The past four years have been a mix of tragedy, fear, anger, and recovery. We're so close to the other side of it, and most families are even better off financially. How? A big reason is big fiscal.
There is a "contrary" experience to allow a comparison to the big fiscal: the Great Recession and its long, slow recovery. In fact, by acknowledging the failure of the fiscal and program responses to the Great Recession (as Pres. Biden has), we do not appreciate that the meager program and fiscal impact on American families (loss of homes while bailing out big banks, prolonged un- and under-employment) really created the dismay and distrust in government among American families setting the stage for MAGA politics of resentment.
Worth it for this line alone: "A key lesson from this crisis is that fiscal policy is much more powerful than monetary policy."
Yup. And not only more powerful, INFINITELY more flexible and able to address issues of distribution, no matter how distasteful those are to a certain class of economists.
And yet despite the huge impact of big fiscal on the US economy and that oddly enough includes the massive interest payments on US treasuries due in large part to the fed rate hikes which helped boost employment, incomes, wages and growth all everyone seems to want to do these days is complain about the deficit. This is not a coincidence unfortunately and I think that in large part is a factor as to why the white house is hesitant to gloat about the economy because complaining about the deficit is the easy thing to do in DC and has been for decades. If an article like this pisses people off on both sides so be it. This is about getting the facts out there and indeed Americans are better off today vs 2020 or even the GFC for that matter. We can and must do better.
Is there a better counterfactual leading indicator than when Larry Summers states what policy should be at the outset of crises? At least he’s been consistent over his career, consistently wrong on economic policy. Summers’ achievement as the worst applied economist of his generation is unrivaled. It’s not enough to be smart. Very intelligent people have proven capable of making horrible errors of judgment. Even worse: Summers is a pompous blowhard. To quote Barry Ritholtz: “Why does anybody listen to Larry Summers?”
Claudia just plain rocks! Thank you so much for the article so please continue the dialogue.
I highly recommend The Deficit Myth by Stephanie Kelton to understand the power of fiat currency, the differences between a currency issuer (Federal government; fiscal) and currency users (all US citizens and most of the world). Kelton provides the fundamental understanding lens to bring clarity to economic realities, calm to fears of Fed reserve interest payments and reveals the true meaning of Congressional power of the purse. The Fed should focus on inflation indicators however, turn back to Congress the reigns of determining the appropriate resourcing decisions to make life better for all citizens, in a world of finite resources and stop using the “debt” for political convenience (it confuses public fiat currency understanding. Fiscal policy remains the fiat currency source; not markets. Ooh rah Claudia! However I subscribe to a Federal Employment guarantee that President Roosevelt advocated for as this would negate the need for a direct stimulus payments…unless another pandemic like catastrophe occurs.
The large fiscal stimulus also had large negative consequences like income in fiscal debt of say $7 trillion; budgets that cannot get below a $1.5 t deficit; stimulus to home prices that sent home prices up by 50% to where they are unaffordable for new middle class families; inflation that has caused high interest rates that shut down homebuilding and the list goes on.
I always love reading your well thought out opinions backed up by factual data. I think one of the biggest problems we face right now is that it just doesn’t “feel” ok. It’s hard to argue feelings. Feelings also can come from a place of truth....
Unfortunately, your Bloomberg article about the deficit was behind a pay wall so I couldn’t read it. I tend to disbelieve that deficits and debt don’t matter (especially when rising rapidly), but I’m not an economist!
I've been a fan of Employer of Last Resort (local government) maybe combined with automatic stabilizers would be a nice mix. Also I fear the oil industry will spike prices before the election which will help Trump. Mark Zandi shares this fear and why wouldn't Big Oil do this with their obvious opposition to clean energy development and preference for Trump . Automatic stabilizers are a brilliant idea.
Great article. Another good example of we need to be much more prepared for tail risk events-- people have been calling out for pandemic preparedness before even Covid, but fiscal policy (and probably many other policies) are good examples of where we need to prepare even if not directly related to a pandemic or other tail-risk events.
Though I wouldn't say fiscal policy is more "powerful" than monetary policy. I kind of agree with it, but disagree in principle just because the Fed moves "last." This, and other factors like a better ability to respond to data or events, in my eyes qualifies it as a more "powerful" tool. Probably explains some of the preference for studying the Fed vs. fiscal policy (but I'm not very familiar with either literature, so take that with a grain of salt).
Small wonder legacy media is dying. Lazy, pack journalism is boring and predictable. There is seldom any context provided? Mainstream media will proclaim something is a BIG deal. My question is: “Compared to what?” It does this intentionally. There’s no shortage of complaints, so mainstream media’s intentions are clear.
I wouldn't say big win, and neither would a majority of voters. It's kind of a "well duh" statement to say that spending a bunch of money led to higher employment, wages, and spending. Duh. Of course that money shows up in economic indicators. Over time, though, does it improve the U.S.' economic position? Probably not, given higher interest cost payments and lower price competitiveness (partly due to demand created from increased spending).
Big fiscal in the face of fierce Monetary winds too.
You rock, Claudia! Awesome piece!
There is a "contrary" experience to allow a comparison to the big fiscal: the Great Recession and its long, slow recovery. In fact, by acknowledging the failure of the fiscal and program responses to the Great Recession (as Pres. Biden has), we do not appreciate that the meager program and fiscal impact on American families (loss of homes while bailing out big banks, prolonged un- and under-employment) really created the dismay and distrust in government among American families setting the stage for MAGA politics of resentment.
Worth it for this line alone: "A key lesson from this crisis is that fiscal policy is much more powerful than monetary policy."
Yup. And not only more powerful, INFINITELY more flexible and able to address issues of distribution, no matter how distasteful those are to a certain class of economists.
And yet despite the huge impact of big fiscal on the US economy and that oddly enough includes the massive interest payments on US treasuries due in large part to the fed rate hikes which helped boost employment, incomes, wages and growth all everyone seems to want to do these days is complain about the deficit. This is not a coincidence unfortunately and I think that in large part is a factor as to why the white house is hesitant to gloat about the economy because complaining about the deficit is the easy thing to do in DC and has been for decades. If an article like this pisses people off on both sides so be it. This is about getting the facts out there and indeed Americans are better off today vs 2020 or even the GFC for that matter. We can and must do better.
Is there a better counterfactual leading indicator than when Larry Summers states what policy should be at the outset of crises? At least he’s been consistent over his career, consistently wrong on economic policy. Summers’ achievement as the worst applied economist of his generation is unrivaled. It’s not enough to be smart. Very intelligent people have proven capable of making horrible errors of judgment. Even worse: Summers is a pompous blowhard. To quote Barry Ritholtz: “Why does anybody listen to Larry Summers?”
Claudia just plain rocks! Thank you so much for the article so please continue the dialogue.
I highly recommend The Deficit Myth by Stephanie Kelton to understand the power of fiat currency, the differences between a currency issuer (Federal government; fiscal) and currency users (all US citizens and most of the world). Kelton provides the fundamental understanding lens to bring clarity to economic realities, calm to fears of Fed reserve interest payments and reveals the true meaning of Congressional power of the purse. The Fed should focus on inflation indicators however, turn back to Congress the reigns of determining the appropriate resourcing decisions to make life better for all citizens, in a world of finite resources and stop using the “debt” for political convenience (it confuses public fiat currency understanding. Fiscal policy remains the fiat currency source; not markets. Ooh rah Claudia! However I subscribe to a Federal Employment guarantee that President Roosevelt advocated for as this would negate the need for a direct stimulus payments…unless another pandemic like catastrophe occurs.
The large fiscal stimulus also had large negative consequences like income in fiscal debt of say $7 trillion; budgets that cannot get below a $1.5 t deficit; stimulus to home prices that sent home prices up by 50% to where they are unaffordable for new middle class families; inflation that has caused high interest rates that shut down homebuilding and the list goes on.
I always love reading your well thought out opinions backed up by factual data. I think one of the biggest problems we face right now is that it just doesn’t “feel” ok. It’s hard to argue feelings. Feelings also can come from a place of truth....
Unfortunately, your Bloomberg article about the deficit was behind a pay wall so I couldn’t read it. I tend to disbelieve that deficits and debt don’t matter (especially when rising rapidly), but I’m not an economist!
Thanks again for doing this work!
Congratulations to your brother for getting married
I've been a fan of Employer of Last Resort (local government) maybe combined with automatic stabilizers would be a nice mix. Also I fear the oil industry will spike prices before the election which will help Trump. Mark Zandi shares this fear and why wouldn't Big Oil do this with their obvious opposition to clean energy development and preference for Trump . Automatic stabilizers are a brilliant idea.
Great article. Another good example of we need to be much more prepared for tail risk events-- people have been calling out for pandemic preparedness before even Covid, but fiscal policy (and probably many other policies) are good examples of where we need to prepare even if not directly related to a pandemic or other tail-risk events.
Though I wouldn't say fiscal policy is more "powerful" than monetary policy. I kind of agree with it, but disagree in principle just because the Fed moves "last." This, and other factors like a better ability to respond to data or events, in my eyes qualifies it as a more "powerful" tool. Probably explains some of the preference for studying the Fed vs. fiscal policy (but I'm not very familiar with either literature, so take that with a grain of salt).
Small wonder legacy media is dying. Lazy, pack journalism is boring and predictable. There is seldom any context provided? Mainstream media will proclaim something is a BIG deal. My question is: “Compared to what?” It does this intentionally. There’s no shortage of complaints, so mainstream media’s intentions are clear.
I wouldn't say big win, and neither would a majority of voters. It's kind of a "well duh" statement to say that spending a bunch of money led to higher employment, wages, and spending. Duh. Of course that money shows up in economic indicators. Over time, though, does it improve the U.S.' economic position? Probably not, given higher interest cost payments and lower price competitiveness (partly due to demand created from increased spending).