Category Fiscal policy
Worthless Canadian Reaction?
What else can you call it, when two large Canadian labour unions call for a Buy Canadian provision in government spending? Embarrassing? Shameful? Perhaps "imprudent" might be the best word, given Canada's reliance on foreign trade.
IS, LM, and two wedges: understanding the second wedge
A simple macroeconomic model of the current situation is the ISLM with two wedges. The first wedge between the IS and LM curves is the gap between nominal and real interest rates. The second wedge between the IS and LM curves is the gap between government and private interest rates. We add (or subtract) the […]
Fiscal vs monetary policy, globally
This does not make sense. Why are so many countries around the world using fiscal policy when they have not yet made full use of orthodox monetary policy? The US makes sense. The Fed has already lowered the policy rate to zero, so it has no more room for orthodox monetary easing, so it's adding […]
Exchange rate expectations in a liquidity trap
Bottom line: Since we don't know much about how an economy can escape a deflationary spiral by itself, we don't know the counterfactual conditional, and so can't estimate the effect of a fiscal expansion on the future price level and the rational expectation of the future exchange rate under PPP. The assumption of static expectations […]
The political economy of protectionism
Update: Paul Krugman has a very good response to my earlier post. He is NOT endorsing protectionism: "First of all: my piece was NOT an endorsement of protectionism — it was an explanation that there is an economic case for it, but also that there is a strong political economy case (which I consider dominant) […]
Paul Krugman implicitly assumes fixed exchange rates
Update: Paul Krugman has a very good response. He is NOT endorsing protectionism: "First of all: my piece was NOT an endorsement of protectionism — it was an explanation that there is an economic case for it, but also that there is a strong political economy case (which I consider dominant) against acting on that […]
“Buy domestic” policies are individually irrational too
Most (all?) economists agree that in a global recession, when each country wants to boost demand for the goods it produces, policies which steer demand to domestically-produced goods are individually rational (provided other countries don't retaliate), but collectively irrational when all countries do the same. I think most economists are wrong. It's not just collectively […]
In defence of crass materialism (temporarily)
Economists are sometimes accused of crass materialism. Normally I would plead innocent, and accuse the accuser of misunderstanding economics. But right now I am in favour of crass materialism. I want government investments which yield a monetary return. Government investments which make people happy but bring in no cash aren't as good right now. And […]
Ricardian Equivalence and government spending
If the government takes our money (through taxes), and spends it on our behalf, does that increase aggregate demand? If the government borrows our money, making us pay back the loan (through future taxes), and spends it on our behalf, does that increase aggregate demand? The answer is: it depends. It depends on what the […]
Government borrowing, private spending
1. "If a private firm decides to borrow more and increase its investment spending, aggregate demand will increase." 2. "If government decides to borrow more and increase its investment spending, aggregate demand will increase". 3. "If government decides to borrow more, and lend to a private firm to increase its investment spending, aggregate demand will […]
Worthwhile Canadian Initiative 
Recent Comments