Ironman confirms the market monetarist model

Ironman left a comment over at MarginalRevolution:

The effect of spending cuts and tax hikes in Spain upon that nation’s GDP from 2011 to 2012.

The effect of spending cuts, tax hikes and QE in the U.S. upon its GDP from 2012-Q4 to 2013-Q1..

Same GDP fiscal multipliers in both cases (note that the multiplier for spending cuts is far less in magnitude than the multiplier for tax increases).  With those values, we obtained a near perfect matching of predicted outcomes with actual outcomes in both cases, both over a longer term (1 year for Spain) and in a shorter term (1 quarter for the U.S.).

Someone should tell Scott Sumner that we may have empirically demonstrated his point on the effectiveness of using monetary policy to counteract poor fiscal policies….

The first links shows Spanish GDP responding to austerity exactly as predicted by the Keynesian model.  In the second, US austerity has no impact.  The difference?  Monetary offset applied in the US, whereas Spain doesn’t have its own central bank.

Ironically, most of the countries that can benefit from fiscal stimulus are too broke to do it.

BTW, I don’t follow pop culture.  Is Ironman related to the Economist Hulk?

PS.  I don’t follow twitter, but reading the Hulk today I feel like he’s (she’s?) my alter ego.

PPS.  Marcus Nunes does a US/UK comparison—similar results.

 


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18 Responses to “Ironman confirms the market monetarist model”

  1. Gravatar of jknarr jknarr
    6. June 2013 at 09:41

    Spain is not broke by a long shot — they have plenty of unutilized capital and productivity just laying around.

    It’s their cojones that are broken.

    What would be so wrong about competing currencies in the eurozone, anyway? Reintroduce the peso, keep the EUR.

  2. Gravatar of Randomize Randomize
    6. June 2013 at 09:55

    Word on the street was that you are the hulk. Have you been experiencing any narcolepsy or violent, blogging-related nightmares?

  3. Gravatar of marcus nunes marcus nunes
    6. June 2013 at 10:32

    Scott
    I ‘confirmed’ the MM model a few days ago, not by contrasting The US and Spain but the US and the UK:
    http://thefaintofheart.wordpress.com/2013/05/21/monetary-policy-trumps-fiscal-policy-uk-vs-us/

  4. Gravatar of OhMy OhMy
    6. June 2013 at 11:37

    UK in recession, all of Eurozone in recession vs the US that had stimulus (now inflation and inflation expectations are falling here too http://economistsview.typepad.com/timduy/2013/06/falling-inflation-expectations.html ), IMF studies confirm sizable fiscal multipliers, so basically everything you have said is refuted.

    But “Ironman” comes to the rescue of market monetarism with 2 blog posts. Hurray.

  5. Gravatar of Saturos Saturos
    6. June 2013 at 11:54

    Scott, I know you live under a rock, but really: http://en.wikipedia.org/wiki/The_Avengers_(2012_film)

    It’s out on DVD now too, you should watch it with your daughter, great entertainment.

    AFAIK, however, “Economist Hulk” has nothing to do with Ironman or indeed Iron Man… though it makes a nice retirement scenario for Tony Stark, crankily tweeting about economics…

  6. Gravatar of Saturos Saturos
    6. June 2013 at 12:44

    Economist Hulk has this golden tweet: HULK SAY EU NOBEL PEACE PRIZE IRONIC CONSIDERING ONGOING WAR ON JOBS

    however he also says

    HULK WISH BOJ GOOD LUCK CO-ORDINATING EXPECTATIONS OF PUNY HUMANS WHO VIEW MON POLICY THROUGH LENS OF INTEREST RATES & THOSE WHO DON’T

    with which I’m not sure you’ll agree.

    Also, Frances Coppola has put up this “QE debate” site: http://qedebate.blogspot.co.uk

  7. Gravatar of Phil Phil
    6. June 2013 at 14:24

    Well my twitter handle is @ironeconomist, which is very much a homage to @economisthulk, but I started a new job and haven’t been very active and now there is a new MM commentator using my handle. Jarvis enraged.

  8. Gravatar of Phil Phil
    6. June 2013 at 14:27

    It seems certain that economist hulk is UK based. Wren-Lewis get tired of being so mild mannered?

  9. Gravatar of ssumner ssumner
    6. June 2013 at 14:41

    jknarr, Yes, bring back the peso. (Actually peseta?)

    Randomize. That would explain a lot.

    OhMy, The US has had just as much austerity as the eurozone, and more than Britain. (Check out Marcus’s post.) So why are we doing better?

    Saturos, Sorry, No time for action pics. I can’t be EconomistHulk–I’m not that funny.

    Phil, And he’s not funny enough either.

  10. Gravatar of Saturos Saturos
    6. June 2013 at 15:41

    Scott, there are more colorful characters on Twitter with an interest in your views: http://twitter.com/DrPhilofEconomi/status/342650779263434752

  11. Gravatar of Geoff Geoff
    6. June 2013 at 15:46

    You mean if someone can print their own money, they’ll suffer less on average than someone who has to produce and earn money?

    Is this the amazing insight of market monetarism? Say it ain’t so, Joe.

  12. Gravatar of ssumner ssumner
    6. June 2013 at 15:55

    Saturos, That’s cute. But I feel like I’ve already fallen below the zero bound, into negative utility. That’s not supposed to be possible with suicide as an option.

  13. Gravatar of W. Peden W. Peden
    6. June 2013 at 16:13

    Scott Sumner,

    “I feel like I’ve already fallen below the zero bound, into negative utility.”

    You may not be Economist Hulk funny, but you have your moments of greatness. I suspect I’ll be using puns focused around “negative interest rates” more often in the future.

  14. Gravatar of jknarr jknarr
    6. June 2013 at 16:15

    It’s pure optionality that’s keeping you afloat, then — a long volatility play.

  15. Gravatar of ssumner ssumner
    7. June 2013 at 06:17

    Thanks W. Peden and jknarr.

  16. Gravatar of Scott Freeland Scott Freeland
    7. June 2013 at 08:48

    Scott,

    I ask for a point of clarification with respect to your quote:
    “Ironically, most of the countries that can benefit from fiscal stimulus are too broke to do it.”

    You indicated previously that you think it’s possible for fiscal stimulus to work by increasing consumption taxes on the wealthy and cutting the employer side of payroll taxes. And, presumably, these things can be done in a way that’s debt neutral.

    So, might there be room then for some countries in the EMU to use fiscal stimulus? Obviously, if enough of them do it, the ECB might defend their implicit targets, but could, say, a small EMU country get away with it?

  17. Gravatar of 2013 HALF IRONMAN EAST LONDON 2013 HALF IRONMAN EAST LONDON
    7. June 2013 at 11:23

    […] TheMoneyIllusion » Ironman confirms the market monetarist model […]

  18. Gravatar of ssumner ssumner
    8. June 2013 at 06:47

    Scott, Yes, I’ve always favored supply-side fiscal reforms. When I say fiscal stimulus does not work, I am referring to demand side policies. I support supply side fiscal stimulus.

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