Update VII: It seems there is some confusion in Quiggin’s latest update – the Alesina paper was published in Economic Policy, not Economic papers. The editor of Economic Papers, Harry Clarke, writes,
John please correct the reference to Economic Papers – this rubbish would not be published there because I edit that.
Let’s have a look at ‘this rubbish’. The journal itself is ranked in here at 6th place amongst economics journals – that is probably on the high side – Economic papers is ranked 752. (It’s 33 on this list where Economic Papers isn’t listed at all). According to Harzing’s Publish or Perish the paper (Tales of fiscal adjustment) has been cited 387 times in the past 15 years. Alberto Alesina himself is ranked at 31 amongst academic economists. If Harry Clarke won’t publish that sort of stuff, maybe he should.
Update VI: Quiggin makes the argument that Economic Policy isn’t peer-reviewed in the normal sense because the journal doesn’t accept unsolicited papers.
I’ve always assumed that Economic Papers follows the standard practice in this respect, but Davidson is welcome to check it out, if he cares enough.
It is unusual for a journal to not accept unsolicited papers but that is a matter for the editors – here are their instructions to referees. Published papers have actually been through a peer-review process. Here are further instructions to the Editorial Panel.
Update V: John Quiggin carries on the debate in his AFR op-ed here.
Update IV: It gets better. John Quiggin promised to repost an earlier critique of Alesina’s work. It starts
I’ve just read ‘Tales of Fiscal Adjustment’ by Alesina and Ardagna, which appears to be the founding text for the idea of expansionary austerity.
That’s fine. But in the post that generated this exchange, he is talking about a different paper ‘Large changes in fiscal policy: taxes versus spending’ – that was the paper criticised by The Economist. The problem that still remains is this
But Alesina’s work is probably the most-refuted piece of economic analysis put out (though never published in a peer-reviewed journal) …
The Tales of Fiscal Adjustment paper was published in Economic Policy in 1998. As far as I’m aware that is a peer-reviewed journal.
Update III: Robert Carling emails his response.
We referred to Alesina’s work not because it is the only or last word on this topic, but because it is an example of a much larger literature in support of fiscal austerity. This literature has been drowned out in the media by people like Krugman. (Incidentally, I dislike the term ‘austerity’ in this context and only use it because it has become a popular label that conveys the substance behind it to more people than the more academic term ‘fiscal consolidation’, which I prefer.) We could also have cited the work of people like Barro and Taylor in support of our case, and theoretical arguments as well as the empirical evidence in which Alesina specialises. I am very well aware of what the IMF has said on this subject, and I could also quote from IMF publications over the years that have cast doubt on the efficacy of fiscal stimulus. I also know that just because the IMF says something doesn’t make it right. I also recognise nuances that we could not canvass in a 600 word newspaper article. One is that each country is unique and the arguments about fiscal consolidation have to be tweaked depending on country circumstances. Greece, for example, will suffer from fiscal consolidation, but that is partly the fault of the exchange rate straitjacket that they want to keep wearing, and their EU partners want them to keep wearing. What alternative does Greece have in the circumstances it is in? But in general I stand by our basic proposition that fiscal multipliers are much smaller than the advocates of stimulus and the opponents of consolidation seem to think.
Update II: John Quiggin responds here.
Update: Stephen Kirchner responds here.
****************************
Robert Carling and Stephen Kirchner had an op-ed in the AFR yesterday talking about ‘austerity’.
Harvard University economist Alberto Alesina and his co-authors have systematically studied every major episode of fiscal adjustment across the Organisation for Economic Co-operation and Development countries since 1980. They find that fiscal consolidations driven by reductions in government spending are as likely to be associated with high economic growth as fiscal expansions.
These findings are consistent with the estimates of economists such as Robert Barro and others that the multiplier effect from discretionary fiscal stimulus is small. These effects are symmetrical, implying that a fiscal consolidation need not have negative implications for economic growth.
That op-ed has generated a strange post from John Quiggin.
But Alesina’s work is probably the most-refuted piece of economic analysis put out (though never published in a peer-reviewed journal) in recent decades. It’s been demolished not only by the usual suspects like Krugman and DeLong (and me), but by the Economist, the IMF and even by one of Alesina’s own co-authors, Roberto Perotti.
So the paper in dispute is Large changes in fiscal policy: taxes versus spending (ungated earlier version here). Quiggin claims this paper was “never published in a peer-reviewed journal”. That is a strange claim to make. Alesina lists it on his “Recently Published Papers” web-page, while the NBER claims it was published in in “Tax Policy and the Economy, Volume 24 (2010), The University of Chicago Press”. Perhaps this (excellent) publication isn’t peer reviewed? So I had a look at the Jstor page for the journal.
Tax Policy and the Economy publishes current academic research findings on taxation and government spending that have both immediate bearing on policy debates and longer-term interest.
Edited by Jeffrey R. Brown and James M. Poterba.
That might be out of date – James Poterba no longer edits the journal. But you get the idea. It also lists the NBER Board of Directors – but what about peer-review? I found this under the instructions for authors before the paper is sent to the publishers (emphasis added).
Before a manuscript is transmitted to UCP, all negotiations between the journal office, peer reviewers, and authors with regard to its content, organization, etc. must have been resolved.
That would seem to suggest that there is a peer-review process.
I also downloaded a copy of the paper from the University Library system (for my own records anyway) and to ensure that both the Alesina and NBER were actually telling the truth. All up, as far as I can tell, the paper exists, the paper was published, and appears to have been peer-reviewed.
Then is it the most refuted piece of economic analysis in recent decades? Hard to tell – I google scholared the paper. Wow – 140 cites already; doing well for an unpublished, non-peer reviewed work. They can’t all be negative – the first is by Barro. Then what about being slagged by The Economist and
could they not have spent 30 seconds with Google before hitting “Send”? A search on Alesina+austerity reveals a torrent of criticism, none of which they mention.
Well I followed Quiggin’s advice and googled “Alesina+austerity”. The very first post is by Veronique de Rugy – likely to support the Alesina view.
Alesina himself responds to The Economist here.
The only fig-leaf that Quiggin has is
the work on which they relied was, at best, highly controversial.
Fancy that – cutting edge research into a highly politicised aspect of public policy is “controversial”. Does Quiggin think AFR readers are so dumb they wouldn’t realise that? Really?
So what are we to make of this?
It is hard to know which is worse – the possibility that Kirchner and Carling, presented by the CIS as expert economists, were ignorant of all this, or the alternative hypothesis that they knew it and decided not to mention it. Either way, it’s an appalling breach of elementary standards of research.
I’m pretty sure the facts have been brought to the attention of Kirchner and Carling. The honest thing to do would be to write to the Fin pointing out that the work on which they relied was, at best, highly controversial. If Kirchner, Carling and the CIS are unwilling to do this, we can draw the conclusion that they cannot be trusted in anything they write.
This is not an open invitation for people to launch into John Quiggin – excessively rude or OT comments will be culled.
I would have thought it pretty uncontroversial to argue that stimulus has pretty piss poor multipliers. All those people reducing debt in the face of uncertainty tend to reduce the performance of stimulus payments.
And has for the hackneyed ‘austerity’ meme, reducing the rate of growth in expenditure is a pretty strange definition of ‘austerity’.
Entropy
9 Feb 12 at 8:06 pm
Really, Sinclair? It would suggest to me the opposite. UCP is saying that any peer review process for a manuscript finishes before submission to UCP. The obvious conclusion is that there are no peer review negotiations once it has been submitted to UCP, and that UCP does not run any peer review process relating to the manuscript.
m0nty
9 Feb 12 at 8:15 pm
The publishers simply print the journal the editorial management is done via the NBER.
Sinclair Davidson
9 Feb 12 at 8:22 pm
John keynes was highly controversial too, was accepted toom, and then was rejected as an empirical failure.
you cannot pick and choose based on appeals to authority.
Jim Rose
9 Feb 12 at 8:30 pm
Just the ones who actually buy the AFR or think it is a pro business paper.
.
9 Feb 12 at 9:05 pm
You have just ruined our evening!
Peter Patton
9 Feb 12 at 9:08 pm
There are a lot of rent seekers and consultants to government who swoon over it…
Token
9 Feb 12 at 9:11 pm
Our Q!? He would say that, wouldn’t he….
JakartaJaap
9 Feb 12 at 9:11 pm
is any of quiggin’s own work ‘highly controversial’?
does that prevent him from citing his own work?
Jim Rose
9 Feb 12 at 9:39 pm
Swingeing cuts!
It is such a crock of shit.
.
9 Feb 12 at 9:46 pm
Typical Quigginesque response – a pronunciation based on assertion and anyone who disagrees is damned forever.
Talk about a totalitarian mindset!
I remember years ago his proclamation that Saddam Hussein ” never” had WMD and anyone who said otherwise was mad/bad/dishonest/delusional etc.
When it was pointed out that it was beyond dispute that Saddam had had WMD ( used on the Kurds) but that the conjecture was whether he STILL had them , he threw a fit, all the little followers faithfully repeated the chants and the thread was shut down.
A great intellect but short on tolerance for alternative views unfortunately.
Jim Toohey
9 Feb 12 at 9:46 pm
Quite perceptive Jim.
.
9 Feb 12 at 9:49 pm
As a young, naïve university student I loved Quiggin. Then I watch Gerry Jackson wipe the floor with him. Tat turned me into an “Austrian”. I now have no respect for Quiggin.
Annabelle
9 Feb 12 at 10:34 pm
I wouldn’t put too much store in Jackson – a gifted amateur at best.
Sinclair Davidson
10 Feb 12 at 6:53 am
How droll. A person who Barroed himself talking about fact checking.
Clearly Carling and Kirchner have never read The IMF.
This paper decimates the A&A paper, The methodology which biases its results, and its conclusioons.
It examines very closely 13 countries where they disagree with A&A and show where A&A are wrong.
One interesting part of A&A’s study is that they compared countires RELATIVE to OECD countries.
So if the country had negative growth but lower than that of 3/4 of OECD members then the policy was a success of expansionary austerity!!!
Austerity works in the two instances Keynes said it would.
1) when the domestic economy is going well ( such as here)
2) where there is a capacity to reduce interest rates and the exchange rate
As the IMF shows. It doesn’t work when the economy is slowing. It makes matters worse
On your Marx
10 Feb 12 at 9:34 am
[...] Sinclair Davidson at Catallaxy has a lengthy reply, but the sole substantive criticism is that contrary to my parenthetical remark, Alesina and [...]
John Quiggin » The zombie economics of austerity in Australia (updated)
10 Feb 12 at 12:14 pm
Seems to me JQ was jumping up and down on the spot doing a little tanty.
dakingisdead
10 Feb 12 at 1:04 pm
Kirchner’s response is very disappointing.
Unless he is able to refute the IMF paper he is dead in the water, like classical economics.
He has simply ignored it. That is telling in itself
He seems unaware that the BIS looked at four countries that the IMF examined.
It is the Perrotti paper that Quiggin writes about.
They found out the IMF made a mistake. The cuts in spending were much smaller than promised and the increases in taxation much larger as well.
On your Marx
10 Feb 12 at 4:09 pm
Thank goodness nobody here advocates classical economics!
wreckage
10 Feb 12 at 4:36 pm
On your Marx,
look closer to home: Australia and NZ imposed massive fiscal contractions from 1931 and had single figure unemployment rates by the mid-1930s, down from mid-20%.
Jim Rose
10 Feb 12 at 4:49 pm
on quiggin, his zombie book starts with an attack on the notion of a great moderation after 1983.
That is the most controversial part of his book because he is attacking such as widely accepted idea that is largely a matter of duelling statistics. No economics.
Would referring to his book as controversial because of this chapter promote the search for truth?
Quiggin is close to a minority of one, but going against the global professional consensus on economic history since 1983 should not count against him. Dissent sharpens the mind.
What is disappointing is a gifted dissenting economist is so quick to use arguments from authority during those fleeting moments when his part of ruling opinion.
Jim Rose
10 Feb 12 at 5:05 pm
what is “most refuted piece of economic analysis in recent decades?” an interesting question.
The topics of the writings of Lucas and Sargent in the 1970s would be start? The victims of the new classical macroeconomic revolution took it bad.
Public choice has a few scalps under its belt too.
Sam Peltzman and safety regulation?
Bork, Posner, Peltzman and Demsetz and the bleached-bones of the structure, conduct and performance paradigm?
Friedman and discretionary stabilisation policy?
Jim Rose
10 Feb 12 at 5:16 pm
the most most refuted piece of economic analysis in recent decades is the Stern Report? That was certianly not published in a refereed journal.
Jim Rose
10 Feb 12 at 5:20 pm
Jim,
I have dealt with that before.
Unemployment starting falling after the ‘massive’ devaluation not after the budget.
It is quite debatable on whether the 1931 budget was highly contractionary and you also have to examine the whole public sector.
Australia had unemployment rates consistent with an economy in recession.
the Unemployment rate in OZ was a lot higher than in NZ which had a change in policy in 1936.
On your Marx
10 Feb 12 at 5:24 pm
on your marx, the 1931 struggle over fiscal policy was enough to split the ALP?
Jim Rose
10 Feb 12 at 5:29 pm
on your marx,
your claims about Australian inter-war unemployment are not supported by data published in the 2001 yearbook of the Australian Bureau of Statistics (ABS).
The ABS data, which is graphed in http://www.abs.gov.au/AUSSTATS/abs@.nsf/Previousproducts/1301.0Feature%20Article142001?opendocument&tabname=Summary&prodno=1301.0&issue=2001&num=&view= show a rapid fall in the unemployment rate from 1932 to be below 10 per cent by 1937.
This was just after the 1931 Premiers’ Plan of fiscal consolidation.
Australian unemployment was 7.5 per cent in 1938, which is the long-term average for the period 1906 to 1929.
Eichengreen (1988) have suggested that excessive real wages aggravated 1930s unemployment in Australia.
In Golden Fetters (1992) Eichengreen argues that the rigidity of the Australian system of wage determination may have been to blame.
Australian trade unions covered 40 per cent of workers and there was extensive state and federal regulation of the wages of most other workers.
Jim Rose
10 Feb 12 at 5:35 pm
Reading Quiggin’s blog first, you get the impression that there has been some major miscarriage of justice. Now it seems like a silly over-reaction to the fact that op-eds have word limits and so can’t include a full lit review. Indeed, it almost looks like he’s finding reasons to *not* consider the underlying point at hand.
You provide a valuable community service on this blog Sincs. A positive externality, if you will. You should be subsidised.
John Humphreys
10 Feb 12 at 6:52 pm
Jim
look closer to home: Australia and NZ imposed massive fiscal contractions from 1931 and had single figure unemployment rates by the mid-1930s, down from mid-20%.
Expenditure cuts corresponded with big increases in unemployment. Australia did not have a severe financial crisis in the 30s. The depression here was largely driven by changes in the a terms of trade.
sdfc
10 Feb 12 at 7:18 pm
Jim,
Look at footnotes and you have not observed the graph very well.
Unemployment fell after the massive devaluation.
This caused a number of things:
1) Inflation replaced deflation
2) This meant Australia was rid of its liquidity trap
3) As a consequence interest rates were cut and were effective.
4) Real wages which increased in 1931 because deflation more than offset the cuts in nominal wages FELL.
5) There was a huge boost to the tradable sector.
Unemployment ranged between 8-11% prior to WW2.
It fell below 4% just after WW2.
you can have a struggle over fiscal policy without it being ‘highly contractionary’.
There are few papers on fiscal policy in the 30s. Of those who have estimated the structural side of the budget their estimates seem to be influenced by the economic cycle.
Until we get a better understnding on this we do not know how contractionary the 1931 budget was. Before the GFC we were unaware of what could happen to tax revenues. This is now providing more thought to estimating the structural side of the budget during the 1930s everywhere.
You are also ignoring State budgets as well.
On your Marx
11 Feb 12 at 11:55 am
Marx
Please stop referring to da liquidity trap. There’s no such thing.
So you/re suggesting there was no fiscal consolidation in the 30′s? Yes or no?
JC
11 Feb 12 at 12:01 pm
And Marx, stop referring to fucking footnotes. If you were that thorough you wouldn’t have been yanked off a bond desk.
JC
11 Feb 12 at 12:04 pm
no liquidity trap. Deflation occurs so what happens to interest rates?
No liquidity trap? Tell that to the Japs, Yanks etc
no liquidity trap. I wonder why Central Banks
The argument is over the fiscal contraction if you had read properly.
On your Marx
11 Feb 12 at 12:06 pm
So Japan had the longest period of growth ever without enough Government spending and they also had a liquidity trap.
You’ve just proved the superfluousness of active fiscal policy. Well done Homer, even though you are arse backwards and set out to do the exact opposite.
.
11 Feb 12 at 12:08 pm
You have not read very well.
If your had observed the graph then you would know growth occurred on the 2000s not the 90s.
I actually said that.
Perhaps if you write something after reading and observing it will prove fruitful for discussion.
A little example let us say rates are 5%.
If you have deflation of say 5% then:
you cannot cut rates below 0
2) real rates have risen
ergo liquidity trap as monetary policy is not working.
You have inflation of say 4%.
You can now cut rates if you wish and
real rates have fallen.
monetary policy is now working.
wella
On your Marx
11 Feb 12 at 12:37 pm
Doofus, there is no such thing as a liquidity trap. The US and Japan were never in a liquidity trap. In both countries there was a solvency issue in the banking system.
The CB can QE to unlimited levels if need be. Liquidity if purely a monetary issue which the CB can solve. It cannot be solved by spending.
Solvency is solved through balance sheet repair.
Only an idiot like you thinks it can be done through a lurch/rudd insulation fiasco, Homer.
Gladly.
Liquidity traps are a fig tree of your fervid imagination. In any event they cannot occur in a fiat regime, you ideological nimbus
WTF is that supposed to mean?
Fiscal contractions are necessary, smoothing can occur with the Central bank being accommodating.
Dickhead, why are we having this discussion? 10% deficits are unsustainable and fuck up economies for the long term.
JC
11 Feb 12 at 1:30 pm
Actually Homer I’m better read than you, my postgrad research degree is in economics not an MBA.
All the other facts I discussed were pertinent to this.
You are such a dope. The US experienced deflation AND negative real interest rates during 2009.
The temerity you display regarding your own ability to dig up facts is vomit inducing.
This is just fucking nonsense. Did you even see an IS LM diagram during your MBA course?
You are possibly the most whacked out insufferable moron I’ve ever met. Confusing haircare for viola?
Fuck me sideways.
.
11 Feb 12 at 1:43 pm
This is precisely what Clinton, Rubin and Greenspan did in the US during the 1990s.
Oh homey, only if you raed a little moer/1
.
11 Feb 12 at 1:44 pm
Absolutely and the economy took off.
JC
11 Feb 12 at 1:46 pm
Let me ask a simple question.
Didn’t the US stimulus fail on the US administration’s own accounting and modeling?
JC
15 Feb 12 at 12:29 pm
There are no rejoinders here.
Again we have is people ignoring the significant evidence to the contrary hoping everyone else does.
No discussion on why austerity has never worked when the economy slows.
Yes austerity does work well when the economy is growing as it did under Clinton. this was exactly Keynes’s point in 1937.
How anyone who claims to understand economics thinks this is comparable at all to the US at present is bewildering.
We have very clear unambiguous evidence from the IMF that reducing government expenditure will reduce GDP.
Now when the economy is growing this reduction can be offset by the private sector growing but in most cases examined by the IMF even this only happened after a lag where lower interest rates and an exchange rate occurred.
oh yes you can admit you got it wrong on Japan.
for a person with bad language you have shown what an actual liquidity trap is. Irony.
you cannot have deflation and negative real rates unless somehow you have negative nominal rates!
you can certainly draw that on an ISLM diagram but there is no point!
No liquidity traps in either Japan or the US. If you need interest rates lower than 0 but cannot cut below 0 then monetary policy is gone. This is what occurred in both countries.
yes a 10% deficit is unsustainable but if you adopt austerity then you make it worse. (This has actually happened in Europe!)
You need to marry a short-term and long-term solution together.
The Stimulus failed because it was too small.
It did not take into account the cuts by State and regional governments in the US. It did stop the rise in unemployment and brought about employment growth.
On your Marx
15 Feb 12 at 3:59 pm
I’m thinking of writing a book Zombie Economics is a Zombie. The ideas Quiggin supports in his book are the living dead.
I still haven’t seen anyone including Quiggin and On Your Marx address a fundamental issue:
If a fiscal stimulus is the right instrument, when do you stop? What should a government do if an economy continues in recession after a first, second, third (etc) round of fiscal stimulus? Should the next round be even bigger? Does the size of sovereign debt matter?
On the contrary, all examples of sovereign failures (from Ancient Rome onwards) have been examples of the State losing control of its finances.
It is a repeated game. Since there must – by definition – be a limit to the size and scope of fiscal stimulus, then Governments are limited in their scope to pursue such policies. Hence even if one argues in favour of a stimulus (which I don’t – I think they are counterproductive) then one must also acknowledge that it might fail. And if it fails, the State will be one step closer to the point where it is impossible to continue a stimulus. Thus a fiscal stimulus has an additional cost not reckoned by its proponents.
Samuel J
15 Feb 12 at 6:02 pm
Sorry – too many italics in the last comment
[Fixed. Sinc]
Samuel J
15 Feb 12 at 6:04 pm
Enjoying the argument & invective directed at OYMarx. Anyone with Marx in their monniker deserves all the invective they get. On the upside, the only reason I am in this wonderful country is because my father escaped the despotic oppression of Euro trash Marxists. Your very name, Marx, insults the memory of my family members who were killed by the ideological idiocy unleashed by Marx. Oh and your economic logic is consistent with that of Marx, i.e. Illogical.
John Comnenus
15 Feb 12 at 6:33 pm
Yes there are. You missed them.
Oh? And the evidence is sitting where? The last time you were on another thread peddling crakery you suggested the IMF offered proof, but this so-called voice of authority was hardly a bit player. It helped lead the charge for stimulus.
Yes it has, plenty of times. However we haven’t experienced these levels of deficit before, you crank. Yes, the pain in getting it back to square is going to be felt more so than when deficits were smaller at 3.5% for instance like during Clinton’s time.
The US economy is growing now too, yet you’re suggesting it’s too hard to bring down the deficit. Get your story straight you moron.
Oh why? Is that because the deficit is bigger?
The IMF is not an uninterested player in this. The IMF was also the organization suggesting that the world economy would be growing at a regular pace back in early 08, only a few months before the wheels fell off. Great, great call.
You don’t need a fall in the exchange rate. You certainly don’t want to be tampering with the float. If an economy requires monetary assistance it can be provided through quantitative easing. Homer , you’re back in the 30′s still thinking exchange rates are locked in and don’t understand the float, you imbecile.
Because Keynesian Posen says so. Bullshit
The irony is the fact you’ve managed to tumble back here posting 3rd rate crap and that you have no idea about economics.
That’s a meaningless comment and completely out of context. There is no such thing as a liquidity trap in a fiat world with floating exchange rates, you moron.
You can of course have solvency and liquidity issues. The central bank can take care of liquidity problems as Bagehot so ably explined and capital markets through recapitalization take care of the former.
Are you deranged? The Chairman of the Federal Reserve has said they have more tools at their disposal at zero bound. Even Krugman to his eternal embarrassment has admitted this to be the case.
Collapse will be even worse, which is what you end up with with deficit levels of 10% and no plan to quickly cut it back, you eggnog.
Europe’s problems are structural as the Central bank wasn’t QEing before December’s 3 year repo operation.
That’s not what the administration’s economic modeling said, you ignorant twit. It got exactly how much stimulus it wanted. They were happy with the amount. It failed and failed big time.
Yes it did. You’re lying. Most of the stimulus went to state and local governments to help fund overpaid public sector workers.
No it didn’t. You’re lying. The government’s own modeling told them that unemployment would go higher than a certain figure and it did.
Homer, you are a filthy dishonest person.
JC
15 Feb 12 at 10:54 pm
OYM: “yes a 10% deficit is unsustainable but if you adopt austerity then you make it worse.”
If it is unsustainable, it must be reduced. If it is reduced, that is austerity, according to the ridiculous definition adopted by JQ, you and other leftist loonies.
Therefore, according to you, there is no choice except to “make it worse” whatever that means.
Mother Hubbard's Dog
16 Feb 12 at 7:33 am
Dig up, stupid!
.
16 Feb 12 at 8:04 am
No there has NO rejoinders at the IMF paper ( or the BIS one for that matter.)
Yes the IMF ( and BIS ) paper were linked but whether people here would understand them is highly debatable.
They show problems in methodology and in 13 examples show how A&A got it wrong.
This shows up the similarities between people here and the old commies of yesteryear.
Ignore the evidence, ideology is pure and unbroken.We continue to believe in it.
We can see this in Mr Davidson’s limp defence.
No you can criticise the IMF all you wish but unless you show up where they had errors it merely shows up your lack of understnding.
More evidence you have not even read anything.
The examples of countries lowering the exchange rates were countries that had fixed exchange rates at the time!
no Posen shows that ACTUAL statistics you know GDP and the government fiscal stimulus or lack of it. It was austerity that lead to high Government defcits, low growth and increased debt.
Your problem and that of people here is that you reject evidence. This is actually more proof you believe in fairy tales.
No liquidity traps?
If there were not one they would cut interest rates even more. They cannot cut rates anymore indeed the only reason a CB uses QE is BECAUSE of a liquidity trap! ( Even Greg Mankiw realises there is one)
Actually there are a number of studies that show the States and regional governments offset most but not all of the Federal Stimulus. I have actually linked them. It is not surprising you have not read them , It is also understandable you do not understand that the economic assumptions behind the stimulus were too optimistic.
I would just like to end that it is extraordinary that a person who claims to have studied economics does not understand deflation raises real rates.
Indeed he then without a shred of evidence (a very common state here) claimed real rates fell under deflation in the US.
He made this claim without realising this would mean nominal rates would have to be negative!
no-one here picked up this nonsense
MHD,
If you adopt austerity when the economy is slowing then the budget gets worse not better.
This has happened in Europe.
you need growth for the budget ( and debt ) to improve.
That is why you need both a short-term and a long-term plan.
After All if the economy worked just like people claim it does then there would be no European problem and Greece would be rocketing upwards.
It is always a shame when reality gets in the way of fairy stories.
On your Marx
16 Feb 12 at 9:42 am
I think the simple solution is to forbid government the use of debt. At all. Ever. For any circumstance. Constitutionally.
Government is the basis of order. It should not be taking on risk. It should not be beholden to financial interests.
Government is there to set the field, not to make the plays. We developed this thing called the ‘company’ as a suitable vessel for carrying out risk within. Leave the risk there.
Driftforge
16 Feb 12 at 10:03 am
Greece needs to default, suck it up, and move on.
Driftforge
16 Feb 12 at 10:04 am
WSJ-Europe Editorial by Brian M. Carney
Fear and Loathing In Athens
About one-third of the Greek work force is now in the public sector, and the government has proven unable to boost tax collections.
“For years, Greece has been living beyond its means, engaged in a kind of accidental experiment in Keynesianism on steroids: Overpaid public employees helped lift the income of the entire country for years, their paychecks covered by money borrowed cheaply from abroad after Greece’s entry into the euro in 2001.
This borrowed money, which also went to support the incomes of those on unemployment or state pensions, drove up demand without increasing productivity or production in Greece. Rather, it had something of the opposite effect by driving up wages across the economy and creating an illusory sort of prosperity.
Between 2000 and 2008, Greece’s nominal private-sector labor costs rose an astonishing 62%, compared to 15% in Germany over the same period. And that income was only one side of the ledger—the other half was the debt that Greece is now desperately trying to shed.
Politically, Greece’s problem is that the population still doesn’t understand the extent to which economic activity in recent years was driven by the government spending borrowed money. At the time, the borrowing was largely invisible because the average Greek didn’t bear the cost—and until late 2009 the government was covering up the extent of its borrowing. But now the end of the party is all too visible and painful.
The Greeks burning down shops and breaking windows feel they’re having something taken away from them. But they have the wrong baseline. The reality is that for years they enjoyed a prosperity they borrowed rather than earned. The come-down from that was never going to be easy. As government stimulus is withdrawn, incomes will have to fall or productivity to rise to make up the difference.
More than anything else, the percentage of Greeks employed by the state, rather than by the private sector, will have to fall dramatically. About one-third of the Greek work force is now in the public sector, and everyone else in the country has to work that much harder, or pay more in taxes, to support those payrolls. Since the Greek state has proved incapable of increasing its tax collection throughout this crisis, it’s unlikely that it will ever bring in enough to pay all those civil servants—that’s why it was borrowing so heavily in the first place.”
Eggsactly
JamesK
16 Feb 12 at 11:22 am
NYT unwittingly indicts the leftism it peddles:
Well worth a read
Even Critics of Safety Net Increasingly Depend on It
“Ki Gulbranson owns a logo apparel shop, deals in jewelry on the side and referees youth soccer games. He makes about $39,000 a year and wants you to know that he does not need any help from the federal government.
He says that too many Americans lean on taxpayers rather than living within their means. He supports politicians who promise to cut government spending. In 2010, he printed T-shirts for the Tea Party campaign of a neighbor, Chip Cravaack, who ousted this region’s long-serving Democratic congressman.
Yet this year, as in each of the past three years, Mr. Gulbranson, 57, is counting on a payment of several thousand dollars from the federal government, a subsidy for working families called the earned-income tax credit. He has signed up his three school-age children to eat free breakfast and lunch at federal expense. And Medicare paid for his mother, 88, to have hip surgery twice.
There is little poverty here in Chisago County, northeast of Minneapolis, where cheap housing for commuters is gradually replacing farmland. But Mr. Gulbranson and many other residents who describe themselves as self-sufficient members of the American middle class and as opponents of government largess are drawing more deeply on that government with each passing year.
Dozens of benefits programs provided an average of $6,583 for each man, woman and child in the county in 2009, a 69 percent increase from 2000 after adjusting for inflation. In Chisago, and across the nation, the government now provides almost $1 in benefits for every $4 in other income.
Older people get most of the benefits, primarily through Social Security and Medicare, but aid for the rest of the population has increased about as quickly through programs for the disabled, the unemployed, veterans and children.
The government safety net was created to keep Americans from abject poverty, but the poorest households no longer receive a majority of government benefits. A secondary mission has gradually become primary: maintaining the middle class from childhood through retirement.”
JamesK
16 Feb 12 at 11:33 am
It’s not that no one would understand them, you failure, it’s that no one could be bothered reading the same old shit from failed public servants pushing shit uphill.
Homer,
I can’t even be bothered fisking your useless crap today. Go away,
JC
16 Feb 12 at 11:50 am
“They cannot cut rates anymore indeed the only reason a CB uses QE is BECAUSE of a liquidity trap!”
But from this sentence you agree that QE counteracts what you are referring to as a liquidity trap (via decreasing the value of the currency causing inflation), yes?
It isn’t a “trap” if there is a way out of it. Its a bit like arguing interest rates wont fall if you don’t affect the money supply – true, but there’s ways around that…
Oh and PS – QE also causes a devaluation in currency, (all other things being equal). You’ve left that out of your analysis, as previously pointed out.
James
16 Feb 12 at 2:38 pm
Re Greece, interesting quote from Financial Times
“What government suffered from most was a lack of technology and human-resource management. There was no computerised budget management; social security
records and property rolls were maintained manually; sharing of routine data or work assignments across ministries was almost non-existent.”
Feb 15 “A personal journey to the heart of Greece’s darkness” Richard Parker
Incompetence, like evil, is banal.
Thomas Esmond Knox
16 Feb 12 at 5:21 pm
Actually for once, JQ is right, Say’s law will not help Greece. Creating massive unemployment will increase labour supply, but from whence will it create the demand for them workshy twerps to work for the first time in their lives?
Tim Curtin
16 Feb 12 at 11:26 pm
One cannot fisk when one has been demolished nor when you clearly have no idea of the evidence.Hiding in ignorance is pretty poor form.
The IMF found the standard method used to identify fiscal consolidation in the literature may bias the analysis toward finding support for the expansionary austerity hypothesis.
Indeed we see evidence in the paper in the 13 cases it looks at where A&A get it wrong.
In Ireland for example in 2009 the government had fiscal consolidation measures that exceeded 4.7% of GDP but A&A ignored this because of their faulty methodology..
( The deficit increased so under the peculiar understanding here fiscal policy was expansionary!!)
no-one,
A&A, Kirchner , Carling or anyone here has come to terms with that.
They merely state other papers that support their case.
Thees papers use the same biased methodology.
No acknowledgement that Perrotti has completely changed his position.
Indeed he found that increaed taxation does not have the consequences he and the IMF previously thought.
So like the Communists of the past people here just kepp on ignoring the evidence.
On your Marx
17 Feb 12 at 10:32 am
Quiggin is clutching at straws. The basis on which papers are selected or invited has nothing to do with the review process.
Annabelle
17 Feb 12 at 10:52 am
The solution to a recession is to allow a depreciation.It is denied to Greece so long as it remains in the Euro.The policy should also be combined with “fiscal austerity”-government borrowing pushes the exchange tate up.Moreover,there are long-term reasons to reduce debt.
In the 1930′s Australia benefited from these policies and from a cut in nominal wages.The reason that unemployment didn’t fall further was the sharp increase in tarriffs that occurred at the beginning of the depression.Krugman has suggested increased tarriffs!
Tom Valentine
17 Feb 12 at 10:59 am
WTF does this phrase mean? Speak English Homer.
No. The methodology is standard and the RESULTS are that austerity works, yet the IMF has the temerity to call this result “bias”. Dishonest, gutless turds who can’t say no to a politicised research manager.
You are trying to redefine terms after being brutally battered in a previous discussion about Ireland.
We’re not going to acquiesce to the brain dead faction of the left because they lost and want to redefine terms. Jam it, buddy.
Cite some evidence dickhead.
Like a Lysenkoist, you keep on doctoring evidence.
.
17 Feb 12 at 11:04 am
Well you would know what the expression meant if you actually read something.
Like communists of old you wish to cast aspersions on the writers.
You have no idea what bias was in A&A’s papers or previous papers. Well you would if you read
I have had no previous discussion of Ireland but Ireland has tried not one but THREE fiscal consolidations.
Only one worked.
It worked because the conditions Keynes said needed to be there were there.
Unfortunately for people like you , you cannot explain why they were unsuccessful in the early 80s nor now.
Instead what do we have. Bad language and ignorant understanding of the subject and the use of extreme inaccurate hyperbole describing the authors.
I have already cited Perrotti which is something you rarely do.
Pray tell show the doctoring of evidence.
I have noticed you are full of accusations but empty of any evidence.
It continues.
This is all quite funny coming from a person who got completely confused about deflation and real rates.
by the way I should thank you for proving a very good example of how old style Communists thought.
On your Marx
17 Feb 12 at 12:18 pm
No, you don’t. You take your talking points from Krugman and troll here. The quality of journals you read is the Zimbabwean Quarterly Journal of Monetary Economics. Or anything that spruiks stimulus.
Previously you said there was a methodological flaw, now you are just saying it is biased.
It is hilarious how you think Keynes is a logical tool for predication.
Now you are lying again and changing the goalposts once more. They didn’t have a contraction at first. They had an expansion. In the first instance you argued this was incorrect because the methodology is “biased” towards the result that austerity works!
You are just name dropping without any context.
You are just lying. I successfully rebutted sdfc’s arguments about the American stimulus by quoting ACTUAL inflation and market rates, which showed negative real rates AND deflation.
Sod off you miserable, dishonest cur.
.
17 Feb 12 at 1:36 pm
OYM, you say
MHD,
If you adopt austerity when the economy is slowing then the budget gets worse not better.
This has happened in Europe.
you need growth for the budget ( and debt ) to improve.
Mother Hubbard's Dog
17 Feb 12 at 3:12 pm
[...] this referencing of Quiggin’s discussion of Alesina’s work already on this site – here and here. But as I am heading off to a conference at the end of next week where I will be [...]
Expansionary Austerity and Alberto Alesina at Catallaxy Files
19 Mar 12 at 12:40 am
[...] IV: Remember when John Quiggin claimed that Alberto Alesina’s 20-year old work on economic austeri…. Well he is at it [...]
Starting off badly at Catallaxy Files
15 Mar 13 at 3:51 pm
Of course the economy initially drops away if you stop taking out debt and start paying it back.
Doesn’t mean it is the wrong thing to do; there are a hell of a lot worse outcome than a recession.
DriftForge
15 Mar 13 at 4:06 pm