Tudo o que falta saber

As economias desenvolvidas estão presas numa armadilha de liquidez para a qual há curas fáceis e comprovadas (política orçamental expansionista e/ou taxas de juro negativas)? Ou a situação é mais complicada e os diagnósticos disponíveis devem ser lidos com algum cepticismo? A questão tem animado um excelente debate entre Paul Krugman, Simon Wren-Lewis, Tony Yates (cujo post é parcialmente citado em baixo) e David Andolfatto.

The old (but, historically, still ‘post’) Keynesian, IS/LM account of deficient demand, pretty much resembles the more modern account embedded in the rational expectations, sticky price models, dubbed ‘new’ Keynesian.  But using these models to prescribe drastic fiscal expansions that greatly exceeded what we saw is problematic.  In the UK, inflation exceeded target substantially.  In the US, it has not fallen all that much below it.  Modifications of the New Keynesian model that have a financial sector explain the recession as a dramatic constriction in credit supply that both strangles output, and creates inflationary pressure (offsetting the depressing effect on inflation coming from the fall in demand).

Following this line of argument, conventional demand-side fiscal policy was roughly on track.   You might argue that we ought to have had very great deviations of above target inflation, and much looser conventional fiscal policy.  But to do this you would have to ditch what those models say about the costs of inflation.  They contain the view that inflation fluctuations are an order of magnitude more costly than fluctuations in real activity.   So much the worse for them, you might say.  And policy makers frequently have said this.  But, with the models thus binned, you are in the dark about what should be done.  And there’s no way you can then argue that economics gives a clear answer, since you have discarded the one bottom-to-top [microfounded] answer it does give.  Granted, not everyone goes in for bottom-to-topness.  But that just reinforces my point that there is no sound economic answer.

Things are obviously worse than this, because the models that Paul Krugman is using to reason his way to arguing for a drastic further fiscal stimulus don’t contain financial sectors.  And the ones that get bolted onto the New Keynesian models to argue that policy was about right contain financial sectors that aren’t subject to systemic runs;  don’t malfunction therefore in the way that the real one did.

One of the themes of the early post crisis debate was the controversy between those like the Tory-led Coalition in the UK who warned about the possibility of a run on UK sovereign bonds, and those like PK who dismissed these concerns as opportunistic invoking of the ‘bond market fairy’.

PK would have history judge that he made the right call on this.  Certainly there were no runs on UK or US bonds.  But economics itself could not have given such an unambiguous a steer as PK claims.  The literature on optimal fiscal policy is riddled with ambiguity.  How to view what government does: wasteful, substituting, complementing private expenditure?  How to model the possibility of runs, and on what they might depend?  Whether to accept the possibility of the fiscal theory of the price level. [And whether this should be viewed as a difficulty or, as Sims sometimes suggested, an opportunity].   How to account for why people hold money.  [Without a good account of that, we can’t confidently say how they will price nominal bonds].  Whether the government can be viewed as being able to commit;  if not, whether it can acquire a reputation for good behaviour.  [If they can commit, then borrow now pay later strategies will work better].  Whether prices are sticky or not.  [This affects how much work fiscal policy should do to stabilise].  How to assess the tensions in the intergenerational conflicts over fiscal policy.  [Another take on the commitment problem].  How to produce normative guidelines for good fiscal policy that weighs concerns of competing generations.  The imponderable questions regarding how policy should deal with uncertainty, applied to the task of designing fiscal policy.  [How to weigh the unknown risks of a sovereign run, versus a deflationary spiral, for example].

I don’t know what economics PK has read.  But the miserably small quantity of serious reading I have managed on the above issues leaves me thinking that economics does not offer the clear advice PK claims.   PK seems to be backing away from all these intractable debates about the detail, and saying that we can ignore it.  Big picture, demand was weak, public demand had to be stronger.  Politicians did not get this message clearly enough, and were able to ignore it.  End of story.  Well, maybe.  Maybe not.  Perhaps only great minds can see the wood for all these unfinished modelling trees.  But to me it looks like a mess that many decades of future research may not sort out.

I think a plausible account of public policy failure is  that our economics profession had not yet come up with clear answers.  And in the absence of this politicians were free (or perhaps had no choice but) to be guided by their baser political imperatives.


2 comments on “Tudo o que falta saber

  1. Não sei se “taxas de juro negativas” (sobretudo se forem vista como uma alternativa em vez de um complemente à polítca orçamental expansionista) conta como “cura fácil” – sendo quase impossivel haver taxas de juro nominais negativas, tal tem que ser atingido aumentado a inflação, mas para aumentar a inflação se calhar é necessário fazer a economia saír da crise (ou então recorrer ao truque de manipular as expectativas da inflação, o que parece ter sido dificil)


  2. Bem visto. Nesse caso, há que riscar o ‘fácil’.


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