Friday, 1 August 2014
Tim Worstall goes off the rails.
Tim gets an awful lot right, but he want off the rails in this Forbes article. (I would have commented there, but Forbes makes it difficult.)
Tim quotes a sentence of Paul Krugman’s, namely: “The only piece of our system that seemed to have learned anything from history was the Federal Reserve, and the Fed’s actions under Ben Bernanke, continuing under Janet Yellen, are arguably the only reason we haven’t had a full replay of the Depression.”
And Tim deduces from that that: “The implication of all this being that it is monetary policy, monetarism, that is important in not having depressions, not fiscal policy.”
Nope. False logic. The fact that the Fed learned something from the 1930s depression does not prove that were politicians to learn the same lesson, that fiscal policy would not be effective in dealing with recessions. The fact that a wife learns something from a marital problem and the husband doesn’t, does not prove that were the husband to learn, that benefits wouldn’t derive from that: i.e. were the husband more clued up, benefits would probably flow from that.
Tim continues: “The stimulus that we did have, the fiscal policy that we did have, a larger fiscal policy even, would not have prevented a depression.” Oh yes? Where is the evidence? Tim doesn’t provide any.
Monetary policy involves printing money and stuffing the pockets of the asset rich, e.g. holders of government debt. That’s what QE consisits of. In contrast, fiscal policy involves feeding money into Main Street. I prefer the latter, and there is no reason for it not to work.