The macroeconomy has a long-run equilibrium natural rate of unemployment and GDP from which unanticipated counter-cyclical policy can scarcely nudge the economy.
FORBES: Thomas Sargent, Rational Expectations And The Keynesian Consensus
From 1929 to 1932 the main government in the firing line - America - operated a pro-cyclical policy of deflation: that is, making the downturn worse in the belief that it would "cleanse the system".
Even those that could perhaps afford to run a counter-cyclical policy to offset the effects of the downturn are squeezing public finances in part because they think that cutting deficits will help them reach the (presumed) safety of the euro zone.
They did not need a pro-cyclical fiscal policy to stave off default or devaluation.
In any case, if counter-cyclical fiscal policy is to work, speed is crucial.
Too often in the past most recently, in the late 1980s chancellors have loosened fiscal policy when a cyclical upswing has filled their coffers.
The primary instigators of cyclical disruptions are destructive wars and faulty monetary policy.
FORBES: Moody's May Rate Treasuries Aaa, But Central Planning Scores An F
So Mr Williamson's plan sits best with the view that fiscal policy should also have a strong counter-cyclical role.
Financial-sector reform was essential, but the G-20 went too far: In seeking perfection, policy makers have delivered a profoundly pro-cyclical shock, resulting in a deflationary credit squeeze.
The basic policy conclusion of the rational expectations hypothesis is that counter-cyclical monetary and fiscal policies affect real GDP and unemployment only if they are unanticipated.
FORBES: Thomas Sargent, Rational Expectations And The Keynesian Consensus
It is an angry book because Bill Isaac is by no means pleased with the string of policy blunders (mark-to-market accounting, pro-cyclical regulatory regimes from FASB and the SEC, the repeal of Glass-Steagall, etc.) that led to a global financial meltdown in the fall of 2008.
Once countries can no longer use monetary policy to moderate national highs and lows in economic activity, fiscal policy will need to assume a greater, nationally differentiated, counter-cyclical role.
If most unemployment is cyclical, not structural, the Fed could theoretically help by stimulating demand with easier monetary policy.
Structural policy adjustments have played a role in some countries, but the improvement also reflects cyclical effects, in particular the relatively weak cyclical position of many advanced economies and movements in terms of trade.
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