I agree with your point
that fiscal policy can work through V and that is the correct way to
think about it. In fact Alex and I present this in our forthcoming
Principles text.
I think, however, you put too much emphasis on
interest elasticity. Which is the relevant "M" in the equation of
exchange? Surely not currency. Yet I can earn an interest return on
most parts of M2, if I care to.
The key arguments for sometimes
using fiscal rather than monetary policy have, I think, to do with
targeting very particular parts of the real economy.
Plus maybe the Fed doesn't have a strong enough political constituency to be asked to handle the entire macroeconomic problem.
To
me those two factors are much more important than anything having to do
with interest elasticity. Plus I am still influenced by Cooley's old
AER paper (1981?) and I don't trust any of the interest-elasticity
estimates, no matter what they find.
Tyler
Addendum: This paper prompted the email.
I was just going to say the EXACT same thing.
Too bad you determined the debate needed to be rescued with an email.
Buy construction because it’s cheap. Refill the strategic oil reserves. Yada yada yada. It seems you are asking the government to be value investors. I like it as a concept, but good luck.
Isn’t another main advantage of fiscal over monetary policy is that you can have an effect more quickly (assuming the legislature acts fast)?
Tyler:
The three most important words for describing the equation of exchange:
1) tautology
2) tautology
3) tautology
I don’t suppose you’d consider that the value of IBM stock has anything to do with the velocity of circulation of IBM stock, but you claim that the value of money is determined by the velocity of money.
Interesting exchange between you 2 at that blog war. Finally got dome teeth to it now too. And I find you both generally right, but I think I like Brad’s point that sector shiftd don’t need to be pushed into losses to happen, though one could argue that the losses felt are better motivation for politicians to acually studyt the economics of it all, and stay at least as informed as a casual GRwB/MR reader like say myself. I cannot in any way set a price below infinity for the value this would give our nation.
I demand that you both continue said Blog war until atleast the next presidential election, or at least revisit it from time to time.
While I am demanding things, could Tyler and Alex maybe even have a live discussion of adequate length with Brad and (place non-noble lauarte Keynesian here, who posses adequate presence to keep on pace with Alex). The fruit of such a labor would out way the cost. I would be happy with a 4-way Blogging hed if possible.
(I say non-nobel because I think the Nobel winners on Keynesians ave loud enough megaphones, and I don’t want their prestige to out way their right or [more likely] wrongness on the issues of discussion.
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