Category Fiscal policy
Fiscal Policy, the Environment, and How Not to Solve Policy Problems
Canada and by extension the Canadian government faces a number of challenges. There are two in particular I find fascinating:
The federal budget: Austerity or stimulus or neither?
This year's federal budget is going to be an interesting one. A two-year stimulus package was introduced in 2009, which meant that the 2010 budget didn't have much to say. But now some decisions will have to be made. Should the government extend the fiscal stimulus? Follow the United Kingdom's example and embark on an […]
The Lender of Last Resort
What Paul Krugman is saying about Ireland and the Eurozone is not wrong. But he keeps missing the most important point. And it's bugging me.
Milton Friedman’s Thermostat
If a house has a good thermostat, we should observe a strong negative correlation between the amount of oil burned in the furnace (M), and the outside temperature (V). But we should observe no correlation between the amount of oil burned in the furnace (M) and the inside temperature (P). And we should observe no […]
Pictures of Ireland?
In countries like Ireland, there is currently an abnormally large Gap between nominal interest rates and the expected growth rate of nominal GDP. That Gap creates a nasty positive feedback loop, through two channels: The Risk Channel. It's hard to pay down debt when the debt is compounding a lot faster than the growth in […]
Sovereign insolvency and illiquidity
If a country has a debt/GDP ratio of 100%, and is paying 9% interest, and nominal GDP is not rising, then it's got a solvency problem. It needs to run a budget surplus of 9% of GDP just to stop the debt/GDP ratio rising further. And that is very hard to do. But why would […]
Can the EU survive?
Just for once, this is not a question best left to the Poli Sci. Because the main forces will be money/macro. For nearly two years now, I've been worried that one or more of the Eurozone countries might do an Argentina. I've been asking whether the Eurozone could survive. I think it's time to change […]
Plastic and glass
It seems the Eurozone troubles are heating up again. Debt is like glass. If you hit it with a small shock it stays rigid. But if you hit it with a big shock it breaks. Equity is like plastic. If you hit it with a shock it bends. The bigger the shock the more it […]
Some thoughts on the Gauti Eggertsson & Paul Krugman paper
It's an interesting paper (pdf). It's a very standard New Keynesian macro model with one twist. It's a twist worth doing. There are two types of people: the impatient, who borrow from; the patient. And there's an exogenous limit to the debt the impatient are allowed to accumulate. It's a math model, of course. I'm […]
Why isn’t the multiplier infinite?
Assume the worst case scenario. Your economy is stuck in a permanent liquidity trap. It will stay there forever, unless you do something. Do you have to do something big, measured in the trillions of dollars? Suppose you do something, something very small, that has a direct effect of increasing Aggregate Demand by $1 per […]
Worthwhile Canadian Initiative 
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