Don’t Be Fooled


In a post today, Matthew Yglesias practices his religion:

And when the jobs are right here, suddenly the data—which makes it perfectly clear that ARRA is playing a large role in supporting employment—will start to get the place they deserve in the narrative.

There are two things wrong with this. The data he cites is probably from places like Macroeconomic Advisers, Moody’s Economy, and the CBO. What these organizations did was build a model with various assumptions about the interrelations between fiscal policy, monetary policy, and aggregate demand. When these models turned out to severely understate the impact of the ARRA, these organizations gathered the recent data, ran the models again, and (not surprisingly) came to the same conclusion. That is hardly “perfectly clear data”.

The second point is, supporting employment is not the point. The point is increasing aggregate demand, which is returning at a pace similar to liquidation. A mere positive jobs number is something I’m sure you will point to when you have the data — but it isn’t the proof that you claim.

At other times, when Yglesias is not reciting prayers from the General Theory, he recognizes that monetary policy has been too tight…and that it is not out of ammunition, and that it sets an implicit target that it wants to hit regardless of fiscal policy, and that monetary policy is much more powerful than fiscal policy…but then he slips into the doldrums of old-style Keynesianism, forgets all of this, and praises fiscal policy for things that it is not responsible for.

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One thought on “Don’t Be Fooled

  1. I think the overall point that should be putting ARRA in a good light is that it saved some jobs from disappearing. Sure, it didn’t increase AD that much, and can be argued not at all, and perhaps that was the point of ARRA but the few jobs that it did help keep kept people off unemployment insurance which is costly–better to have someone on the payroll doing something than on a payroll (UI) doing nothing.

    If anything, the damn thing kept people from being a bit more miserable than they would have been. Whether it was worth passing, I dunno… but I’d rather point towards the Fed’s unwillingness to do its job correctly–inaction–than anything else. Some people are mentioning that the Fed held recovery back but no one is REALLY talking about it as if something needs to be done about it.

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