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Sunday, May 05, 2013

David Beckworth's wait just ended

Still waiting to hear from Keynesians why steadily growing agg demand despite fiscal tightening since 2010


David Beckworth said...


Thanks for your response. If you note the chart in my post shows the cyclically-adjusted or structural budget deficit as reported by the IMF Fiscal Monitor. It has gotten smaller since 2010. The shrinking of the structural budget deficit means fiscal policy has explicitly tightened--independent of business cycle influences on the budget--which in an economic slump should have a contractionary effect on AD. My point is that has not and that is because the Fed has offset it. This speaks both to the power of monetary policy, even at the ZLB, and to failure of monetary policy to do more.

Robert said...

My point is that no Keynesian says that the change of GDP is a valid measure of the effect of policy on GDP. Notably GDP tends to grow. This is not because fiscal or monetary policy is so much looser than it was 100 years ago.

Similarly, everyone who attempts to forecast GDP assumed that with neutral policy, GDP growth would be ususually fast from 2010 till now, because GDP was far below potential GDP.

If there is a puzzle to be explained by monetary policy, there should be someone who does not express disappointment in the pace of the recovery.

You might also search this blog for "straw man". You seem to have the impression that there are people who should admit that their prediction of GDP conditional on fiscal austerity was too low.

For all I know, there are such people, but is necessary to name and quote them at least is anyone (such as my humble self) asks who they might be.