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You cannot explain how the multiplier works. Because it doesn't.
I had explained how multiple works several times in this thread alone. You can't explain how it could not work. All you can is repeating that is doesn't.
It doesn't work because Gov't doesn't have money in the bank to spend on projects. It must coerce that money from somewhere.
Could I get that in English?
Everyone's money income is someone else's spending. When everyone is cutting his spending, everyone is getting less income.
Simple enough?
Only in a gross aggregate sense that doesn't have much to do with the real world, I guess.
Because when people pay debt, someone is collecting the money.
Could I get that in English?
Everyone's money income is someone else's spending. When everyone is cutting his spending, everyone is getting less income.
Simple enough?
You're completely ignoring monetary policy though. These kinds of arguments only apply when the central bank is fixing the size of the monetary base. If you want to talk about fiscal multipliers, you need to talk about why the central bank isn't offsetting demand shocks (such as from fiscal policy) as it usually does. Krugman brings up the liquidity trap - though that's ridiculous, and we can get into why if you're familiar with it- and without the liquidity trap argument we're back in the normal world where the fiscal multiplier is roughly zero. The only way fiscal policy is justifiable (and Krugman understands this) is if monetary policy can't do anything.
I had explained how multiple works several times in this thread alone. You can't explain how it could not work. All you can is repeating that is doesn't.
It doesn't work because Gov't doesn't have money in the bank to spend on projects. It must coerce that money from somewhere.
Yes, and that is the reason why stimulus works. Because when the economy is depressed, private sector has tons of cash, which is neither spent, nor invested. Banks and companies don't know what to do with it, so it is sitting idle, parked at the Fed.
Borrowing that cash (which private sector is happy to lend, look at the bond rates) and putting it to work is what the government can do to help the economy.
Everyone's money income is someone else's spending. When everyone is cutting his spending, everyone is getting less income.
Simple enough?
You're completely ignoring monetary policy though. These kinds of arguments only apply when the central bank is fixing the size of the monetary base. If you want to talk about fiscal multipliers, you need to talk about why the central bank isn't offsetting demand shocks (such as from fiscal policy) as it usually does. Krugman brings up the liquidity trap - though that's ridiculous, and we can get into why if you're familiar with it- and without the liquidity trap argument we're back in the normal world where the fiscal multiplier is roughly zero. The only way fiscal policy is justifiable (and Krugman understands this) is if monetary policy can't do anything.
Sure, I would love to hear why liquidity trap is ridiculous
http://www.nytimes.com/2011/10/25/b...-they-cant-profitably-use.html?pagewanted=all
It doesn't work because Gov't doesn't have money in the bank to spend on projects. It must coerce that money from somewhere.
Yes, and that is the reason why stimulus works. Because when the economy is depressed, private sector has tons of cash, which is neither spent, nor invested. Banks and companies don't know what to do with it, so it is sitting idle, parked at the Fed.
Borrowing that cash (which private sector is happy to lend, look at the bond rates) and putting it to work is what the government can do to help the economy.
Can you point to a case where a stimulus worked? Because this one failed, the several under FDR failed, the experience of Japan in the 90s was a fail. I can't think of a single case where a stimulus was successful.
Banks and companies certainly know what to do with cash. And investing it in Treasuries at 1% of 10 years isnt it.
Worked means restored the economy to some kind of health.Yes, and that is the reason why stimulus works. Because when the economy is depressed, private sector has tons of cash, which is neither spent, nor invested. Banks and companies don't know what to do with it, so it is sitting idle, parked at the Fed.
Borrowing that cash (which private sector is happy to lend, look at the bond rates) and putting it to work is what the government can do to help the economy.
Can you point to a case where a stimulus worked? Because this one failed, the several under FDR failed, the experience of Japan in the 90s was a fail. I can't think of a single case where a stimulus was successful.
Define "worked". As I showed to you, there is no way that any increase in spending would not help a depressed economy. But in order to completely pull the economy out of this quagmire the stimulus has to be big enough. WWII spending is the only one that I know of.
You're completely ignoring monetary policy though. These kinds of arguments only apply when the central bank is fixing the size of the monetary base. If you want to talk about fiscal multipliers, you need to talk about why the central bank isn't offsetting demand shocks (such as from fiscal policy) as it usually does. Krugman brings up the liquidity trap - though that's ridiculous, and we can get into why if you're familiar with it- and without the liquidity trap argument we're back in the normal world where the fiscal multiplier is roughly zero. The only way fiscal policy is justifiable (and Krugman understands this) is if monetary policy can't do anything.
Sure, I would love to hear why liquidity trap is ridiculous
http://www.nytimes.com/2011/10/25/b...-they-cant-profitably-use.html?pagewanted=all
I assume you've read Krugman (1998b), his paper establishing the liquidity trap in a DGE model? Go through and read it again but notice that the most immediate solution is just setting a level target.
http://web.mit.edu/krugman/www/bpea_jp.pdf
If you haven't read the paper, the basic gist is this: if expectations about the future price level are fixed, then any expansion of the monetary base in this period will just be held. If interest rates are stuck at zero, printing more money does nothing. Again, the key assumption is that expectations of the price level remain stuck. He fully acknowledges that if the central bank can credibly commit to tolerating a higher price level in the future, monetary expansion will in fact be able to affect output.
So then he concludes with the idea that if interest rates are stuck at zero, a "liquidity trap", then government should try to affect output with fiscal stimulus. Now to me it seems extremely obvious: no, the central bank can just level target and then it doesn't loose traction in a "liquidity trap".
I have no idea why on earth he would recommend fiscal stimulus rather than level targeting. Which do you think is easier: having congress organise and pass legislation for counter-cyclical spending every time interest rates hit zero (which they're likely to in all future recessions), or having the central bank do their fucking job?
Sure, I would love to hear why liquidity trap is ridiculous
http://www.nytimes.com/2011/10/25/b...-they-cant-profitably-use.html?pagewanted=all
I assume you've read Krugman (1998b), his paper establishing the liquidity trap in a DGE model? Go through and read it again but notice that the most immediate solution is just setting a level target.
http://web.mit.edu/krugman/www/bpea_jp.pdf
If you haven't read the paper, the basic gist is this: if expectations about the future price level are fixed, then any expansion of the monetary base in this period will just be held. If interest rates are stuck at zero, printing more money does nothing. Again, the key assumption is that expectations of the price level remain stuck. He fully acknowledges that if the central bank can credibly commit to tolerating a higher price level in the future, monetary expansion will in fact be able to affect output.
So then he concludes with the idea that if interest rates are stuck at zero, a "liquidity trap", then government should try to affect output with fiscal stimulus. Now to me it seems extremely obvious: no, the central bank can just level target and then it doesn't loose traction in a "liquidity trap".
I have no idea why on earth he would recommend fiscal stimulus rather than level targeting. Which do you think is easier: having congress organise and pass legislation for counter-cyclical spending every time interest rates hit zero (which they're likely to in all future recessions), or having the central bank do their fucking job?
Well, first let me say that I completely agree with you -- the Fed must do its fucking job. But there problems:
1) The Fed does not do its fucking job. And, as Mankiw has put it, "If Chairman Bernanke ever suggested increasing inflation to, say, 4 percent, he would quickly return to being Professor Bernanke".
2) Why it has to be either stimulus, or inflation? And what if 4% inflation is not enough?
But, again, I agree completely -- 2% inflation is simply too low. This is not the first time we at zero lower bound. But since we are at 2%, we are in the liquidity trap.
putting it[idle money] to work is what the government can do to help the economy.
[. So if congress has to do something, isn't it clearly better to have them do the thing that only requires them to cooperate once?
it's that the central bank is unwilling to engage in expansionary monetary policy.
it's that the central bank is unwilling to engage in expansionary monetary policy.
you mean in liberal mal-investment soviet monetary policy.
it's that the central bank is unwilling to engage in expansionary monetary policy.
you mean in liberal mal-investment soviet monetary policy.
Shut your stupid face Edward. This conversation is for people with at least a cursory knowledge of economics. Tell your story walking.
you mean in liberal mal-investment soviet monetary policy.
Shut your stupid face Edward. This conversation is for people with at least a cursory knowledge of economics. Tell your story walking.
why are you so afraid to address what libertarians have for 100 years called mal-investment??? what does your fear tell you.
Shut your stupid face Edward. This conversation is for people with at least a cursory knowledge of economics. Tell your story walking.
why are you so afraid to address what libertarians have for 100 years called mal-investment??? what does your fear tell you.
Yeah, like I'm really going to engage you in conversation as if you were an adult capable of reason? Why don't you go hang our with your pals at Mises.org?
why are you so afraid to address what libertarians have for 100 years called mal-investment??? what does your fear tell you.
Yeah, like I'm really going to engage you in conversation as if you were an adult capable of reason? Why don't you go hang our with your pals at Mises.org?
Oddly, none of them want the Congress to turn over its responsibility to the Fed so the genius Fed can keep our GDP recession/depression proof forever!!
Oh wait they caused the current depression and of course had no idea it was coming.
"Chairman Ben Bernanke went to Capitol Hill today to provide Congress with an update on the struggling US economy. The Fed forecast he summarized called for very slow growth in 2008, but no recession; and that was the good news."
I assume you've read Krugman (1998b), his paper establishing the liquidity trap in a DGE model? Go through and read it again but notice that the most immediate solution is just setting a level target.
http://web.mit.edu/krugman/www/bpea_jp.pdf
If you haven't read the paper, the basic gist is this: if expectations about the future price level are fixed, then any expansion of the monetary base in this period will just be held. If interest rates are stuck at zero, printing more money does nothing. Again, the key assumption is that expectations of the price level remain stuck. He fully acknowledges that if the central bank can credibly commit to tolerating a higher price level in the future, monetary expansion will in fact be able to affect output.
So then he concludes with the idea that if interest rates are stuck at zero, a "liquidity trap", then government should try to affect output with fiscal stimulus. Now to me it seems extremely obvious: no, the central bank can just level target and then it doesn't loose traction in a "liquidity trap".
I have no idea why on earth he would recommend fiscal stimulus rather than level targeting. Which do you think is easier: having congress organise and pass legislation for counter-cyclical spending every time interest rates hit zero (which they're likely to in all future recessions), or having the central bank do their fucking job?
Well, first let me say that I completely agree with you -- the Fed must do its fucking job. But there problems:
1) The Fed does not do its fucking job. And, as Mankiw has put it, "If Chairman Bernanke ever suggested increasing inflation to, say, 4 percent, he would quickly return to being Professor Bernanke".
2) Why it has to be either stimulus, or inflation? And what if 4% inflation is not enough?
First off, the entire point of an independent central bank is that they're supposed to be insulated from that kind of political pressure.
Second, you don't have to raise the inflation target. I was talking about targeting the level. Specifically, targeting the level of nominal spending; which Krugman, among many others, have recently endorsed. We don't need to increase target rate of inflation, just return the level of nominal income back near its pre-recession trend line.
But, again, I agree completely -- 2% inflation is simply too low. This is not the first time we at zero lower bound. But since we are at 2%, we are in the liquidity trap.
Right but the point is that there's no such thing as "the liquidity trap". To quote Ben Bernanke, it's a "self-induced paralysis". It's not that monetary policy can't be expansionary at the zero lower bound, it's that the central bank is unwilling to engage in expansionary monetary policy.
Again, Krugman is in favour of NGDP level targeting. Yet he's still thrashing the point about fiscal stimulus. Does it make any sense to you (it certainly doesn't to me) that he insists on advocating fiscal stimulus? Fiscal stimulus requires the government to take consolidated action every time there is a recession. Congress has to agree on and successfully pass a stimulus package every recession. With NGDPLT, congress just has to pass an amendment to the Federal Reserve Act once, changing the Fed's mandate. In fact, the Fed can adopt level targeting voluntarily, but so far they're clearly unwilling to take necessary action. So if congress has to do something, isn't it clearly better to have them do the thing that only requires them to cooperate once?
What'd I just say?
Worked means restored the economy to some kind of health.
And no, no stimulus has ever done that.
