The Senate has closed debate on its bill. What have “moderates” wrought? Figures 1 and 2 depict the fiscal impulse arising from Senate and House bills, respectively.
Author Archives: Menzie Chinn
What Are These Three Numbers?
Here is a bar chart of three figures. What are they?
Figure 1: Costs, in billions of dollars.
The Employment Situation in January
Looks pretty bad to me — especially after taking into account downward revisions for December. Not too good on the output side either.
Why Can’t We All Just Get Along? The Great Multiplier Debate
I’ve been thinking about why the numbers that are typically bandied about in policy circles (at least that I’m familiar with) have so little impact on the overall general and blogosphere debate (see some examples here and here). I think it’s part ideological, and part methodological. I can’t do much about the first (e.g., tax cuts good, spending on goods and services bad — unless on defense; or alternatively “let the market adjust no matter how long it takes”). But at least I can lay out why reasons why there is disagreement on the size of the multipliers.
Budget Surplus? Tax Cut! Budget Deficit? Tax Cut! High Energy Prices? Tax Cut! Deep Recession? More Tax Cuts!
I see a pattern. For some people, the answer to every question is…a tax cut! From WSJ on 29 January:
There’s a serious debate in this country as to how best to end the recession. The average recession will last five to 11 months; the average recovery will last six years. Recessions will end on their own if they’re left alone. What can make the recession worse is the wrong kind of government intervention.
The Consumption Collapse Continues
Jim covered the salient aspects of the 2008Q4 advance release in an earlier post. A few additional points: (i) exports for sure are not adding to growth, (ii) the positive contribution from decreasing imports does not augur well for future growth, and (iii) nonresidential investment has now followed residential investment with vigor. But the key point is consumption is now collapsing at a rate comparable to the 1980 recession…
Multipliers, again
From CBO Director Doug Elmendorf’s testimony yesterday, some numbers relevant to the ongoing debate over fiscal policy efficacy [1] [2]:
IMF: “World Growth Grinds to Virtual Halt…”
Well, that’s the IMF Survey title, describing the IMF’s World Economic Outlook.
HR 1 and the Fiscal Impulse over the next 20 months (and an instance of deja vu).
The CBO has posted an actual “cost estimate” on HR 1 (not just a partial examination of Division A, as explained in the Director’s Blog, the locus of great disinformation in previous discussions, as recounted by Dean Baker). Here is a graphical depiction of what CBO believes will be the impact on the deficit (once again, recalling that there is an explicit omission of repercussion effects on tax revenues and transfers that would arise from elevated aggregate demand; in other words, this is the estimated impact on the full employment budget balance).
Five Reasons Why Fiscal Policy Might Be Completely Ineffective: A Textbook Exposition
It’s been frustrating to me that so much virtual ink has been spilled about why the fiscal package will or will not be effective, with so little clarity. Lots and lots of words are being thrown around, [1] [2] when a lot of the arguments can be summarized pretty easily in terms of four cases, and hence four graphs (I won’t deal with the fifth, in detail). There are numerous excellent critiques; here in the interest of specificity, the exposition will be fairly dense.
1. With prices predetermined, the interest sensitivity of money demand is zero, or the income sensitivity of money demand is infinite.
2. With prices predetermined, the interest sensitivity of investment or the sensitivity of net exports to interest rates are infinite.
3. With prices predetermined, the sensitivity of money demand to wealth is high.
4. Output is at full employment levels.
5. Neo-Ricardian equivalence, as put forward by Barro, holds.