The cumulative growth gap since January 2011 between the US and Wisconsin coincident indices was 2.2% in December. The forecast indicates a continued widening to 2.8% in six months time.
The output gap remains large, even as the external sector supports growth; this outcome is partly due to excessively rapid fiscal consolidation
“[I]n the aftermath of the financial crisis, U.S. policies and a dysfunctional international monetary system have paradoxically strengthened the dollar’s importance.”
Is growth really collapsing?
Expectations of central bank policies are only part of the story
“Tonight, we are laying out a plan to move Wisconsin further down the road to prosperity,” Governor Walker said. “Our friends and neighbors are going back to work and job creators are expanding their businesses. Thanks to sound fiscal management, I am proud to announce further tax relief for Wisconsinites and additional funding for worker training. We will continue to work diligently until everyone who wants a job can find a job.”
Contractionary fiscal policy is … contractionary
There has been some dispute over the robustness of the finding that countries that embarked upon fiscal contraction experienced lower growth. There’s also been some dispute over the proper time horizon (I used 2010-12 in this post.) Here I provide some additional information.
I’m writing a piece on recent thinking on fiscal policy efficacy, and in looking back at the debate over the American Recovery and Reinvestment Act, I read this choice comment from an Econbrowser reader in September 2009:
After today’s unemployment report, and in light of your past running blog fight with Posner, I’m thinking that Q3 GDP is going to come in much, much less than you would have predicted based on stimulus spending. You won’t take this as a repudiation of your multiplier theories, but I will.
From Ted Truman (former director of Int’l Finance at the Fed, former Ass’t Sec. Treasury), at Peterson Institute’s Real Time Economic Issues Watch, yesterday:
The impending congressional adoption this week of a $1.1 trillion appropriations bill has been hailed far and wide as a victory for sorely needed bipartisanship cooperation in Washington. Left out of the legislation, however, was an important but little understood and underappreciated proposal to implement reform at the International Monetary Fund (IMF). …