Month: November 2014

…as opposed to simply rejecting Republicans…. Without a credible economic plan, the US left risks being little more than a rainbow coalition. This is the danger facing Mrs Clinton’s candidacy. It is possible–perhaps even likely–that Republicans will select a nominee who has alienated so many Americans that he will be unable to compete in a general election. It is also plausible that Mrs Clinton will appeal to enough women, Hispanics and others to ensure her electoral maths are prohibitive. That is the working theory. Unless Mrs Clinton can find a positive story to engage America’s middle classes it is the only one that is likely to work in practice….

Mrs Clinton’s network of donors are comfortable with social liberalism. The bulk of her money will come from places like Wall Street and Silicon Valley, which are either neutral or supportive on social issues. Their focus is on lower taxes and fewer regulations. Mrs Clinton’s challenge will be to square her donors’ priorities with America’s increasingly apolitical young voter…. Those who are unemployed want jobs. Those who have jobs want a pay rise. All that most will remember is eight lean years under President Barack Obama…. Mrs Clinton will need new ideas and new faces. Who they will be–and what they will advise–is anyone’s guess…. In the absence of new ones, Mrs Clinton’s bridge to the White House looks rickety.

Nicholas Bagley:
Three Words and the Future of the Affordable Care Act:
“Adler and Cannon have offered a strained interpretation of the ACA that…

…if accepted, would make a hash of other provisions… and undermine its stated purpose…. The more natural reading… [is that] the “by the State” language just reflects Congress’s assumption, unchallenged at the time, that the states would establish their own exchanges. But even if you think that Adler and Cannon’s claim is plausible… the contrary interpretation offered by the government is at least reasonable.

That brings me to the aspect of their argument that troubles me the most: their unyielding conviction that they’ve identified the only possible construction of the ACA. Nowhere do they so much as acknowledge the possibility that maybe, just maybe, they’re wrong. That’s because they can’t admit to doubt. Because of the deference extended to agency interpretation, doubt means they lose.

But their unwillingness even to acknowledge ambiguity reflects an important difference between legal advocacy and neutral interpretation…. The courts would violate their obligation of fidelity in statutory construction if they mistook [their legal] ingenuity for genuine obeisance to congressional will. The latest challenge to the ACA is political activism masquerading as statutory restraint.

Over at the Cato Institute:

The problem I have with such questions–with such “magic wands”–is that I am never sure just how powerful they are supposed to be.

Let me propose three, all of which are small scale in terms of policies but larger scale in that in order to become durable policies they do require, as John Adams said, changes “in the hearts and minds of our countrymen [and women]…”:

(1) A Federal Reserve committed to nominal GDP level targeting, with a trend growth rate in nominal GDP of 7%/year: In my view the question of the origin of “general gluts”–demand-side business cycles characterized by (i) insufficient demand for pretty much every currently-produced good and service, and (ii) positively- rather than negatively-correlated fluctuations relative to trend of prices and employment–was decisively and correctly answered by John Stuart Mill back in 1829. A general glut arises when if there is full employment workers, savers, and managers wish to hold more in the way of liquid cash and readily-collateralizable safe savings vehicles than the economy is supplying. READ MOAR

The private sector then cannot produce cash and savings vehicles believed to be safe by any means short of deploying huge amounts of labor and capital to the Witwatersrand to dig rocks, and cannot produce large quantities of cash and safe savings vehicles quickly in any event. Only those organizations whose solvency is not just certain, but of which it is common knowledge of the solvency is certain, can issue cash and safe savings vehicles. Others can only issue assets that are almost as good as cash until the tide goes out and you see how naked they are. And in a crisis of which institutions is it common knowledge that it is common knowledge that they are solvent?

When, if there is full employment, workers, savers, and managers wish to hold more in the way of liquid cash and readily-collateralizable safe savings vehicles than the economy is supplying everyone tries to build up their holdings by cutting their spending below their income. But since everyone’s income is other people’s spending that does not work. Employment, production, and incomes drop until workers, savers, and managers feel so poor that they no longer wish to build up their stocks of cash and safe savings vehicles. And the economy undergoes a “general glut”.

A well-functioning free-market economy thus requires more than just property rights cut at the joints to minimize externalities, Pigovian taxes and bounties levied to compensate for remaining externalities, tort laws, contract laws, police, and judges. It also requires a “neutral” monetary policy–i.e., one that matches the economy’s supply of liquid cash and readily-collateralizable safe savings vehicles to the demand if there is full employment from workers, savers, and managers. The hope is that a central bank that has the power to target and does target a simple nominal GDP level-feedback rule–if nominal GDP is below the target, do more in the way of standard open-market operations, lending at the discount window on collateral that is good in normal times at a penalty rate, quantitative easing, and social-credit operations–will finally accomplish a properly “neutral” monetary policy.

A look back at previous ideas for what a “neutral” monetary policy–Newton’s fixed price of gold, Hayek’s fixed nominal GDP level, Fisher’s fixed price-level commodity basket, Friedman’s stable M2 growth rate, the NAIRU targeting of the 1970s, Bernanke’s inflation-targeting–leads immediately to the conclusion that anybody who claims to have uncovered the Philosopher’s Stone of a proper “neutral” monetary policy is a madman. But it is worth trying. Full employment is a very powerful boost to economic growth. And so is the elimination of future risks that businesses face as they try to calculate the chances that the profits to amortize investments will not be there because they will find themselves trying to sell into a “general glut”.

(2) State and local governments committed to raising salaries of K-12 public-school teachers relative to median salaries by 50%, in exchange for severe reductions in teacher tenure: As Eddie Lazear tirelessly points out, our state and local governments still substantially set public-school teachers’ salaries following a sociological pattern set generations ago, when the occupations open to women were (a) housekeepers, (b) laundresses, (c) waitresses, (d) telephone switchboard-operators, (e) secretaries, (f) nurses, and (g) teachers. Those days are long gone: women who would have become teachers and nurses in the 1950s are now becoming doctors, lawyers, managers, and bankers. School boards across the country have responded to the difficulties of hiring as the coming of feminist liberties has allowed their captive female labor pool to escape by offering tenure in order to attract the risk-averse to teaching without having to require their taxpayer principals to face reality. But this is, at most, a second-best solution.

A nationwide network of good schools is both one of the very best ways to build productive capital–human capital–and a powerful step toward turning equality of opportunity in America from a sick and cynical joke to something not that far moved to reality.

How to actually wave this magic wand, however, is beyond me. My reading of the evidence is that charter schools have been disappointing in ways somewhat similar to those in which 401(k)s have been disappointing–too-high rewards to flash and marketing and too-little repetition for successful social learning about true quality to take place. Teachers will fight attempts to disrupt security of employment unless they have confidence that the grand bargain by which they trade security for higher salaries will be kept–which they do not have. Fiscal conservatives will fight teacher-salary increases unless they are confident that the Democratic Party-public sector union complex will then disarm itself of its weapons–which they are not. And the very smart Jesse Rothstein in the building next door thinks that eliminating teacher tenure is in no wise low-hanging fruit–that it substantially boosts the salary needed to acquire good teachers as it leads the risk-averse to exit the profession, and that nearly all who should not be teachers as identified as such before they gain tenure.

Suggestions?

(3) Increasing the number of legal immigrants from roughly one million per year to 2.5 million per year–0.75% of the population per year: Everywhere else in the world, social conservatives are totally and completely terrified of our culture. Whether they admire American culture or despise it, all those who are attached to their own culture and do not want their young talking about going to Mt. St. Michel for le weekend or making hip-hop videos for Youtube are terrified of it. Yet we, somehow, fear that raising legal immigration above its current 0.3% of the population per year will in some way disrupt our culture? And we, somehow, fear that our politics is sufficiently broken that we cannot figure out a way to make increased immigration win-win for all current residents? Already for a 20 year old to crawl through a storm sewer from Tijuana to San Diego boosts the present value of future world GDP by $200 thousand. Give each one a green card too as he or she emerges and that number is boosted to about $400 thousand.

And let me note that I am not that big a fan of selling immigration licenses.

It strikes me that the kind of people who, illiterate, make it across the U.S. border from Chiapas on foot are likely to be at least as large as political and economic assets as the princelings of the Chinese Communist Party and the others who would buy their way in, eager and able as the latter are to pay.

1318 words

Lawrence Summers: On ‘House of Debt’: “Atif Mian and Amir Sufi’s House of Debt, despite some tough competition…

…looks likely to be the most important economics book of 2014; it could be the most important book to come out of the 2008 financial crisis and subsequent Great Recession…. It persuasively demonstrates that the conventional meta-narrative of the crisis and its aftermath, which emphasises the breakdown of financial intermediation, is inadequate. It then goes on to provide a supplementary and in some ways alternative explanation focusing on the deterioration of household balance sheets, an analysis that has profound implications for policy directed both at preventing crises and responding to them when prevention fails….

It is a summary of a highly serious programme of economic research–one that is in many ways a model for what economists should do…. They argue that, rather than failing banks, the key culprits in the financial crisis were overly indebted households. Resurrecting arguments that go back at least to Irving Fisher and that were emphasised by Richard Koo in considering Japan’s stagnation, Mian and Sufi highlight how harsh leverage and debt can be….

Their analysis, presented with far more depth and subtlety than I have been able to reflect here, is a major contribution that furthers our understanding of the crisis. It certainly affects what I will examine in trying to predict and forestall future crises. And it should influence policies aimed at crisis prevention by demonstrating the insufficiency of keeping financial institutions healthy and by making a case for macroprudential measures directed at preventing runaway growth in household debt.

When one has a persuasive and novel idea, there is an inevitable temptation to push it a bit too far and to weight it excessively relative to less novel truths. Mian and Sufi succumb to this temptation in the last third of their book, where they discuss the policy responses to the crisis…

Paul Krugman:
The German Inflation Undershoot: The European Outlier:
“The point is a simple but important one…

…at this point any European imbalances associated with the surge in capital flows to the periphery after the formation of the euro have been worked off via extremely painful and costly disinflation…. From 1999 to the present, most of Europe has had cost growth and inflation just about consistent with the ECB’s long-standing just-under-2 percent inflation target. There’s just one big outlier…. The European imbalance problem is a German problem, caused by Germany’s persistent failure to have wage and price increases in line with what the euro requires. This German undervaluation is in turn exporting deflation to the rest of Europe. By contrast, France, Spain, and even Italy have been playing by the rules.

Peter Hart:
NYT Columnist Andrew Ross Sorkin’s Faulty Attack on Elizabeth Warren’s ‘Rage’:
“Not so fast, says Sorkin…

…this is no normal inversion:

While the merger is technically an inversion, it isn’t comparable to so many of the cynically constructed deals that were done this year simply to reduce taxes.

That’s what Burger King says–though Stephen Shay… says,

I would be surprised if in five years’ time, their tax rate does not come down reasonably dramatically….

This is the crux of Sorkin’s argument that Warren ‘is, to put it politely, mistaken.’ She calls this a tax inversion, and it’s not–or actually it is, since it’s ‘technically an inversion.’ Is that clear enough for you?… Sorkin admits that Warren could have had a better argument if she wasn’t so blinded by her rage:

It is true that Mr. Weiss doesn’t have a lot of experience in the regulatory arena… will be the beneficiary of a policy at Lazard that vests his unvested shares… by taking a government job…. Ms. Warren might be more persuasive if she focused on those issues.

Good point: Warren should have focused on his lack of regulatory experience. Oh wait….

That raises the first issue. Weiss has spent most of his career working on international transactions–from 2001 to 2009 he lived and worked in Paris–and now he’s being asked to run domestic finance… oversee consumer protection and domestic regulatory functions at the Treasury.

Free tip for Andrew Ross Sorkin: Don’t say someone should have emphasized a point they in fact raised as ‘the first issue.’ It makes it seem like you didn’t read the article you’re critiquing.

Must- and Shall-Reads:

• Carola Binder:
  Reading Keynes at the Zero Lower Bound
  Anatole Kaletsky:
  Stock markets set to take off as Europe, Asia abandon austerity
• Claudia Goldin:
  A Conundrum for Saudis: Women at Work
• Electricity in the 1920s and IT Today: Conversation with @billjaneway, @pmarca and @danfrost (with tweets)
• Bill Black:
  Honest Mom, I only bought the new Playboy to read the article on UMKC Economics – New Economic PerspectivesNew Economic Perspectives
• Kurt Campbell:
  How income inequality undermines U.S. power – The Washington Post

1. Justin Fox: Andy Haldane: The Regulator Who Explained the World: “The Haldane trademarks: a framework in economic theory, references to the latest in empirical research, grand historical sweep, and crystal-clear explanation… [plus] the subversive element found in the best of Haldane’s work…. His Sept. 2, 2010 speech “Patience and Finance”… bowled over by how good it was…. ‘Under one equilibrium, patience wins the day. When long-term investors start in the ascendency, prices tend to correct towards fundamentals. The performance of untested investors pursuing momentum strategies falters, while those pursuing longterm strategies flourish. The fraction of long-term investors rises. The self-correcting tendencies of market prices are thus reinforced, further supporting long-term investors. The patience gene thrives, the impatience gene dies. Natural selection results in a self-improving cycle, as with dieting, happiness and exercise. But there is a second equilibrium where this cycle operates in reverse gear…. Natural selection results in a self-destructive cycle.’.. Haldane then goes on to meticulously document the ways that, over the past decade, financial markets–especially in the U.S. and UK–succumbed to the impatience cycle…. Another Haldane speech ‘The Short Long’… ‘Control Rights (and Wrongs)’…. As somebody who has long trafficked in explanatory financial journalism, I stand somewhat in awe…”

2. Marion Fourcade et al.::
   The Superiority of Economists:
   “The dominant position of economics within… the social sciences in the United States… the relative insularity of economics… the tight management of the field from the top down, which gives economics its characteristic hierarchical structure. Economists also distinguish themselves from other social scientists through their much better material situation (many teach in business schools, have external consulting activities), their more individualist worldviews, and in the confidence they have in their discipline’s ability to fix the world’s problems. Taken together, these traits constitute what we call the superiority of economists, where economists’ objective supremacy is intimately linked with their subjective sense of authority and entitlement. While this superiority has certainly fueled economists’ practical involvement and their considerable influence over the economy, it has also exposed them more to conflicts of interests, political critique, even derision.”
   

3. Simon Wren-Lewis:
   Understanding Anti-Keynesians: “I have always thought it important to try and understand where the other side is coming from…. Let me single out three Keynesian propositions. 1. Aggregate demand matters, at least in the short term and in some circumstances (see 2) maybe longer. 2. There is such a thing as a liquidity trap, or equivalently the fact that there is a zero lower bound to nominal interest rates matters. 3. At least some forms of fiscal policy changes will impact on aggregate demand, and therefore (given 1), on output and employment. Because the liquidity trap matters, when interest rates are at their zero lower bound we should use fiscal policy as a stimulus tool, and we should not embark on fiscal austerity unless we have no other choice. If propositions (1) and (2) strike you as self evidently correct… I would… note that there are large numbers of academic macroeconomists… who dispute one or both…. Tyler Cowen… talks about a ‘so-called’ liquidity trap…. Many macroeconomists… did think as recently as ten years ago that there was a broad academic consensus behind both (1) and (2). I was one of them…. This suggests (3) is at the heart of the dispute. However my reason for including (1) and (2) is that if you accept these two points, point (3) follows…. The two sides are not symmetrical…. Keynesians are happy for central banks to undertake various forms of unconventional monetary policy, the aversion on the other side to using fiscal policy seems more absolute…. An easy answer is that it is all political or ideological…. That in my view would be a sad conclusion to draw, but it may be naive to pretend otherwise. As Mark Thoma often says, the problem is with macroeconomists rather than macroeconomics. I can think of two alternative explanations…. The first comes from thinking… [that] money is very important, and… to therefore feel that monetary policy has to be the right way to stabilise…. The second is… I suspect we would not even think of questioning the central role of Keynesian ideas for macroeconomics today if it had not been for the New Classical revolution…. For some, the association of fiscal policy with old-fashioned Keynesian ideas set down deep roots. It certainly seems that some notable academics were surprised that New Keynesian models actually provided strong support for the use of countercyclical fiscal policy in a liquidity trap. I should really stop there, but having started with Tyler Cowen’s post, I really should say something about his comments on the UK…. Why the obvious fact that other things besides fiscal policy are important in explaining growth in any year is thought to be an anti-Keynesian point I cannot see. And if the case against Keynesian ideas rests on the incorrect forecast once made by a prominent Keynesian then this is really scraping the barrel…”
   

4. Paul Krugman:
   In Front Of Your Macroeconomic Nose:
   “[Tyler] Cowen seems to have missed my point; I wasn’t talking about the merits of the Keynesian case, which I believe have always been overwhelming, but about the way macroeconomics is discussed in the media and among VSPs in general. My sense is that this is shifting in a Keynesian direction, while Cowen is arguing (wrongly, I’d say) that it shouldn’t shift because of Osborne or something. Wrong answer to the wrong question…. I’d like to hone in on something else Simon notices: [Cowen’s] reference to the ‘so-called liquidity trap.’ This is something I still find… assertions that there is something odd or suspect about claims that the rules of economics change when policy interest rates hit the zero lower bound. I can see how someone could have had that attitude in 2008 or even 2009, although not if he or she had paid any attention to Japan. But at this point we’ve been at the zero lower bound for six years; we’ve seen a 400 percent rise in the monetary base without a takeoff in inflation; we’ve seen record peacetime deficits go along with record low long-term interest rates. Liquidity trap economics aren’t a speculative hypothesis at this point, they’re the world we’ve been living in for years. How can that go unnoticed? But there’s a lot of denial out there. Recently David Glasner deconstructed a WSJ op-ed… what got me was the approving citation of Robert Mundell from 1971 (!) declaring that the Keynesian model was irrelevant… because it assumed pessimistic expectations and rigid wages. Right: no pessimism out there these days. And no sticky wages; oh, wait…. Oh, and treating the monetary approach to the balance of payments as the epitome of modern macroeconomics is just hilarious. That was the new thing when I was an undergraduate econ major; to the extent that it was any use at all, its usefulness was restricted to countries with independent currencies but fixed exchange rates. It has been pretty much irrelevant since the collapse of Bretton Woods…. The resistance of much economic discussion to the facts of the world around us — the facts in front of our noses — is quite extraordinary…”
   

Should Be Aware of:

• James Maguire:
  On Charlie Jane Anders: Keeping S.F.safe for subversives at “Writers With Drinks”
• If Dr. Seuss Books Were Titled According to Their Subtexts
• Julia Ioffe:
  A Personal History of Immigration and Executive Action in America
• Julia Belluz:
  Surprisingly simple tips from 20 experts about how to lose weight and keep it off – Vox
• Roy Edroso:
  SHORT WEEK, SHARP DECLINE: Hillary Clinton’s appalling demands!: On the Washington Post
• John Holbo:
  Speaking Truthahn to Power – or – How The Vikings Discovered Thanksgiving!
• Nick Bostrom:
  The Anthropic Principle: Chapter 11
• Amanda Gregg:
  Research

1. PGL:
   Macroeconomics at George Mason University:
   “I realize that Tyler Cowen is not the only economist who teaches macroeconomics at GWU but I don’t know the other professors. I am worried about what the students are learning at GWU after reading two of Tyler’s recent blog posts. His comments about Keynesian economics struck me as almost asserting that we Keynesians believe that only fiscal policy matters–which of course no one has ever asserted…. But it is this post that has me worried: ‘”Ghost cities”… the outcome of government stimulus measures and hyperactive construction that have generated $6.8tn in wasted investment since 2009…’ Tyler is referring to a report from Xu Ce… [who] has assuredly overestimated [waste] for reasons ably noted by Paul Krugman: ‘What the paper does is look at the ratio of capital added to economic growth–the so-called incremental capital output ratio. It finds that the ICOR has been lower in recent years than it was in the past, and attributes all of the shortfall to waste. But what if there were no waste at all? What if China were simply engaged in capital deepening? What would we expect to see in that case? The answer is, exactly what we do see. The ICOR data say nothing at all about waste.’ Paul walks us through a standard presentation of the production function used in the typical Solow growth theory model. This is all very basic stuff. I would hope the graduate students at GWU are learning this when they take growth theory.”
   

2. Paul Krugman:
   Pollution and Politics:
   “When and why did the Republican Party become the party of pollution?… The Clean Air Act of 1970… passed the Senate on a bipartisan vote of 73 to 0…. But that was then. Today’s Republican Party is putting a conspiracy theorist who views climate science as a ‘gigantic hoax’ in charge of the Senate’s environment committee…. Pollution has become a deeply divisive partisan issue. And the reason pollution… is that Republicans have moved right…. You might be tempted simply to blame money in politics, and there’s no question that gushers of cash from polluters fuel the anti-environmental movement at all levels…. One answer could be ideology…. My guess, however, is that ideology is only part of the story–or, more accurately, it’s a symptom of the underlying cause of the divide: rising inequality….”
   

3. Chris Dillow:
   Stumbling and Mumbling: Immigration & spontaneous order:
   “Let’s leave aside the fact that [David] Cameron himself has added to this frustration by not delivering upon his promise to reduce immigration…. We economists are pretty sure that, except perhaps for a small adverse effect upon the least skilled, immigration has been a net benefit (pdf) for the economy. But this doesn’t convince most people. Instead, as Ben says, many have an inchoate and inarticulate feeling that immigration might disrupt their sense of home: the fact that people are (generally) most worried about immigration in areas where there is least immigration is entirely consistent with with feeling: uncertainty is often greatest where hard knowledge is lowest. They want ‘control’ because this would reduce the uncertainty they feel. And herein, perhaps, lies the reason for the difference between economists and the public. We economists are aware that uncontrolled processes–what Hayek called spontaneous order–often have benign effects…. Non-economists, however, are less aware of this…. The question of whether spontaneous emergent processes are benign or not depends upon context. I suspect… that this is the unspoken issue that underlies much of the immigration debate…”
   

Marion Fourcade et al.::
The Superiority of Economists:
“The dominant position of economics within…

…the social sciences in the United States… the relative insularity of economics… the tight management of the field from the top down, which gives economics its characteristic hierarchical structure. Economists also distinguish themselves from other social scientists through their much better material situation (many teach in business schools, have external consulting activities), their more individualist worldviews, and in the confidence they have in their discipline’s ability to fix the world’s problems. Taken together, these traits constitute what we call the superiority of economists, where economists’ objective supremacy is intimately linked with their subjective sense of authority and entitlement. While this superiority has certainly fueled economists’ practical involvement and their considerable influence over the economy, it has also exposed them more to conflicts of interests, political critique, even derision.

Simon Wren-Lewis bends over so far backwards to be fair that, I think, he loses sight of the ball:

Simon Wren-Lewis:
Understanding Anti-Keynesians: “I have always thought it important to try and understand…

…where the other side is coming from…. Let me single out three Keynesian propositions.

1. Aggregate demand matters, at least in the short term and in some circumstances (see 2) maybe longer.
2. There is such a thing as a liquidity trap, or equivalently the fact that there is a zero lower bound to nominal interest rates matters.
3. At least some forms of fiscal policy changes will impact on aggregate demand, and therefore (given 1), on output and employment. Because the liquidity trap matters, when interest rates are at their zero lower bound we should use fiscal policy as a stimulus tool, and we should not embark on fiscal austerity unless we have no other choice.

If propositions (1) and (2) strike you as self evidently correct… I would… note that there are large numbers of academic macroeconomists… who dispute one or both…. Tyler Cowen… talks about a ‘so-called’ liquidity trap…. Many macroeconomists… did think as recently as ten years ago that there was a broad academic consensus behind both (1) and (2). I was one of them….

However, my reason for including (1) and (2) is that if you accept these two points, point (3) follows…. The two sides are not symmetrical…. Keynesians are happy for central banks to undertake various forms of unconventional monetary policy, the aversion on the other side to using fiscal policy seems more absolute…. An easy answer is that it is all political or ideological…. That in my view would be a sad conclusion to draw, but it may be naive to pretend otherwise. As Mark Thoma often says, the problem is with macroeconomists rather than macroeconomics.

I can think of two alternative explanations…. The first comes from thinking… [that] money is very important, and… to therefore feel that monetary policy has to be the right way to stabilise…. The second is… the New Classical revolution…. For some, the association of fiscal policy with old-fashioned Keynesian ideas set down deep roots… some notable academics were surprised that New Keynesian models actually provided strong support for the use of countercyclical fiscal policy in a liquidity trap.

I should really stop there, but having started with Tyler Cowen’s post, I really should say something about his comments on the UK…. Why the obvious fact that other things besides fiscal policy are important in explaining growth in any year is thought to be an anti-Keynesian point I cannot see. And if the case against Keynesian ideas rests on the incorrect forecast once made by a prominent Keynesian then this is really scraping the barrel.

Douglas Holtz-Eakin:
Structural Reforms to Reduce Debt and Restore Growth:
“The second flaw in recent policy approaches…

…has been its misguided reliance on temporary, targeted piecemeal policymaking. Even if one believed that countercyclical fiscal policy (‘stimulus’) could be executed precisely and had multiplier effects, it is time to learn by experience that this strategy is not working. Checks to households (the Economic Stimulus Act of 2008), the gargantuan stimulus bill in 2009 (American Recovery and Reinvestment Act), ‘cash for clunkers’ (the Car Allowance Rebate System), tax credits for homebuyers (the Federal Housing Tax Credit and the HIRE Act, consisting of a $13 billion payroll hiring credit, expensing of certain investments, and $4.6 billion for schools and energy), the Small Business Jobs Act of 2010, and the state-local bailout Public Law 111-226 ($10 billion for education, $16 billion for Medicaid) have all failed to generate growth. The policy regime of macroeconomic fiscal (and monetary) fine-tuning backfired in the 1960s and 1970s, leaving behind high inflation and chronically elevated unemployment, and it is working no better in the 21st century…