Hoisted from 2011: Sumner actually knew higher than to do that, and actually should have restrained himself:

Scott Sumner: A Barely Off-Heart Perspective on Financial Issues: “They’re each mainly saying: ‘if we maintain nominal spending fixed, fiscal coverage can’t repair it.’… [I]t’s actually slightly unhappy when individuals like Krugman and Brad DeLong hold insisting that these guys don’t perceive primary macro rules…. I don’t know for certain that Fama was utilizing the identical implicit assumption… [but] I believe it fairly probably that Fama was additionally slicing corners…. A number of good individuals speaking previous one another…. Welcome to elite macroeconomics, circa 2011…. If I used to be going to assign blame I’d single out Krugman/DeLong for rudeness and Fama/Cochrane for poor communication expertise…

Me:

Economists’ Views of Fiscal Coverage: RetCon Division: The argument that Sumner attributes to Cochrane and Fama (and, wrongly, to Barro) will not be a coherent argument: should you say “if I assume that fiscal coverage doesn’t have an effect on nominal spending, then fiscal coverage doesn’t have an effect on nominal spending, and so I’ve proved my case” you have not made an argument in any respect….

A coherent argument must reach arguing each….

  1. Though the federal government is a really massive group that doesn’t must again every greenback of its spending by the identical quantity of transactions money cash as non-public households, when the federal government ramps up its spending the additional transactions money balances it wants to carry will result in an equal discount within the transactions money balances within the fingers of households….

  2. Though proper now short-term protected nominal rates of interest are zero and an ideal many households and companies are holding money as a protected financial savings automobile slightly than treating it as a part of their transactions money balances… bond gross sales by the Federal Reserve is not going to lead households and companies to swap out that money of their portfolio for Treasury bonds and so increase the transactions cash inventory.

Cochrane and Fama, in fact, don’t make both of these arguments convincingly. They don’t make both of these arguments in any respect….

And do recall the preliminary markers laid down by those that claimed that fiscal enlargement would don’t have any results in any respect:

John Cochrane: [That spending can spur the economy] will not be a part of what anyone has taught graduate college students because the 1960s. They’re fairy tales which have been proved false. It is vitally comforting in occasions of stress to return to the fairy tales we heard as youngsters but it surely doesn’t make them much less false…

John Cochrane: Most fiscal stimulus arguments undergo from three primary fallacies. First, if cash will not be going to be printed, it has to return from someplace. If the federal government borrows a greenback from you, that could be a greenback that you don’t spend, or that you don’t lend to an organization to spend on new funding. Each greenback of elevated authorities spending should correspond to 1 much less greenback of personal spending. Jobs created by stimulus spending are offset by jobs misplaced from the decline in non-public spending. We are able to construct roads as an alternative of factories, however fiscal stimulus can’t assist us to construct extra of each. That is simply accounting, and doesn’t want a fancy argument about “crowding out”…

John Cochrane: Suppose… individuals or banks… are pathologically sitting on money…. Suppose the federal government might [re]direct that cash to people who find themselves prepared to maintain spending it…. This isn’t a convincing evaluation of the current state of affairs nonetheless…

Eugene Fama: Authorities bailouts and stimulus plans appear engaging when there are idle assets – unemployment. Sadly, bailouts and stimulus plans are usually not a treatment. The issue is easy: bailouts and stimulus plans are funded by issuing extra authorities debt. (The cash should come from someplace!) The added debt absorbs financial savings that might in any other case go to personal funding. In the long run, regardless of the existence of idle assets, bailouts and stimulus plans don’t add to present assets in use. They only transfer assets from one use to a different…. A typical counter to my arguments about why stimulus plans do not work is to say that the present state of affairs is totally different. Particularly, the funding equal financial savings equation does not work as a result of savers presently choose to put money into low threat belongings like authorities bonds slightly than in doubtlessly productive however extra dangerous non-public funding tasks. In different phrases, there’s a “flight to high quality.” Sorry, however this can be a fallacy. A flight to high quality does increase the costs of much less dangerous belongings and decrease the costs of extra dangerous belongings. However when new financial savings are used to purchase authorities bonds, the individuals who offered the bonds should do one thing with the proceeds. In the long run, the brand new financial savings must work their approach via to new non-public funding, and equation (1) all the time holds.

Robert Lucas: Christina Romer–here’s what I believe occurred. It is her first day on the job and someone says, you have to provide you with an answer to this–in protection of this fiscal stimulus, which nobody advised her what it was going to be, and have it by Monday morning…. [I]t’s a really bare rationalization for insurance policies that had been already, , selected for different causes…. If we do construct the bridge by taking tax cash away from someone else, and utilizing that to pay the bridge builder–the guys who work on the bridge — then it is only a wash… there’s nothing to use a multiplier to. (Laughs.) You apply a multiplier to the bridge builders, then you have to apply the identical multiplier with a minus signal to the individuals you taxed to construct the bridge. After which taxing them later is not going to assist, we all know that…

In claiming that Cochrane and Fama had been actually solely making the tautological declare that “if we assume nominal GDP is mounted, fiscal coverage does not have an effect on nominal GDP”, Scott is retconing.

“Retcon” is brief for “retroactive continuity”: the traditional instance is Damian Cugley’s evaluation of the approaching collection Saga of the Swamp Factor, wherein a brand new difficulty revealed “info” that as much as that time “[were] not a part of the narrative and weren’t meant by earlier writers…. The revelation is that the [Swamp Thing’s] recollections are false and he isn’t who he thinks he’s…


#economicsgonewrong #fiscalpolicy #highlighted #hoistedfromthearchives #macro #mondaysmackdown #orangehairedbaboons