Hoisted from Five Years Ago: The Conventional Superstitions of Austerity
Over at Grasping Reality: Hoisted from Five Years Ago: : The Conventional Superstitions of Austerity (2010): “Calculated Risk points us to a speech by Kevin Warsh…
…that strikes me as almost the perfect illustration of the predicament we’re in, in which policy is paralyzed by fear of invisible bond vigilantes. Warsh isn’t an especially bad example — but that’s the point: this is what Serious People sound like these days. The bottom line of Warsh’s speech — although expressed indirectly — is that it’s time for fiscal austerity, even though the economy remains deeply depressed; and no, the Fed can’t offset the effects of fiscal contraction with more quantitative easing. In short, the responsible thing is just to accept 10 percent unemployment. And why is this the responsible thing? On fiscal policy: “market forces are often more certain than promised fiscal spending multipliers…”
Um, but those market forces are currently willing to lend money to the US government at an interest rate of 3.05 percent. But never mind: “unanticipated, nonlinear events can happen…”
So it’s these ‘unanticipated, nonlinear events’ that are ‘more certain’ than the direct effects of fiscal policy? I’m confused…