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Wednesday, April 10, 2013

Just When I thought it was safe to go back in Moneybox

I'm trying honestly I'm trying.  To avoid boring any possible hypothetical readers, I try not to read anything Matt Yglesias writes about monetary policy.  I  thought it was safe to read this post.

The Key Contrasts in the Budget Debate

OK budget, fiscal safe.  But nooo he has to slip something on monetary policy in the post.  My boring comment follows.

Sometimes I bore myself. Actually I often bore myself.  I have a rule to read nothing on monetary policy which is written here.  But with no warning you toss in an assertion about monetary policy in a discussion of fiscal policy with "I think it's difficult to gauge the real Federal Reserve policy response function and thus the ultimate impact of this difference" Here you assume (as always) that the zero lower bound doesn't matter and the issue is what the Fed chooses.  For the sake of argument, I concede that the Fed could counter the effects of the sequester.  It is easy to gauge that it won't.

The reason that my discussion of monetary policy is so heated, verbose and bitter is exactly this post.   Your faith in monetary policy affects your discussion of fiscal policy.  This effect is terrible.  I know you said we don't know but probably.  The point is that if the debate is " we are bankrupt and the deficit will eat your children " vs "we don't know but probably" then the austerians will win.

Our disagreement about how the Fed could stimulate should not cause either of us to forget that it won't do what we suggest.

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