Scott Sumner posted a much better description of the nature of the arguments presented by fiscal advocates than the one I posted about Larry Summers’ advocacy of undertaking infrastructure projects to avoid what he terms “secular stagnation.”
Fiscal policy can’t really do anything in the AD/NGDP area. So what do people like Larry Summers mean when they talk about a preference for using fiscal policy? They aren’t advocating the use of fiscal policy to get the right level of NGDP growth; you… do that with monetary policy. They are not recommending that fiscal policy be used to attack unemployment, they are recommending that fiscal policy be used to attack the private sector. And that’s because they believe that when interest rates are low the private sector is not efficient, at least compared to the public sector.
So please don’t waste my time with silly arguments about the advantage of fiscal policy over monetary policy, unless you are advocating barter. Say you want fiscal policy because you think the economy needs more socialism and less capitalism. That[‘s] a perfectly respectable argument, so make it. Don’t beat around the bush.
And don’t call it fiscal stimulus either. Tax cuts are fiscal stimulus, and as you might have noticed almost all the Keynesians favored the tax increases Obama adopted a year ago. You don’t favor fiscal stimulus; you favor more government spending. And not transfers, those are tax cuts too. You favor more government OUTPUT. You’ve rejected neoliberalism, so say so.
The only thing I could do to improve it would be to add in my iteration that the Fed sets the level of AD/NGDP, i.e. sets the size of the nominal pie for a given year, and big government projects shift the allocation of the pie – meaning less growth for the private sector and more for government.
But I can always think of more, perhaps inert things, to add like the narcissistic approach in basically saying that capitalism is a failure, people can’t be trusted with money so they can’t have any after it was the conduct of atrocious monetary policy that brought us to this place. “Low interest rates are a sign that money has been tight.” Yet, government officials or those close to them blame the public for the effects of their obsession with headline inflation and willingness to throw the baby out with the bathwater to ensure that all prices stay below target regardless of the impacts to prices from acts of God or manmade disasters.
This proposal from Larry Summers is just adding insult to injury from the rest of the jumble of incoherent government economic policy, the effects of which are generally justified by politicos and bureaucrats alike: Government is good, the people are bad. It’s not archaic and dogmatic energy policy that is causing spikes in energy prices – no, it’s those SUVs, incandescent light bulbs, vampire charger devices, and idiots not letting their food cool before putting it in the fridge. No joke. Back in the 1970s when we had a similar energy problem government told people to let left over food cool before putting it in the fridge. Of course they wouldn’t do that now after an outbreak of foodborne illness – or would they? And in keeping with the program, it’s not monetary policy that’s bad – the people are bad.
Of course there several private responses that I utter when I see and hear these kinds of government fantasies playing out in the press, none of which I can repeat here. But I can say that they almost always involve a gesture that is formed with the middle finger.