Must-Read: Jason Furman: Five Fiscal Policy Principles
Must-Read: Jason Furman: Five Fiscal Policy Principles: “Nowhere is… recovery complete…
…The eurozone has an unemployment rate of 10%…. Japan’s per-capita GDP… has… stalled. The US… still has more to do to eliminate labour market slack. Too many policymakers have abandoned expansionary fiscal policy as a tool for supporting growth, placing the burden on monetary policy. For their efforts, central bankers around the world were excoriated by many of the same legislators who to this day are also blocking sufficient fiscal support. Some objections to more fiscal expansion are based on an “old view” of fiscal policy advanced by many academic economists in the years before the crisis. This argues that discretionary stimulus is too rigid or ineffective or even counterproductive, and was at odds with the more fundamental problem of long-term debt. But the post-crisis experience, as well as research on the effects of fiscal policy, is establishing a “new view” grounded in five principles:
- At a time when conventional monetary policy faces limitations in a world of lower interest rates, fiscal policy can be a particularly effective complement….
- In today’s conditions fiscal policy may… “crowd in” private investment through stronger growth….
- [In] advanced economies… under today’s economic conditions effectively crafted investments could raise output by more than they raise debt–reducing the debt-to-GDP ratio….
- Prolonged lower interest rates and economies operating below potential suggest that fiscal expansion should be more sustained….
- Fiscal policy is even more beneficial if co-ordinated more across countries…
Jason Furman: The New View of Fiscal Policy and Its Application: