"There's a big difference on blowing the budget to save the economy..."
Extraordinary claims require extraordinary evidence, my friend. If that's his claim he needs to do a much better job framing his argument (seeing the Cochrane essay I linked to yesterday). If it's not, then he's contradicting himself.
here http://www.princeton.edu/~pkrugman/optimalg.pdf
here http://krugman.blogs.nytimes.com/page/2/,
here http://krugman.blogs.nytimes.com/2009/11/10/depression-multipliers/
here http://krugman.blogs.nytimes.com/2009/09/30/does-unconventional-monetary-policy-solve-the-zero-bound-problem/
here http://krugman.blogs.nytimes.com/2009/09/29/the-true-fiscal-cost-of-stimulus/
He's not calling for a return to irresponsible tax cuts, but a one time (albeit massive) stimulus. There is a world of difference between a onetime increased fixed cost (stimulus) and a permanent cut in revenue (Bush tax cuts). One is a black swan, one time, sunk cost that can be paid down over time, and the other is actively digging the deficit hole annually.
There are so many problems with what Murphy is saying here I will list the differences rather than making readers suffer through my writing.
2009 stimulus: -Single fixed cost -Can be payed for with either taxes or inflation or some combination there of - Liquidity trap necessitates fiscal policy - Multipliers for fiscal spending are thought to be about 2, hence expansionary -Serious signals from the executive branch showing concern about the budget and attempts to reign in health care costs (whether or not you think the measure will work).
2003 tax cuts: -Systemic annual deficit -Payable only with inflation -No recession necessitates responsible spending - Multipliers for tax cuts are thought to be about 1.25 http://en.wikipedia.org/wiki/Fiscal_multiplier#Estimated_values (It should be noted that Barro disagrees with many economists) -Disregard for deficits and expansionary budget with no attempt to rein in spending ala starving the beast policies.
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"I've snipped out the parts about us being in a liquidity trap now (while we weren't back in 2003)."
ReplyDeleteContrary to Bob Murphy's belief that seems pretty important to me.
There's a big difference on blowing the budget to save the economy and blowing the budget to fight an ethically questionable vigilante war.
"There's a big difference on blowing the budget to save the economy..."
ReplyDeleteExtraordinary claims require extraordinary evidence, my friend. If that's his claim he needs to do a much better job framing his argument (seeing the Cochrane essay I linked to yesterday). If it's not, then he's contradicting himself.
Krugman's argument is framed:
ReplyDeletehere http://www.princeton.edu/~pkrugman/optimalg.pdf
here http://krugman.blogs.nytimes.com/page/2/,
here http://krugman.blogs.nytimes.com/2009/11/10/depression-multipliers/
here http://krugman.blogs.nytimes.com/2009/09/30/does-unconventional-monetary-policy-solve-the-zero-bound-problem/
here http://krugman.blogs.nytimes.com/2009/09/29/the-true-fiscal-cost-of-stimulus/
He's not calling for a return to irresponsible tax cuts, but a one time (albeit massive) stimulus. There is a world of difference between a onetime increased fixed cost (stimulus) and a permanent cut in revenue (Bush tax cuts). One is a black swan, one time, sunk cost that can be paid down over time, and the other is actively digging the deficit hole annually.
There are so many problems with what Murphy is saying here I will list the differences rather than making readers suffer through my writing.
2009 stimulus:
-Single fixed cost
-Can be payed for with either taxes or inflation or some combination there of
- Liquidity trap necessitates fiscal policy
- Multipliers for fiscal spending are thought to be about 2, hence expansionary
-Serious signals from the executive branch showing concern about the budget and attempts to reign in health care costs (whether or not you think the measure will work).
2003 tax cuts:
-Systemic annual deficit
-Payable only with inflation
-No recession necessitates responsible spending
- Multipliers for tax cuts are thought to be about 1.25 http://en.wikipedia.org/wiki/Fiscal_multiplier#Estimated_values (It should be noted that Barro disagrees with many economists)
-Disregard for deficits and expansionary budget with no attempt to rein in spending ala starving the beast policies.