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Tag Archives: fiscal stimulus

The lessons of Abenomics

With the recent resignation of Shinzo Abe, there have been a number of articles analyzing the record of Abenomics. There seems to be pretty general agreement on two points: 1. Japan’s economy improved after Abe took office at the beginning of 2013. Deflation came to an end, nominal GDP began rising, the public debt was brought under control, and unemployment fell to just over 2%. 2. The policy was not completely successful. Most notably, inflation continued to run...

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What if the economy does not tank in August?

In late July, there were increasingly frantic claims in the media that failure to enact another massive fiscal package would hurt the economy. I’ve pointed out that disposable income growth in 2020 has been astounding, and argued that a lack of fiscal stimulus is not the problem. So what will people say if the economy does not tank in August? One prediction I can make with near 100% certainty is that a continued recovery in August would not be viewed as evidence...

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Wasted ammunition?

The second quarter of this year saw what is probably the biggest fiscal stimulus in American history, in terms of increase in the budget deficit. And today we see the results: nominal GDP fell by 34.3% at an annual rate. That means the fiscal stimulus prevented a much bigger fall in GDP—right? Well, that might be true, but how would we know? We have models, but these models certainly don’t predict that NGDP would fall at a 34.3% rate in a quarter where disposable...

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The Nature of Intervention in the Liberal Order

Many critics may wonder how advocates of classical liberalism would have us respond in a crisis; it was the first question alluded to in a recent interview from Amy Willis with David Henderson. Friedrich Hayek observed “the range and variety of government action that is, at least in principle, reconcilable with a free system” is “considerable”. Cato’s Constitutional law fellow  William Yeatman provides near real-time examples amidst the COVID-19 pandemic (numerous...

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Hope springs eternal

[Before beginning, let me emphasize that this post is not discussing the use of government policy to provide income assistance for the unemployed. My focus is on the use of fiscal policy to boost aggregate demand.] During the current epidemic, we are seeing an avalanche of articles advocating the use of fiscal stimulus. At times the media/twitter/blogosphere gives the impression that only a fool would fail to see the rationale for giving every American $1000. In fact,...

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There’s never been a worse time for fiscal stimulus

We are now seeing renewed calls for fiscal stimulus. This is a terrible idea. Let’s start with proposals to build infrastructure. Boston recently shut down its entire construction industry, and other cities are likely to follow. Eventually, construction will once again be allowed. But at that point new projects will need to go through the environmental impact statement process, which takes many years. This sort of fiscal stimulus would likely occur long after the...

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Did the Promise of Fiscal Stimulus Just Pop the Bond Bubble?

Yesterday was “Reversal Tuesday.” Stocks rallied on the promise of government stimulus. The dollar and the bond market also turned around. In his podcast, Peter Schiff said the bond market was the one to watch because it’s possible that the promise of more stimulus could have finally pricked the overblown bond bubble.President Trump floated the idea of a payroll tax cut. There is also talk of bailouts for oil companies and other industries hit hard by the coronavirus, such as airlines and...

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Fiscal stimulus doesn’t require big government or budget deficits

In the Keynesian model, fiscal stimulus is measured by the change in the size of the budget deficit, or perhaps the change in the cyclically adjusted budget deficit. In that model, a shrinking budget surplus is every bit as expansionary as an increasing budget deficit.  Because it has nothing to do with “big government”, Keynesianism is neither “liberal” nor “conservative”. Hong Kong provides an interesting example.  A recent Bloomberg article shows the expected...

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Peter Schiff: The Most Reckless Combination of Monetary and Fiscal Policy in History

On Friday, all the major stock markets finished the week at weekly highs in record territory. Positive data on personal income and spending helped push stocks higher to close out the week. Everybody keeps cheering the “strong economy,” but during his podcast Friday, Peter Schiff said the in truth, the US economy is the biggest bubble ever. And it’s being driven by the most reckless combination of monetary and fiscal policy in history.Even as we got strong income and...

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