tag:blogger.com,1999:blog-17232051.post3193083513549333113..comments2024-03-28T03:16:14.104-04:00Comments on Noahpinion: David Beckworth might be very wrong about the multiplierNoah Smithhttp://www.blogger.com/profile/09093917601641588575noreply@blogger.comBlogger46125tag:blogger.com,1999:blog-17232051.post-64054165194984130772012-12-11T22:35:47.564-05:002012-12-11T22:35:47.564-05:00Great Post!Great Post!TheArmoTraderhttp://jerrykhachoyan.comnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-53308361440738350432012-12-06T20:22:06.574-05:002012-12-06T20:22:06.574-05:00"Automatic stabilizers kick in immediately. H..."Automatic stabilizers kick in immediately. How much more rapid can a fiscal policy response be."<br /><br />Yes!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-69435347449300029072012-12-06T05:11:30.362-05:002012-12-06T05:11:30.362-05:00As an aside, the reason NGDP has failed in this in...As an aside, the reason NGDP has failed in this instance is because it treats the financialisation of the economy as real growth. Thus QE (in the various forms the Fed is using) works!<br /><br />Only out there in the real economy, it doesn't look so good...Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-78600059698292299912012-12-06T05:09:28.784-05:002012-12-06T05:09:28.784-05:00Surely what this really tells us, in the face of n...Surely what this really tells us, in the face of nasty unemployment figures and other things across the time span Beckworth graphs is that NGDP is actually a much less useful statistic than people think.<br /><br />After all, let's get this straight - according to Beckworth the years graphed show no evidence of the effects of a great recession at all, despite all the evidence out there in the real economy.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-66584760788250820132012-12-05T13:18:57.887-05:002012-12-05T13:18:57.887-05:00Here's a representative Krugman post from 2009...Here's a representative Krugman post from 2009 about why merely ending the recession via stimulus wasn't enough: you really need to close the output gap.<br /><br />http://krugman.blogs.nytimes.com/2009/08/24/picturing-purgatory/<br /><br />Krugman mostly predicted the end of stimulus would NOT result in a double dip, was worried that he might be wrong about that.<br /><br />http://krugman.blogs.nytimes.com/2009/12/01/double-dip-warning/<br /><br />By 2010, Krugman was all about the jobless recovery/output gap that echoes his first post above:<br /><br />http://krugman.blogs.nytimes.com/2010/01/08/payrolls-and-paradigms/<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-62006598275003234342012-12-05T12:51:46.643-05:002012-12-05T12:51:46.643-05:00@Sam
"For two years now Krugman has been cla...@Sam<br /><br />"For two years now Krugman has been claiming that we need fiscal stimulus now now now or else EUROPE! Double dip recession!"<br /><br />Sorry, but that isn't what Krugman has been claiming for two years. He's been claiming that without more fiscal stimulus will will not recover the lost ground ("output gap") and will have to be satisfied with high unemployment while growing at nearly the previous rate. He's also be claiming that if we enact fiscal austerity we will have EUROPE! Double dip recession!<br /><br />Google site:krugman.blogs.nytimes.com "output gap"<br />to see Krugman's actual position on the need for additional fiscal stimulus. He has repeatedly made the point that merely restoring the previous rate of growth is the problem. To really exit the recession, you need to restore GDP to what it would be if the recession had not occurred. Otherwise, you have to accept a permanently larger unemployment figure as the actual GDP line is parallel, but lower, than the pre-recession trend line.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-39309525477942915892012-12-05T12:12:17.216-05:002012-12-05T12:12:17.216-05:00Automatic stabilizers kick in immediately. How mu...Automatic stabilizers kick in immediately. How much more rapid can a fiscal policy response be. <br /><br />Beckworth is correct that fiscal policy can be held up by clueless politicians. This is why there are arguments in favor of infrastructure bank and other proposals on revenue sharing with States that would make the response of fiscal policy more rapid. Some fiscal policy UI is rapid. Other is slower than it needs to be. However, that is a problem with the politics, not a problem inherent to using fiscal policy.<br /><br />-jonny bakhoAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-75511986134525994812012-12-05T10:45:25.647-05:002012-12-05T10:45:25.647-05:00Sam
"For two years now Krugman has been clai...Sam<br /><br />"For two years now Krugman has been claiming that we need fiscal stimulus now now now or else EUROPE! Double dip recession!"<br /><br />No that's mischaracterizing what he and others are saying. They're saying that there's a job crisis with high unemployment and an annual output gap of one trillion dollars according to the CBO. He has argued we need fiscal (and monetary) stimulus to close the gap more quickly and bring unemployment down. Right now things are getting better at a snails pace (or going slightly sideways). It hasn't been worse because of fiscal policy. It hasn't been better because of the anti-fiscal policy of state and local governments.<br /><br />Krugman and others (like Yellen) have admitted to being surprised at the extent of the "downward rigidity of nominal wages." <br /><br />http://krugman.blogs.nytimes.com/2012/04/03/screw-your-analysis-to-the-sticky-point/Peterhttps://www.blogger.com/profile/08272747870634233567noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-14299473765487660042012-12-05T10:33:41.901-05:002012-12-05T10:33:41.901-05:00Krugman:
http://krugman.blogs.nytimes.com/2012/12...Krugman:<br /><br />http://krugman.blogs.nytimes.com/2012/12/05/evidence-in-macroeconomics/<br /><br />The "Sumner critique" seems pretty obvious. Say we had a dictatorship instead of executive and legislative branches, the dictator could target an inflation rate via fiscal policy. <br /><br />Given the example of the epic housing bubble and financial crisis here and in Europe, the data shows that private market and banks did a horrible job of giving out loans, managing risk and allocating resources. So I don't see one should prioritize stimulating demand via the banks and interest rates rather than via the government.Peterhttps://www.blogger.com/profile/08272747870634233567noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-85148326505753423672012-12-05T06:48:18.676-05:002012-12-05T06:48:18.676-05:00For those who enjoy sci fi
http://somethingclever...For those who enjoy sci fi<br /><br />http://somethingcleverish.blogspot.com/2012/12/starfleet-command.htmlAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-40163056767210658072012-12-05T05:56:50.611-05:002012-12-05T05:56:50.611-05:00Adding to Ben Johannson's comment, with which ...Adding to Ben Johannson's comment, with which I completely agree, note that government expenditures have actually been stable after 2009 -- the fall in expenditures/gdp reflects the increase in GDP one to one. Note also that government expenditures seem to have only increased in 2009, accompagnied by increasing growth rates. So if this graph could be interpreted as causal evidence at all (which it actually shouldn't), it is evidence in favor of a large fiscal multiplier, not against.<br /><br />Regarding the identification of fiscal stimulus effects, there is a nice recent literature using IV-strategies and cross-sectional variation to do just that. They usually find quite large fiscal multipliers in the region between 1.5 and 2. See Suarez-Serrato Wingender (http://www.jcsuarez.com/Files/Suarez_Serrato-Wingender-ELFM.pdf)for a particularly nice paper with a very credible identification strategy, and Wilson (http://ideas.repec.org/p/fip/fedfwp/2010-17.html) for estimates of the (job) fiscal multiplier from the ARRA stimulus package.<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-16254356320883953142012-12-05T00:39:47.426-05:002012-12-05T00:39:47.426-05:00Noah,
Good rebuttal. My first instinct after read...Noah,<br /><br />Good rebuttal. My first instinct after reading Beckworth's post was to create similar graphs for that time period displaying monetary policy. As expected, there is very little correlation between the MB or M2 and NGDP over the same time period. Even if the initial logic were correct, it seems the same logic would suggest monetary policy is ineffective. As you put it best, we must be careful of what we infer from these types of graphs.<br />http://bubblesandbusts.blogspot.com/2012/12/are-fiscal-and-monetary-policy-both.htmlAnonymoushttps://www.blogger.com/profile/00720722626969395929noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-16548909798273888522012-12-04T23:20:16.469-05:002012-12-04T23:20:16.469-05:00automatic stabilizers!automatic stabilizers!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-32140103556099518482012-12-04T16:45:35.587-05:002012-12-04T16:45:35.587-05:00One gets the impression Beckworth may not be famil...One gets the impression Beckworth may not be familiar with automatic stabilizers which do, in fact, change in real time in response to fluctutations in aggregate demand. As revenues fall stabilizers increase government outlays, and decrease outlays as revenues rise. <br /><br />Firstly there have been no large changes in either fiscal policy or deficits since 2009, with deficits having fallen only from $1.55 trillion to $1.39 trillion in four years. This is due to A) the stabilizers reducing outlays, and B) revenues rising as the private sector recovers.<br /><br />Secondly it is not useful to judge whether policy is contractionary by looking at the deficit as a percentage of GDP. The economy has been growing for three years, so deficits as a percentage of GDP would fall even if their absolute dollar quantities remained static. Beckworth's graph would lead one to believe we've been engaging in austerity even if the 2011 deficit were identical to the 2009 deficit to the penny, because growth has whittled away at the ratio.<br /><br />Basic macro: one cannot deterimine budgetary policy by observing budgetary outcomes. It is entitely possible to adopt expansionary policy while experiencing a contraction or vice versa. Beckworth's graphs drastically oversimplify the issue.<br /><br /><br /><br />Ben Johannsonnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-33624370749706871212012-12-04T16:32:50.312-05:002012-12-04T16:32:50.312-05:00Schlock and Eeeew.Schlock and Eeeew.Jazzbumpahttps://www.blogger.com/profile/07337490817307473659noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-3387830603447726912012-12-04T16:29:57.525-05:002012-12-04T16:29:57.525-05:00What makes something on the order of 4.2% a succes...What makes something on the order of 4.2% a success <br /><br />http://research.stlouisfed.org/fredgraph.png?g=dtF<br /><br />when the previous 2 decades, outside of recessions, often ran somewhere north of 6%?<br /><br />http://research.stlouisfed.org/fredgraph.png?g=dtG<br /><br />Is this the soft bias of low expectations?<br /><br />Jazzbumpahttps://www.blogger.com/profile/07337490817307473659noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-56679287503824965072012-12-04T16:15:17.156-05:002012-12-04T16:15:17.156-05:00CA makes good points.
I brought the data from thi...CA makes good points.<br /><br />I brought the data from this graph into an Excel spread sheet, and put best fit straight lines through the relatively straight, non-recessionary years of the 90's, naughts, and 10's. Clearly, the current recovery is at a much lower slope.<br /><br />http://research.stlouisfed.org/fredgraph.png?g=dtC<br /><br />The other think Krugman has argued form the very beginning is that the stimulus was too little and the portion going to tax cuts was wasted effort.<br /> Jazzbumpahttps://www.blogger.com/profile/07337490817307473659noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-78356856209967441252012-12-04T12:29:02.491-05:002012-12-04T12:29:02.491-05:00That's pretty harsh. Is this now going to be c...That's pretty harsh. Is this now going to be considered Schlock Doctrine?nanutehttps://www.blogger.com/profile/04526158764171117978noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-37393739444733853322012-12-04T12:08:52.348-05:002012-12-04T12:08:52.348-05:00@Sam
"But, if you look at the data, US growt...@Sam<br /><br />"But, if you look at the data, US growth has actually been doing pretty well notwithstanding our steady fiscal austerity."<br /><br />Pretty well? According to what standards? Usually NGDP grows faster than trend during a recovery, not slower like it has been.<br /><br />"despite the warnings of Keynesians, monetary authorities CAN offset the effect of contractionary fiscal policy, even at the ZLB."<br /><br />How exactly? With which policy? For example Steve Williamson, clearly a non Keynesian, is highly sceptical about the effectiveness of the tools the Fed has been employing. Here is more. (http://newmonetarism.blogspot.com/2012/06/more-on-unconventional-open-market.html) CAnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-82666955598558026642012-12-04T11:39:09.953-05:002012-12-04T11:39:09.953-05:00this is seriously schlock economics by Beckworth.
...this is seriously schlock economics by Beckworth.<br />For a more serious treatment, see Valerie Ramey's work.<br />Also, commentators failed to pick up Noah's key point, that macro aggregates may not be the most useful data.<br />Microfoundations 5 Schlock aggregate macro 0 (aet)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-12343248940035446582012-12-04T11:36:11.690-05:002012-12-04T11:36:11.690-05:00Please, David is really arguing that the Sumner cr...Please, David is really arguing that the Sumner critique is the dominant effect. It does not matter what the government does on fiscal, if monetary is active and "targeting" "something" nominal. <br /><br />4-5% NGDP consistently sounds like effectively targeting even if they say it as 2% inflation plus as much growth as possible. <br /><br />Noah's argument is really just trying to turn around the Sumner critique applied to this data to say fiscal could be really effective as in a high multiplier but its offset by opposite and effective monetary since they are sort of targeting. Of course, that's also right. However, fiscal is non-neutral in any way, shape, or form. Government decides who gets the benefits. Why won't Keynesians just admit this is why they like it. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-81547314112560037022012-12-04T10:14:01.538-05:002012-12-04T10:14:01.538-05:00Is 4-5% NGDP growth considered a "successful&...Is 4-5% NGDP growth considered a "successful" rate in this particular circumstance?Lee A. Arnoldhttp://www.youtube.com/user/leearnoldnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-30076916236058459392012-12-04T09:52:17.482-05:002012-12-04T09:52:17.482-05:00Also, if we have been able to sustain nominal spen...Also, if we have been able to sustain nominal spending growth rates at 4.5% despite unemployment levels between 8% and 9%, then I would say 4.5% is a vastly inadequate, way below capacity spending growth rate for our economy. This is one of the things that worry me about macroeconomists convincing our government to adopt some more-or-less arbitrary target number for spending growth.<br /><br />And the claim that NGDP growth has been where it is because of "the remarkable job" the Fed is doing is made without any supporting empirical evidence at all - as though there are only two possible causal factors that could contribute to spending growth: fiscal policy and central bank policy.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-21061159256640541812012-12-04T09:31:53.119-05:002012-12-04T09:31:53.119-05:00Don't a lot of fiscal policy responses occur a...Don't a lot of fiscal policy responses occur automatically? e.g. when the government stops sending people income, their taxes go down - sometimes even their tax rate - without any additional legislative action required. And when people lose private sector income, various kinds of fiscal support systems kick into action, again without any additional legislation required, or with only simple actions like extending the unemployment benefits.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-14700430836659883062012-12-04T07:33:36.545-05:002012-12-04T07:33:36.545-05:00@ Jazzbumpa
Yes, I did read Noah's post. I&#...@ Jazzbumpa<br /><br />Yes, I did read Noah's post. I'm no economist, so I'm probably either wrong or not explaining myself clearly.<br /><br />I don't disagree with Noah's basic argument that, on its own, the comparison of changing govt expenditures with NDGP growth does not conclusively prove the (in)effectiveness of fiscal policy. But, to my mind the data do disprove other people's stories about the effect of fiscal stimulus/austerity on the economy.<br /><br />For two years now Krugman has been claiming that we need fiscal stimulus now now now or else EUROPE! Double dip recession! <br /><br />Here's one example from 2010 about Krugman's hypothesis:<br /><br />Suppose you slash spending equal to 1 percent of GDP... if you do it in the face of an economy up against the zero bound, so that the Fed can’t offset the demand effects with lower rates, it’s going to shrink the economy.<br />http://krugman.blogs.nytimes.com/2010/07/07/self-defeating-austerity/<br /><br />Krugman uses an extreme example here, but his basic idea is that when you're at the ZLB, fiscal contraction will lead to economic contraction.<br /><br />But, if you look at the data, US growth has actually been doing pretty well notwithstanding our steady fiscal austerity. Krugman himself, in advance of the election, pointed out that the US economy was actually recovering pretty well, especially if you buy the "financial crisis recessions are always worse" argument that Reinhart & Rogoff have been making. <br /><br />Unless you buy Noah's obviously absurd expectations story (that the market has so much confidence in future actions of congress that it has priced in future fiscal stabilization policy), the most reasonable interpretation of this data is Beckworth's - that despite the warnings of Keynesians, monetary authorities CAN offset the effect of contractionary fiscal policy, even at the ZLB.<br /><br /><br /><br />Samhttps://www.blogger.com/profile/03796339415643845682noreply@blogger.com