the case with the Growth and Stability Pact, the rules will be abandoned.

Great stuff.

HT:  Greg Mankiw


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82 Responses to “Fiscal policy worth getting excited about”

  1. Gravatar of John John
    13. April 2012 at 09:02

    I’m not sure why economists don’t point out that we know a priori that spending cuts are better than tax increases. With countries running a deficit, the size of the government drain on the private sector is equal to spending. Resources used in the private sector are used more efficiently from the viewpoint of the customers, which is the only way of measure economic efficiency, because the only way private businesses can make money is by creating value for the public. Since government doesn’t depend on voluntary spending for funding, they have no feed back on efficiency. In addition they face the perverse incentive of getting more money when they come in over budget.

    My point is that we know these things beforehand using simple logic. Why is this controversial and why do we need to do expensive studies on this?

  2. Gravatar of Adam Adam
    13. April 2012 at 09:15

    I can’t help but wonder whether there is something Freudian about about “exited” in the post title.

  3. Gravatar of Benjamin Cole Benjamin Cole
    13. April 2012 at 10:04

    More great blogging.

    Balance the budget and print money until the walls of Fed are blistering and the plates melt.

    Monetize a few trillion, run inflation into 4-6 percent range.

    Watch America boom.

    Prosperity, contrary to what the monetary ascetics say, is not a sin.

  4. Gravatar of John John
    13. April 2012 at 10:29

    Ben Cole,

    The Fed doesn’t print money. That’s the U.S. Bureau of Engraving and Printing. Check out the hilarious domain name.

    http://moneyfactory.gov/

    What makes you think that 4-6% inflation will create prosperity? I don’t think Scott believes that, he advocates a combined inflation and real GDP of 5% (possibly a little higher to play catch up) His mentor Milton Friedman pointed out time and time again that inflation created temporary prosperity for business as long as it came in higher than expectations. If the markets are expecting 6% inflation and they get 5.5%, you will see the same symptoms classically associated with deflation (bankruptcy, financial contraction).

    That is what we saw in 1983 when the Fed lowered inflation from around 10-12% to around 3-4%. Despite still having inflation, lowering the inflation rate produced all the contractionary effects of outright deflation.

    Besides the theoretical case laid out by Friedman or Hayek that 4-6% inflation is no better than 2%, empirically higher rates of inflation don’t correlate to higher rates of real GDP growth. What really matters is stability in the stream of money expenditures not inflation rates per say.

  5. Gravatar of Negation of Ideology Negation of Ideology
    13. April 2012 at 10:44

    John,

    “The Fed doesn’t print money. That’s the U.S. Bureau of Engraving and Printing.”

    You’re technically correct, but I think Ben Cole was using a colloquialism. Most people use the phrase “printing money” as the creation of bookkeeping entries rather than the physical act of printing money. I try to avoid it, because it sometimes creates confusion, but I find myself slipping often.

    The Fed controls the size and composition of the monetary base, which is what’s important – not the physical act of printing currency.

    I do agree with the substance of your post, that it’s stability of money expenditures that matters. People need to be able to understand expectations to plan their lives. And I don’t believe long term stable 4-6% inflation will lead to any more RGDP growth than long term stable 0-2% inflation.

  6. Gravatar of John John
    13. April 2012 at 10:50

    Negation of Ideology,

    I don’t know if he knew that was a colloquialism because he said “print money until the walls of Fed are blistering and the plates melt.” The walls of the “money factory” would be blistering not the Fed. Maybe the Fed’s computers might get overworked from all the electronic data entries.

    Btw, during hyperinflations in Germany and Zimbabwe, they did literally have trouble printing enough physical currency and resorted to printing money with only one side. In the case of Zimbabwe, one of the factors ending the hyperinflation was that a German company stopped selling them the necessary ink.

  7. Gravatar of Morgan Warstler Morgan Warstler
    13. April 2012 at 10:52

    And Scott will take 4.5% NGDLT (if pushed he’ll go 3%), without any catch up, because he’ll get the same effects.

    Notice how QUICKLY BOE and the UK population in general realized 50% was too high?

    Institute NGDPLT and you’ll get the same calls to cut minimum wage, reform taxes, reform regulations, streamline wealth transfers, and force govt. to be more productive.

    It’ll never get to 4-6% inflation Benji.

  8. Gravatar of Brito Brito
    13. April 2012 at 10:58

    Monetary policy at the ZLB is 90% supply side, the only transmission mechanism outlined by Mishkin that has a more direct effect on consumption is short term interest rates, which doesn’t apply at the ZLB. The rest is about boosting asset values, which might be useful sometimes, but the problem right now isn’t a lack of asset wealth, and it has too weak affect on demand.
    If you want monetary policy to have an effect, it’s going to have to be helicopter drops.

  9. Gravatar of ssumner ssumner
    13. April 2012 at 11:09

    John, People like Paul Krugman do not agree.

    Adam, Well that’s one of my most embarrassing errors. I corrected it.

    Morgan, I agree that NGDPLT would deliver better micro policies.

    Brito, You said;

    “Monetary policy at the ZLB is 90% supply side, the only transmission mechanism outlined by Mishkin that has a more direct effect on consumption is short term interest rates, which doesn’t apply at the ZLB.”

    For some reason many commenters confuse ‘demand’ with ‘consumption.’ Boosting investment or exports is just as much demand-side as more consumption. The key issue is whether it leads to more NGDP.

    In any case you are wrong about Mishkin. He identifies other channels that affect consumption, such as higher wealth, higher equity prices.

  10. Gravatar of Jason Jason
    13. April 2012 at 11:18

    Re: Harald Uhlig and Mathias Trabandt (2012)

    The results in this paper are consistent with the empirical (labor tax) Laffer peak of Saez and Diamond that you referred to as “propaganda”. Also this paper shows all the countries studied can raise (both capital and labor) taxes except Belgium, Sweden and Denmark … so I think the “many European countries are at the top” phrasing is a stretch.

    [However, looking at the data it appears that even where (capital) tax levels appear to go past their peak, there is still no sign of a maximum. q.v. Fig. 13 in U&T]

    Saez & Diamond (“propaganda”) supports Uhlig & Trabandt which supports Alessina & Giavazzi (“great stuff”)?

  11. Gravatar of John John
    13. April 2012 at 11:23

    Scott,

    I think Krugman, and sometimes he comes close to admitting this, cares more about fairness and the idea of collective unity and action than actual economic progress. Do you doubt that he would argue for a society with a smaller gap between rich and poor rather than one in which the poor were better off overall but there was a larger wealth gap?

    What’s most ironic about Krugman is that his policy recommendations are most heavily weighted against the poor and he’s too blind to realize it.

  12. Gravatar of ssumner ssumner
    13. April 2012 at 11:26

    Jason, With all due respect that’s one of the most bizarre exercises in logic I’ve ever seen. S&D were advocating higher marginal income tax rates. A&G were advocating lower MTRs. Just because I call a paper “propaganda,” does not mean that I disagree with every single statement in the paper. If you have a problem with my specific criticism, I’d be glad to address them.

    In any case, the maximum point of the Laffer Curve is pretty much irrelevant, because it’s never optimal to be there anyway. The marginal deadweight loss of higher taxes is infinite at the peak of the Laffer Curve.

  13. Gravatar of ssumner ssumner
    13. April 2012 at 11:29

    John, Krugman claims, and no doubt believes, that spending cuts hurt growth more than tax increases.

    I don’t agree with him, but have no reason to believe he’s not sincere. He’s got all sorts of theoretical models to support his argument.

  14. Gravatar of Brito Brito
    13. April 2012 at 11:31

    “For some reason many commenters confuse ‘demand’ with ‘consumption.’ Boosting investment or exports is just as much demand-side as more consumption. The key issue is whether it leads to more NGDP.”

    However I don’t think the problem is investment at all, and I’m not sure if exports can be increased much. The problem is demand for goods and services and expectations of demand for goods and services.

    “He identifies other channels that affect consumption, such as higher wealth, higher equity prices.”

    Higher final wealth is through higher (financial) asset prices, but most of the demand shortfall is with people who don’t have much or any wealth tied up in financial assets to begin with. Higher equity prices is a part of higher asset prices by my use of the term.

  15. Gravatar of Wonks Anonymous Wonks Anonymous
    13. April 2012 at 11:58

    “The marginal deadweight loss of higher taxes is infinite at the peak of the Laffer Curve”
    I don’t understand that statement. Are we talking about a ratio of something over the shrinking denominator of marginal revenue? Otherwise I don’t see how infinities ever come into play.

  16. Gravatar of Steve Steve
    13. April 2012 at 12:27

    While I agree that monetary stimulus needs to come first, I really don’t consider Alesina to be a credible source. I know, Harvard man, blah blah blah, but he’s been wrong about everything for years. This is the first thing that came up on Google: “Jun 30, 2010 – Economist Alberto Alesina argues that austerity triggers growth”

    I will leave it at that as I expect Krugman to do a more thorough ripping of this piece than I’m going to do.

  17. Gravatar of Steve Steve
    13. April 2012 at 12:29

    By “this piece” I meant Alesina’s.

  18. Gravatar of Morgan Warstler Morgan Warstler
    13. April 2012 at 13:34

    “I agree that NGDPLT would deliver better micro policies.”

    it might actually improve the discussion if you’d explain this to folks more clearly.

  19. Gravatar of Morgan Warstler Morgan Warstler
    13. April 2012 at 13:37

    Forget might.

    It categorically will improve the discussion.

    I’d in fact love to see lib economists try and model a realistic political hypothetical where we have 4.5% NGDPLT and govt. grows.

  20. Gravatar of Negation of Ideology Negation of Ideology
    13. April 2012 at 14:07

    John –

    “I don’t know if he knew that was a colloquialism because he said “print money until the walls of Fed are blistering and the plates melt.” ”

    Fair point, I suppose I should just let Ben speak for himself, that was just what I assumed when I read it.

    Morgan –

    I agree that by “outlawing Keynesianism”, as NGDP targeting would do, you’d have less excuse for people who propose deficit spending. Since no one could argue that a deficit would increase overall spending, there’d be one less argument in the big spenders’ arsenal. I think a balanced budget amendment to the Constitution would do even more to limit government.

  21. Gravatar of Dan Kervick Dan Kervick
    13. April 2012 at 14:48

    We shouldn’t be “consolidating” at all. More deficit please.

    Here’s a useful role for the central bank: Congress should pass a bill directing the Fed to credit $500 billion to Treasury’s account. Then Congress should spend the freshly minted $500 billion as quickly as possible.

    Bridges to somewhere; hospitals; school buildings; teachers; firefighters; solar panels; free checks for grandma’s Christmas and birthday account. It’s all good.

    Monetarists seems to agree that inflation is not a problem right now. You want looser money? Then loosen it into the actual real economy, instead of just asking the Fed to play games with the asset markets.

  22. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. April 2012 at 15:59

    Can’t make a comment if it follows a Dan Kervick comment. I wonder why?

  23. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. April 2012 at 16:01

    Here’s a paper worth reading (I’ll leave out the links):

    Tax Policy for Economic Recovery and Growth – Jens Arnold et al.

    It’s the working paper version (free). The published version is here:

    Abstract:

    “This article identifies tax policy that both speeds recovery from the current economic crisis and contributes to long-run growth. This is a challenge because short-term recovery requires increases in demand while long-term growth requires increases in supply. As short-term tax concessions can be hard to reverse, this implies that policies to alleviate the crisis could compromise long-run growth. The analysis makes use of recent evidence on the impact of tax structure on economic growth to identify which growth-enhancing tax changes can also aid recovery, taking account of the need to protect those on low incomes.”

    I’m in the process of integrating this paper into the literature review section of my (neverending) dissertation. I’m primarily interested in the Tax Structure section although the paper is interesting in that it also addresses demand side issues, TFP and inequality.

    This is by far the paper I’m most excited about right now (other than my own dissertation).

  24. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. April 2012 at 16:02

    Link 2:

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1753493

  25. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. April 2012 at 16:11

    https://www.google.com/#hl=en&sugexp=cqn%2Cfixedpos%3Dfalse%2Cboost_normal%3D20%2Cboost_high%3D1000%2Ccconf%3D0.95%2Cmin_length%3D2&gs_nf=1&cp=43&gs_id=4s&xhr=t&q=tax+policy+for+economic+recovery+and+growth&pf=p&sclient=psy-ab&oq=tax+policy+for+economic+recovery+and+growth&aq=0&aqi=g1&aql=f&gs_l=&pbx=1&bav=on.2,or.r_gc.r_pw.r_qf.,cf.osb&fp=bc1ebdab62cad3d5&biw=1280&bih=692

    Choose the PDF link. Evidently it hasnothing to do with poor old Dan. I’m just a paranoid psychotic.

  26. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. April 2012 at 16:13

    The last comment refers to Link 2 (working paper).

  27. Gravatar of Steve Steve
    13. April 2012 at 16:27

    Figured I should post the Alesina article: (a.k.a., architect of European doom)

    http://www.businessweek.com/magazine/content/10_28/b4186012969951.htm

    “June 30, 2010, 11:01PM”

    “Economist Alberto Alesina argues that austerity triggers growth”

    “In April [2010] in Madrid, he told the European Union’s economic and finance ministers that ‘large, credible, and decisive’ spending cuts to reduce budget deficits have frequently been followed by economic growth.”

    “Alesina argues that AUSTERITY CAN STIMULATE ECONOMIC GROWTH BY CALMING BOND MARKETS [emphasis added], which lowers interest rates and promotes investment.”

    “The Madrid paper, a summary of his views, was influential enough to be cited in the official communiqué of the EU finance ministers’ meeting.”

  28. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. April 2012 at 16:35

    Correction:

    Last comment refers to first link. Choose first PDF link. (What is ftp anyway?) Aaargh. (All I’m trying to do is supply people with free research papers and I get blocked left and right.)

  29. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. April 2012 at 16:40

    Steve,
    I hope you’re posting that for comic effect.

  30. Gravatar of Morgan Warstler Morgan Warstler
    13. April 2012 at 17:05

    “outlawing Keynesianism”

    Here’s the question… why is it so hard for lib economists to GET that this will happen?

    Seriously, it has taken more than a year to even get to a point in the discussion where DeKrugman senses this might be bad for his team.

    And most of his crowd still don’t get it.

  31. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. April 2012 at 17:12

    Morgan,
    You might this interesting. Krugman and DeLong disagreed about something this week.

    http://delong.typepad.com/sdj/2012/04/delong-and-caballero-and-others-smackdown-watch-paul-krugman-asks-if-there-is-really-a-global-shortage-of-safe-assets.html

    Evidently someone sawed them off at the Siamese navel.

  32. Gravatar of ssumner ssumner
    13. April 2012 at 17:46

    Brito, You made two factually inaccurate errors and are now moving the goal posts. It would be easier if you wouldn’t say things like Mishkin sees interest rates as being the only transmission mechanism to consumption, so we don’t have to waste time. In any case, what’s important is not the sort of goods and services you think we need more of, but rather what the market thinks. Let’s boost NGDP and we’ll see what type of output the market generates in terms of additional RGDP.

    Wonks Anonymous, That’s just standard tax theory. As the extra revenue for each small increase in the tax rate approaches zero, the extra deadweight cost for each extra dollar approaches infinity (of course assuming the Laffer curve is “smooth.”)

    Steve, He’s arguing at the end of the paper that this current round of European austerity will NOT produce growth, so I think what you read might have oversimplified his views.

    Morgan, I’ve done that numerous times. I’ve argued that NGDPLT makes the world safe for capitalism.

    Dan, I don’t want more money in circulation, I want more M*V. The most plausible method is increasing V, and letting the private sector decide where to allocate resources.

    Mark, Thanks for the link, I’ll take a look.

    Steve, I saw that Spain increased the top income tax rate from 45% to 52%. So I don’t see how Alesina can be blamed for the failure of austerity–it’s not the sort of austerity he called for.

  33. Gravatar of Brito Brito
    13. April 2012 at 18:48

    “Brito, You made two factually inaccurate errors and are now moving the goal posts. It would be easier if you wouldn’t say things like Mishkin sees interest rates as being the only transmission mechanism to consumption, so we don’t have to waste time. In any case, what’s important is not the sort of goods and services you think we need more of, but rather what the market thinks.”

    I didn’t say Mishkin sees interest rates, I said OF the transmission mechanisms outlined by him, interest rates is the only one that has more of a demand side effect. I didn’t say HE said or thought that, obviously that’s my own opinion.

    “Let’s boost NGDP and we’ll see what type of output the market generates in terms of additional RGDP.”

    Of course I’ve seen you say things like this hundreds of times now but I’m becoming more and more sceptical, it just doesn’t seem like a meaningful sentence. You don’t boost NGDP, you boost the money supply and consumption of assets held by banks and see what effect that has on NGDP; it’s not boosting NGDP and seeing what effect that has on the type of consumption/investment. It wont necessarily have much of an effect at all on either. But, even if it does have an effect, I don’t see why ceding control of money to primary dealers is a market solution.

  34. Gravatar of Brito Brito
    13. April 2012 at 18:51

    Scott, you said

    “The most plausible method is increasing V, and letting the private sector decide where to allocate resources.”

    Boosting V, how? I think you must mean M.

  35. Gravatar of Steve Steve
    13. April 2012 at 19:27

    “So I don’t see how Alesina can be blamed for the failure of austerity-it’s not the sort of austerity he called for.”

    Scott, that’s a fair point, but it’s also party an excuse. I see a parallel trend between the Austerians and the Keynesians. Both groups called for aggressive programs during the crisis, and then blamed the failure of those programs on a government that “didn’t do it right.”

    2010: Austerians (Europe): ‘large, credible, and decisive’ spending cuts (Europe)
    2010 (and 2009): Keynesians: multi-trillion economic stimulus union ditch digging (US)

    2012: Austerians: you did it all wrong, the cost of some tax increases more than counteracted the benefits of all the spending cuts, don’t blame me
    2012: Keynesians: the stimulus wasn’t nearly big enough, plus maybe some monetary stimulus would be a second choice, don’t blame me

    The fact of the matter is that Alesina badly misdiagnosed the problem, even if his policy prescriptions weren’t followed to the letter. And no, I’m not absolving the Keynesians. I’d like to put the Austerians and Keynesians into a room together so they can annihilate each other like matter and anti-matter, and leave the monetarists as the policy making residual.

  36. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. April 2012 at 19:54

    Steve,
    I view the Austrians and the MMTs/Pks as opposite matter. I pray for the future in which they anniilate each other. Knowing that that heaven will not come in my lifetime, I still strive to stay alive long enough to beat the brow of those who still oppose me.

  37. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. April 2012 at 20:05

    Compare:

    I find myself more and more grateful that the land of my cousins (Polski) is not part of this madness. Poland is alive and well. It is along with Australia alone in not experiencing a recession among the OECD members.

  38. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. April 2012 at 20:05

    znaleźć się coraz bardziej wdzięczny, że ziemia z moich kuzynów (Polski) nie jest częścią tego szaleństwa. Polska żyje i ma się dobrze. Jest wraz z Australii sam w nie przeżywa recesję wśród członków OECD.

    (too many consonants. no?)

  39. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. April 2012 at 20:06

    But note, fewer letters. Morover it takes less time. No Western European languange can match a Slavic tongue for efficiency.

    Why? Because we don’t waste time on articles.

    Slav is the wave of the future.

  40. Gravatar of Morgan Warstler Morgan Warstler
    13. April 2012 at 21:51

    “Morgan, I’ve done that numerous times. I’ve argued that NGDPLT makes the world safe for capitalism.”

    Scott, you have mentioned this about as many times as you have mentioned Brazilian waxes.

    And you should just outright admit it, because I’m especially tuned to listening for mentions of both.

    If Scott Sumner were to mention that NGDPLT would undercut the political power of the left WHILE a naked woman was wrestling a badger in my parlor, it would be valid to say there may be naked woman badger fights in my house all the time – because I would not notice.

  41. Gravatar of Morgan Warstler Morgan Warstler
    13. April 2012 at 21:53

    Have you seen the BBC show Sherlock?

  42. Gravatar of Lorenzo from Oz Lorenzo from Oz
    14. April 2012 at 01:30

    Morgan: I own the first two seasons on DVD. A wonderful updating by serious Sherlock fanboys. Benedict Cumberbatch is a splendid Sherlock and Martin Freeman (soon to be world-famous as Bilbo Baggins) is an excellent Watson. (He was also in Love, Actually and Shaun of the Dead: the only two zombie films I have seen are Shaun of the Dead and Zombieland–I am not going to watch any more, it can only be downhill from those two.)

  43. Gravatar of Morgan Warstler Morgan Warstler
    14. April 2012 at 04:57

    AMC’s Walking Dead has grown a giant weekly audience of Zombies.

    eztv.it

  44. Gravatar of ssumner ssumner
    14. April 2012 at 12:40

    Brito, You said;

    “I didn’t say Mishkin sees interest rates, I said OF the transmission mechanisms outlined by him, interest rates is the only one that has more of a demand side effect.”

    That’s wrong, all his mechanisms are demand side.

    Brito, You said;

    “You don’t boost NGDP, you boost the money supply and consumption of assets held by banks and see what effect that has on NGDP; it’s not boosting NGDP and seeing what effect that has on the type of consumption/investment. It wont necessarily have much of an effect at all on either. But, even if it does have an effect, I don’t see why ceding control of money to primary dealers is a market solution.”

    This is wrong on many levels. Bank assets don’t get “consumed.” We aren’t trying to solve problems with monetary policy, we are trying to avoid creating them. How can someone oppose a policy of trying to avoid creating problems!

    No, I meant boost V by increasing the NGDP growth target.

    Steve, You may be right about mistakes in the past. I’m just going by what he said in this paper, which is very different from standard Austerianism. For instance, he calls for easier money.

    I called for easy money and tight fiscal in Britain. They did neither, but I’m sure some people would blame me for the mess in Britain.

    Morgan, You said;

    “If Scott Sumner were to mention that NGDPLT would undercut the political power of the left WHILE a naked woman was wrestling a badger in my parlor, it would be valid to say there may be naked woman badger fights in my house all the time – because I would not notice.”

    I grew up in the badger state and am still scratching my head over this one.

    I haven’t seen Sherlock, but I read all the Sherlock Holmes books.

    Lorenzo, The Hobbit might be only half as good as LOTR, and still the best Hollywood film of the year.

  45. Gravatar of ssumner ssumner
    14. April 2012 at 12:44

    Mark, I forget to mention: Poland rulz! I know you are sensitive when I overlook their success. 🙂

  46. Gravatar of Saturos Saturos
    14. April 2012 at 14:16

    Lorenzo,
    I love Cumberbatch’s acting, but the seconod season was quite disappointing. Clever in a few ways, but still disappointing. And, er, yes, Zombieland “rulz”.

  47. Gravatar of Brito Brito
    14. April 2012 at 15:56

    Scott, you said:

    “That’s wrong, all his mechanisms are demand side.”

    I know this is what you guys think, but I have not seen a single compelling argument as to why this is the case, after following your blog and many other MM blogs for 2 – 3 years now. Boosting asset values is no different to cutting taxes for corporations, this is universally regarded as a supply side measure; sure some businesses and a few wealthy people might be slightly wealthier, however I have seen no convincing argument that this will have anything other than an extremely insubstantial effect on demand in a situation like this, when many businesses and banks are already sitting on hoards of cash.

    “This is wrong on many levels. Bank assets don’t get “consumed.”

    Semantics, I’m referring to the Fed purchasing assets.

    “We aren’t trying to solve problems with monetary policy, we are trying to avoid creating them. How can someone oppose a policy of trying to avoid creating problems!”

    You’re trying to boost AD with monetary policy, you’re assuming that handing hoards of cash to primary dealers, or threatening to do so if some target is not me, will achieve this goal.

  48. Gravatar of Brito Brito
    14. April 2012 at 16:11

    “No, I meant boost V by increasing the NGDP growth target.”

    This only works if the target is credible, and not just in terms of political will but also in terms of physical possibility.

    Maybe it will work, maybe the market is aware of some mechanism that allows the Fed to do this easily at the ZLB that I’m not aware of. However, I’ve yet to see a coherent and convincing mechanism explained to me.

  49. Gravatar of dwb dwb
    14. April 2012 at 16:25

    Boosting asset values is no different to cutting taxes for corporations, this is universally regarded as a supply side measure

    huh? this sounds like an argument made by a 25 year old with no 401k. corporations do not benefit from rise in financial asset values, unless they are holding them. Most financial assets are held by the public (pension funds, indirectly via 401ks,etc). Non-financial-services companies mostly hold real assets (factories, real estate). So unless they are issuing debt or equity directly companies dont really benefit.

    Equity prices only go up because people think real assets are worth more, i.e. the world will want more ipads so apple stock goes up – but that benefit accrues to the shareholders not the company as a whole. that gets cause and effect backwards.

    so if you REALLY think the demand is not going to show up when the equity market takes off why dont try to make a ton of money shorting the market….

  50. Gravatar of Brito Brito
    14. April 2012 at 16:46

    “huh? this sounds like an argument made by a 25 year old with no 401k”

    Yes, but this is the thing; I think MMists overstate how many people actually have more than an insubstantial amount of savings in financial assets; and the people showing a major shortfall in demand are exactly the people that DON’T hold these assets: lower middle class and working class people.

    “corporations do not benefit from rise in financial asset values, unless they are holding them.”

    They benefit from a rise in equity prices, in fact Mishkin explicitly says this himself.

    “Most financial assets are held by the public (pension funds, indirectly via 401ks,etc).”

    Yes, but this is mostly upper middle class people and retires, I don’t think the problem currently is a lack of demand from them.

    “Non-financial-services companies mostly hold real assets (factories, real estate).”

    Again I’m referring to the stock they can issue for a higher price, which enables them to purchase equipment etc.. This is one of the Stock Market channels under Mishkin.

    “Equity prices only go up because people think real assets are worth more, i.e. the world will want more ipads so apple stock goes up – but that benefit accrues to the shareholders not the company as a whole. that gets cause and effect backwards.”

    Equity prices also go up if safer asset interest rates go down, such as longer term government bonds, this is the portfolio adjustment affect. And it obviously benefits companies, that’s the point, they can issue stock for a higher price; it’s more investment.

    “so if you REALLY think the demand is not going to show up when the equity market takes off why dont try to make a ton of money shorting the market”

    I don’t think there is a simple linear relationship between the stock market and demand in general. The stock market rallied for QE2, however it only had a modest affect on demand. Also the economy is slowly recovering, I’m not bearish on stocks regardless.

  51. Gravatar of Brito Brito
    14. April 2012 at 17:07

    I think maybe people are confused by my use of the word asset, when I say asset I mean the opposite of a liability, so anything of value; could be a bond, could be equity, could be a house.

  52. Gravatar of dwb dwb
    14. April 2012 at 17:55

    Again I’m referring to the stock they can issue for a higher price, which enables them to purchase equipment etc.. This is one of the Stock Market channels under Mishkin….they can issue stock for a higher price; it’s more investment.

    ok, just for the sake of argument, lets say you are right and this is a primary path of monetary policy transmission. Its not, most large companies finance their capital plan with internal funds, but lets stick with it for a sec.

    but first, before we address the implication of your statement, let me first say that the CFO of Mega Corp does not enter into this decision lightly: a) existing shareholders will rant ferociously about excessive dilution; b) he has to file SEC registrations and all kinds of paperwork which involve expensive lawyers; c) he has to leave his family or golf game, and go on a bunch of roadshows with creepy investment bankers and tell investors how great the company is doing, why they should pour their clients money into it, and also soothe those that are ferociously ranting about the dilution.

    ok, but lets say he did all that.

    He takes investors money. Does he stare at the 000s in the corporate bank account? Does he blow a billion dollars on a wine-champagne-caviar-cheese party for his closest buds? {if he did that would be consumption anyway}

    No, as you pointed out, he buys equipment. hmm. maybe that equipment came from thin air?

    here’s your homework assignment: go find caterpillars capital plan from their most recent investor presentation or annual report. I recall that 60% of their capital budget gets invested in the US. how are they financing that capital plan? what are they building? where did those machines and parts come from and who made them? how many people do those new factories employ? If they plan to spend, er, invest, an extra $1bn in capital equipment in the US, this year how much gets added to GDP (excluding any multiplier effects)?

  53. Gravatar of Brito Brito
    14. April 2012 at 18:00

    “No, as you pointed out, he buys equipment.”

    Nononono, it can be used to buy equipment, that’s the idea. But companies probably wont buy more equipment, because they don’t need it. This is the whole concept of excess capacity, I thought that was obvious; that’s the major critique of supply side policies.

  54. Gravatar of dwb dwb
    14. April 2012 at 18:04

    oh, i forgot: you said “you’re assuming that handing hoards of cash to primary dealers, or threatening to do so if some target is not me, will achieve this goal.”

    CitiCorp, JP Morgan, and Well Fargo each have about 265,000 – 280,000 employees.

    When you say the Fed is handing hoards of cash to the dealers, which specific employee(s) are they handing hoards of cash to? I’d love to know. Do you think they’ll use an armored truck, decoys when they actually hand over the cash?

  55. Gravatar of W. Peden W. Peden
    14. April 2012 at 18:08

    I’m no expert on corporate finance, but wouldn’t a corporation with rising stock prices (i.e. a greater ability to issue equity) issue bonds rather than new equity? Given the choice between financing myself through a rate of equity that shifts with demand and all the problems mentioned by dwb above, and simply selling a corporate bond at a fixed rate to a pension fund, insurance firm or bank, I would choose the corporate bond.

    Also, if a firm’s stock price is going up and it is in a tight spot with a lot of loans, wouldn’t the first priority be to meet those loan payments? Equally, the better stock position of the company would make it much easier to get/extend a line of credit from banks.

    That’s an addition to what dwb, all of which makes perfect sense to me. I also think that QE2, the modest stock market rally, the increases in broad money, and modest the turnaround in demand after in late-2010, are disconnected.

    In the only case where I’ve seen a sectoral breakdown of growth in the broad money stock (the UK) the corporate sector has been the first to respond to changes in monetary policy-

    http://www.bankofengland.co.uk/statistics/PublishingImages/fm4/2012/jan/CHART3.GIF

  56. Gravatar of dwb dwb
    14. April 2012 at 18:08

    But companies probably wont buy more equipment, because they don’t need it.

    how is this not the best short opportunity in history. bubble -drunken CFOs issue equity as asset prices run up, then dont actually DO anything, they just watch the 000s in the bank account. bubble bursts when the demand does not show up, and you make a killing.

  57. Gravatar of W. Peden W. Peden
    14. April 2012 at 18:12

    Incidentally, raising asset prices kills off the debt-deflation channel at stage 4-

    http://en.wikipedia.org/wiki/Debt_deflation#Fisher.27s_formulation

  58. Gravatar of W. Peden W. Peden
    14. April 2012 at 18:17

    dwb,

    It’s a time of great opportunities that are being missed, since the CBs could be monetizing the entire national debts and not increasing inflation, because it would be pushing on a string.

  59. Gravatar of Brito Brito
    14. April 2012 at 18:18

    “CitiCorp, JP Morgan, and Well Fargo each have about 265,000 – 280,000 employees.

    When you say the Fed is handing hoards of cash to the dealers, which specific employee(s) are they handing hoards of cash to? I’d love to know. Do you think they’ll use an armored truck, decoys when they actually hand over the cash?”

    Not physical cash, I mean in a bookkeeping sense, and it has mostly gone into excess reserves. I don’t see why it matters which employees handle the transaction.

    “how is this not the best short opportunity in history. bubble -drunken CFOs issue equity as asset prices run up, then dont actually DO anything, they just watch the 000s in the bank account. bubble bursts when the demand does not show up, and you make a killing.”

    It doesn’t follow that the purchases of stocks are a bubble, again the stock purchasing is mainly through portfolio adjustment because of medium to longer term interest rates lowering.

    Also, I don’t KNOW if monetary policy is ineffective, so I cannot short the market. I’m simply saying I haven’t seen a convincing detailed transmission mechanism under current economic conditions.

  60. Gravatar of dwb dwb
    14. April 2012 at 18:19

    Given the choice between financing myself through a rate of equity that shifts with demand and all the problems mentioned by dwb above, and simply selling a corporate bond at a fixed rate to a pension fund, insurance firm or bank, I would choose the corporate bond.

    selling a corporate bond has all the problems I mentioned (sec, roadshow, etc), plus you have to deal with rating agencies, and also fixed income investment bankers are ESPECIALLY creepy because they are the rich-quant-geeks that were not cool in high school. 😉

    in reality, a (large, established) company does not issue debt/equity that often unless the project is too big to finance through internal funds (merger, acquisition, debt refinancing/rollover as you mention above, etc). A small company might issue a lot of equity frequently because they are growing fast. thats not a MACRO phenomenon though, its very specific to a company in a high-growth niche.

  61. Gravatar of Brito Brito
    14. April 2012 at 18:22

    “Incidentally, raising asset prices kills off the debt-deflation channel”

    Sure, I accept that monetary policy even under these circumstances puts a floor on deflation.

  62. Gravatar of W. Peden W. Peden
    14. April 2012 at 18:29

    Brito,

    Especially under these circumstances (asset price depression). The interesting thing about debt deflation is that monetary policy is ALWAYS having an effect on the money supply through the asset price channel. That’s why major monetary booms like the Barber Boom and the Lawson Boom were accompanied by asset price inflation.

    dwb,

    It’s interesting to hear that internal financing is so important. While the basic dynamics are plain with a basic grasp of supply & demand, I had no idea that alternatives to new borrowing were so popular.

    So, if we divide the effects of monetary policy on corporate finance into the effects on loans on banks and the effects on corporate bond issuance, it’s the former that is most important. It’s good to learn something new every day.

  63. Gravatar of dwb dwb
    14. April 2012 at 18:32

    @Brito
    I am poking fun at you because you are making blanket statements like “handing hoards of cash to primary dealers” and making abstract statements about corporations with no real analysis or though behind you claims or whats in Mishkin (you cant cram all the details into a text, its more like an Antipasi).

    First, the Fed is not “forcing” money on them. Banks are bidding for them in that market, so they must want them for SOME reason. second, some of those banks i mentioned are making loans. they would make more of them if their cost of liabilities were lower (which could happen through higher inflation, lower nominal interest cost, or less-scarce capital).

    more loans means that more investment projects get built, which translates into production, jobs, higher AD. Plus you get a “confidence” multiplier in the sense that if people believe they have stable jobs (because the Fed commits to stimulus until unemployment is low), then they will go buy houses.

  64. Gravatar of Brito Brito
    14. April 2012 at 18:43

    dwb I think you’re just misinterpreting my statements completely, or taking me too literally. I am a postgraduate economics student, I have studied corporate structure as well, and I’m well familiar with Jensen Meckling etc…

    I NEVER said the fed was forcing money onto the banks, I don’t know where you got that idea from. The banks are loaning regardless of the money they have in excess reserves. Are you really saying that the transmission mechanism from QE is more loans? I’m not much of an MMTist but they’ve pretty much demolished that one.

  65. Gravatar of dwb dwb
    14. April 2012 at 18:59

    @Brito, you said: “you’re assuming that handing hoards of cash to primary dealers, or threatening to do so if some target is not me, will achieve this goal.”

    thats pretty sloppy stuff for a postgrad econ student, you can do better. the biggest weapon the Fed has in its arsenal is the jawbone (expectations). at least half of QE’s effects is through signaling (dig up the Fed research on it)**. The loan/reserve monetary transmission channel has its greatest influence on small firms and banks (the Fed own research here too). Large, rated banks have ample access to non-deposit funds (look at a large banks actual liabilities) but for small banks reserves can be constraining. small growing companies that have not issued equity rely on bank loans for financing.

    So in the real economy, reserves have SOME real effect, its only a question of degree (do you honestly think if the Fed bought 14 Tn of Treasuries and MBS that would not stimulate AD??)

    **Moreover, on the expectations channel, even more importantly, major economists sit on capital committes on banks and many large companies. Bank economists create presentations to those same CFOs who are creating investment and capital budgets. So yes: if the Fed committed to more QE the main effect would be to signal it was committed to closing the output gap. Economists would expect higher growth, and CFOs would plan to invest more.

    The feds own research suggests that QE works about 50% through the “real” channel of effectively lowe interest rates and 50% through the expectations channel.

  66. Gravatar of Brito Brito
    14. April 2012 at 19:08

    “thats pretty sloppy stuff for a postgrad econ student, you can do better.”

    It’s just being tongue in cheek, I thought that was obvious.

    Expectations needs to have a credible mechanism to back them up, otherwise the whole thing breaks down.

    “but for small banks reserves can be constraining.”

    I don’t think any of the primary dealers are small banks.

  67. Gravatar of dwb dwb
    14. April 2012 at 19:29

    hmm, let me think, how might a small bank pry those reserves from a primary dealer.

    how about: “the monetary transmission mechanism is weaker than it would otherwise be because of the Fed policy of paying interest on reserves which increases demand for reserves and the reliance on the primary dealer network to transmit QE.”

    “weaker” is not impotent though. The Fed can still manage 2% inflation in the face of the biggest recession in 70 years, so thats certainly something.

  68. Gravatar of Brito Brito
    14. April 2012 at 19:34

    DWB, are you saying that small banks that are reserve constrained would have access to loanable funds if the fed stopped charging interest on reserves?

  69. Gravatar of dwb dwb
    14. April 2012 at 20:32

    well, i would not use the term “access to” since its not a question of IF but at what rate they need to borrow the reserves. Someone will not part with them for any less than 25 bps (why would they). They wont trade them for Treasurues (yielding 9 bps). IOR effectively sets a floor price. when the storage benefit of something goes up, people want to store more of it. If IOR goes away the demand for reserves goes down (generally system-wide, not just for primary dealers). If the demand declines, banks want to get rid of (some of) them: hot potato effect. I dont know about “access” per se, but the banks liability cost will certainly go down, and at the margin some loans become profitable.

    Do i think this is a big or small effect? hard to say (never been good with counterfactuals). The Fed itself initiated this in part in Oct 2008 to dampen the fears that QE(1) would be massively inflationary. So the Fed itself certainly believes it has dampened the effect of QE. It does not seem like a lot but I know fixed income portfolio managers who live by the axiom “will work for basis points.” i cannot actually say how many loans and investments have not beed made because of IOR, but its almost certainly some, and every little bit of traction helps.

    moreover, i generally think that the arcane nuances of IOR have not diminished the markets view of the effectiveness of QE (do you ask the guy with the bazooka if its REALLY loaded this time. no). therefore it has not diminished the expectations channel. All the yammering by the hawks about withdrawing stimulus have done damage there.

    Fundamentally, if the Fed promised QE(n+1) the market would read it as a further committment to closing the output gap. If they thought that IOR or low loan demand made the money multiplier 67% lower than normal, that just means the Fed needs to do 3x more to get the same effect.

    so over all i do not think its a question of whether QE is effective, its a question of whether they need to do 1 Tn or 5 Tn.

  70. Gravatar of Brito Brito
    15. April 2012 at 07:54

    “I dont know about “access” per se, but the banks liability cost will certainly go down, and at the margin some loans become profitable.”

    I just don’t think this effect will be very large. Also, there’s still the question of banks not making loans because of high liability costs etc…, and banks not making loans because of a lack of qualified customers. I happen to think it’s more the latter.

  71. Gravatar of W. Peden W. Peden
    15. April 2012 at 08:20

    Brito,

    “banks not making loans because of a lack of qualified customers”

    I don’t think one can separate this effect from asset prices e.g. a banker’s attitude towards someone who wants to borrow to purchase an appreciating asset is going to be different from her attitude towards someone who wants to borrow to purchase a depreciating asset.

  72. Gravatar of Brito Brito
    15. April 2012 at 09:20

    Here’s how I see it, the two things that are bringing down the economy are the unemployed (who the banks mostly wont lend to) and the heavily indebted in a process of deleveraging (who the banks are already lending to). Lowering interest rates and increasing house prices helps with the delevaraging cycle to a limit, until interest rates hit their lower bound. Furthermore, boosting the economy by boosting house prices has its own set of problems.

  73. Gravatar of Brito Brito
    15. April 2012 at 09:25

    And this whole mechanism seems so indirect and messy, yet MMists give the impression that it is the most direct and efficient. Helicopter drops are far more direct and you don’t have to worry about confusing and complicated bank behaviour.

  74. Gravatar of dwb dwb
    15. April 2012 at 10:49

    @Brito,
    1 – I think you are making a logical error. There are (as you pointed out) *many* real channels for monetary policy. only one is the lending channel. Individually, perhaps many are small. 20 nickels still adds up to a dollar. The evidence is that in aggregate they are effective.

    2-there are lots of segments of the economy that are booming (oil and gas, agriculture), some that are merely experiencing slower growth that normal (health care, education), and others in recession (deregulated electricity -due to shale gas, owner-occupied housing). {Note that the rental market is very strong just now}. light car and truck sales are at their highest in over a decade despite high gas prices.

    its fine to focus on micro-level channels, but you cannot make a blanket statement: you have to cite specifics. Bank loans in real estate are low, but in oil and gas might be high (and some segments are less leveraged than real estate and less dependent on loans).

    3-I dont think anyone claimed that the “real” channel is the primary means through which QE works. In fact, i think the opposite: most economists think the largest effect is via expectations – signaling the Fed’s committment to close the output gap or tolerate somewhat higher inflation. There is lots of evidence that rates are very sensitive to news about when the Fed might start to raise rates.

    4- Perhaps each indivual channel is small. However the economy is growing at around a 4.5% clip, despite a general fiscal contraction (federal expenditures are flat, states are still cutting employment). I dont know how that happens if monetary policy is ineffective.

    5- The stock market rallies when it anticipates a higher probability of QE. Now, perhaps that is irrational because QE does not work (in which case its a big short opportunity) or perhaps QE works and its just a matter of size. I would say, though, that between the wealth effect, and the effect of miners/commodites/agriculture producers selling their output at higher prices due to those irrational hedge funds putting on the “Big Inflation Trade”, there is certainly “real” channel that can jump-start the process. and if they get loans to increase output and hire people…

    http://macroblog.typepad.com/macroblog/2012/03/why-we-debate.html

  75. Gravatar of dwb dwb
    15. April 2012 at 10:50

    here is another link to hamiltons blog

    http://www.econbrowser.com/archives/2012/04/the_recovery.html

    as i said, focus on actual empirical evidence which can be found in lots of places. The evidence IMO is overwhelming.

  76. Gravatar of Brito Brito
    15. April 2012 at 11:17

    dwb, you are indeed a worthy adversary. I’ll back down from this debate for now.

    I still think we should just cut out the middle man and do helicopter drops though (i.e. deficit spending financed by printed money).

  77. Gravatar of dwb dwb
    15. April 2012 at 12:31

    @Brito,
    its not me, the data is overwhelming. a couple years ago, i was pretty skeptical that QE would work (I was in the “sure lets try it but have a backup plan” camp). Now, if you follow the data its pretty clear, the only thing holding the FOMC back is the FOMC itself. Other “direct” money stimulus might work better like minting $2Tn of platinum coins, but if we can’t even get the hawks to agree to continue the existing modest measures no way they would agree to more direct means. you have to work within the framework you have not the one you wish you had.

  78. Gravatar of ssumner ssumner
    15. April 2012 at 12:31

    Brito, Supply-side stimulus is deflationary. Indeed that’s almost a definition of supply-side stimulus–deflation plus growth. And unless I’m mistaken all the Mishkin monetary channels are inflationary.

  79. Gravatar of J.V. Dubois J.V. Dubois
    16. April 2012 at 08:00

    I am late in discussion, but I am pretty sure that the claim “First, adjustments achieved through spending cuts are less recessionary than those achieved through tax increases.”

    Let Krugman speak “The alleged cases of expansionary austerity have, without exception, turned out to be bad examples, either involving cuts when the economy was booming or situations in which sharp interest rate declines and/or currency depreciations were the actual sources of expansion.”

    http://krugman.blogs.nytimes.com/2011/03/30/austerity-games-here-and-there/

    (there are more links in the article). I am pretty surprised to see a quite respected economist link to Alesina paper without addressing these serious issues that float the blogosphere for some time. You had to read it, as Alesina’s paper was No1 argument for fiscal austerity in Europe and it was widely discussed.

  80. Gravatar of ssumner ssumner
    16. April 2012 at 09:06

    JV, You misunderstood the sentence you quoted. He is saying that both types of austerity are contractionary, just that tax increases are more contractionary.

  81. Gravatar of J.V. Dubois J.V. Dubois
    17. April 2012 at 00:50

    Scott: I have the following problem with Alesina’s papers – he seems to have arbitrary definition of what recession is and he then claims correlation as causality. A cannot find an exact link, but I remember reading some response to the first Alesina paper that in OECD countries central banks were for some reason more accomodative to spending cuts then to tax raises. If this is true, you may suddenly claim those things about tax hikes/spending cuts.

    I am surprised because I would say that you would be among the first economist who would question this paper. If I read your blog right, than if in last 40 years we had no “zero bound” problem, then nothing that fiscal policy did could matter to aggregate demand (or recession) unless accommodated by the Central Bank. You may as well find correlation that for OECD countries during last 40 years tax hikes in winter seem to be more contractionary then tax hikes passed in summer.

    I do not say that it is impossible to have this kind of research. But it would require that researcher would identify those periods (in OECD countries during last 40 years) where central banks were “unable or unwiling” to “do something” and then we would have to compare tax hikes to spending cuts. Reading the last Alesins’s paper, I think that the probability of this kind of rigorous research is as likely as that of reading Trichet’s reserach on advantage of NGDP level targeting.

  82. Gravatar of Monetary vs. Fiscal Policy: What's at Stake? | Last Men and OverMen Monetary vs. Fiscal Policy: What's at Stake? | Last Men and OverMen
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