The fiscal multiplier is zero, example #211

Matt Yglesias has a great new post today showing that not only would the Fed be willing to sabotage Obama stimulus aimed at job creation, but some of the Obama appointees at the Fed would be willing to sabotage fiscal stimulus because of a perception that the job market is already doing fine:

If the Federal Reserve’s communications around what it’s doing with its quantitative easing programs have seemed unclear to you (and they sure have to me) then today’s John Hilsenrath story explains why””there’s no clarity because the FOMC is full of disagreement. Along with the usual chorus of QE-haters from a handful of regional banks, Hilsenrath reveals that Bush-era holdover Elizabeth Duke and Obama appointees Jeremy Stein and Jerome Powell are both deeply uncomfortable with the QE 3 strategy and have been consistently pushing for a quick exit.

At the same time, other members of the FOMC including Chairman Ben Bernanke seem to feel that the Fed ought to follow its legal mandate and engage in monetary easing at times of high unemployment and low inflation. I have to say that what considerations exactly lead Stein, Powell, and Duke to their view that the Fed ought to ignore its statutory mandate in favor of an ill-defined mission of bubble fighting have never quite been clear to me. One section of Hilsenrath’s report seemed especially distressing:

By April more officials, including the governors, were getting worried about terms like “QE-ternity” and “QE-infinity” floating around financial markets, which suggested some investors thought the program was boundless, according to people familiar with Fed discussions. The Fed officials thought the job market had made enough progress to warrant discussing an exit.

And people wondered how I could claim Summers would have been a hawk.  Are Summers’ views any different from those of Stein?

HT:  TravisV



14 Responses to “The fiscal multiplier is zero, example #211”

  1. Gravatar of TravisV TravisV
    8. October 2013 at 05:06

    It is a tremendous disappointment that, since 2009, Obama and other elite Democrats have failed to recognize the need for easier money year after year after year.

    Elite Republicans are even worse, however.

  2. Gravatar of Monetary Policy(makers) is clueless, not powerless | Historinhas Monetary Policy(makers) is clueless, not powerless | Historinhas
    8. October 2013 at 05:11

    […] Scott Sumner covers the same ground from Yglesias […]

  3. Gravatar of Vivian Darkbloom Vivian Darkbloom
    8. October 2013 at 05:16

    This is also a very good example of why the powers of Fed Chairman/woman are often overrated in the press and blogosphere. Members of the FOMC not only have the ability to block the Chairman’s preferred monetary policies, they can counter or at least blunt the messages he tries to signal to the public.

  4. Gravatar of @YoungEcon @YoungEcon
    8. October 2013 at 05:46

    I thought this was obvious by now. A good portion of the FOMC has been looking for a reason to bail. Any fiscal stimulus would be hard to resist as justification. I am not sold on a zero multiplier over all, but for the last six or so months I can’t imagine it being all that bigger than zero.

  5. Gravatar of kebko kebko
    8. October 2013 at 09:24

    Maybe the shutdown will end up being stimulative because the delay in economic data will push back the taper by a few months. (I’m joking, kind of)….

  6. Gravatar of Saturos Saturos
    8. October 2013 at 10:17

    This confusion in the FOMC wouldn’t exist if rates were above zero.

  7. Gravatar of Mark A. Sadowski Mark A. Sadowski
    8. October 2013 at 12:25

    Consider Credit Suisse’s most recent hawk-dove scale:

    Credit Suisse ranks Powell and Stein to the right of Bernanke. To get Duke’s ranking we have to look at last year’s scale since she resigned at the end of August:

    She was also ranked to Bernanke’s right.

    Obama’s three other nominees to the BOG are Raskin, Tarullo and Yellen. Raskin was ranked on Bernanke’s right last year (she’s since moved to the Treasury), and this year Tarullo is ranked on Bernanke’s right. Only Yellen is ranked to Bernanke’s left.

    So Obama has a record of picking four out of five nominees to the right of the Fed’s Chair, and allowing a sixth one who was to Bernanke’s right to sit beyond the expiration of her term.

    In fact if it weren’t for Chicago FRB President Evans and Boston FRB President Rosengren there wouldn’t be any FOMC members other than Yellen who have been consistently on the far left end of the hawk-dove scale.

    And with Duke’s resignation, Raskin’s move, and the very high likelihood of Bernanke’s resignation from the BOG given he will not be nominated for another term as Chair, this means Obama has three openings to fill, and given his record of past nominees it’s likely that all will be to Bernanke’s right on the hawk-dove scale.

    This is not change I can believe in.

  8. Gravatar of OhMy OhMy
    8. October 2013 at 12:30

    You don’t understand what a fiscal multiplier is, example #211.

    We will see how the Fed “offsets” the US default which GS says will trim a wholesome 4.2% of growth sending it deep into negative territory. It must be nice to be an academic.

  9. Gravatar of ssumner ssumner
    8. October 2013 at 13:12

    OhMy, Perhaps you missed my recent post where I said monetary offset doesn’t apply to default.

  10. Gravatar of benjamin cole benjamin cole
    8. October 2013 at 17:16

    Excellent blogging.
    The FOMC, by consistently undermining Fed guidance, has become a dangerous anachronism. Better a single Fed administrator appointed by the President serving under the Treasury Secy—that is better governance too.

    An independent Fed is a recipe for cloistered, insular policymaking. These guys are still jibber-jabbering about inflation…

  11. Gravatar of benjamin cole benjamin cole
    8. October 2013 at 17:23

    Oh! But I forgot! Another anti-QE argument has been made. QE is hyperinflationary, inert, makes bubbles, jobless recoveries, creates unquantifiable financial risks and…some observers have wondered if the program is boundless.
    Maybe we should terminate Departmdnt of Defense outlays—they seem boundless to me.

  12. Gravatar of ssumner ssumner
    8. October 2013 at 17:59

    Ben, Yes, Defense really is boundless—America has an inexhaustable supply of “enemies.”

  13. Gravatar of OhMy OhMy
    10. October 2013 at 11:15

    Ssumner, perhaps you missed that running a government surplus is a mini default.

  14. Gravatar of ssumner ssumner
    11. October 2013 at 11:22

    OhMy, Yup, I missed it.

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