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Brad Kitson
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Nick: As far as I know, there's no special flavor of Keynesian economics that applies only to Canada. I'm trying to examine your case based on a general view of Keynesian economics. My simplistic view of Keynesian economics includes counter cyclical spending and the use of monetary policy before fiscal policy. I also think that the Great Recession was a special case. In your graph, it appears the last move was a tightening of fiscal policy (spending) in 2011 that followed a tightening of monetary policy in 2010. That is definitely not offset. It isn't at play. Keynesians tighten fiscal policy (spending) when they think the economy is doing well. Non-Keynesians, it appears to me, do not typically advocate fiscal policy and are fine with tightening spending at any time. Your case depends on why spending was tightened. I don't think you've made it well enough. I also don't think Krugman was right to say Keynes was returning to Canada. As you've said, Keynes was not spend, spend, spend.
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Nick: You're right that the policy doesn't have to be right. Policy is made on belief. There are no crystal balls. The PM would only need to believe the BoC policy was right. Then, cutting spending would be consistent with Keynesian policy. If the PM disagreed with the BoC, it would be valid Keynesian policy to continue spending until you thought it was no longer necessary. Monetary-fiscal offset doesn't change that. Fiscal policy still mitigates destructive monetary policy. I still think Harper left the "foxhole" in 2011.
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Krugman almost made a reference to your blog in his post. Nice choice of title for the blog!
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Nick: You're right - Keynes, to my knowledge, is associated with counter cyclical spending. By your argument, an increase in interest rates in 2010 was a signal to scale back fiscal policy as it was supposedly no longer necessary. The rate increase was a call made by the Bank of Canada. That doesn't make it the right call and, I think, your argument depends on it being the right call. ZLB effects, if any, don't simply disappear if you raise interest rates. That's the fallacy in your argument.
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Klein's graph appears to me to show Keynes left in 2011 - consistent with Krugman's narrative that refers to temporary stimulus. Perhaps, your argument would be more persuasive if you actually addressed Krugman's points.
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Nick, Simon is making a practical argument and you are making an abstract argument. It's non-sense to disagree with Simon on that basis. Furthermore, Simon never has never argued that the ECB is an "open ended and unconditional" lender of last resort (lolr). Therefore, by your own logic, your condition for disagreement does not exist.
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The trust argument is for the most part a useless tangent. If the pain and suffering the Greeks endured for that past 5 years to stay in the Euro is not enough to earn some trust, then it's pointless to try. The other side is crazy. If trust was actually a concern, then put terms in the agreement that are trust building. The U.S. was able to accomplish it with the Soviet Union. Do you think there was any trust there? Germany has an unfortunate track record over the past century. The trust issue is with Germany. Germany has shown themselves to be untrustworthy and demonstrated that the union has no real meaning. When a partner is in trouble, you have their back or you don't - Germany doesn't. Instead, it's been a right wing morality play steeped in bad economics.
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Jul 11, 2015