Comment of the Day: JEC: Keynesian Economics vs. Regular Economics: "'Unlike the trade-off in regular economics, that extra $1 billion is the ultimate free lunch. How can it be right? Where was the market failure that allowed the government to improve things just by borrowing money and giving it to people?' The funny thing here is that Barro imagines this to be a killer rhetorical question, when it is in fact a crucial and open research question (and one that Keynesian macroeconomists have done far too little to answer, in my opinion). What makes it a research question rather than a damning rhetorical one is the empirical fact that, under certain circumstances, multipliers greater than one are well-documented. (In fairness, better documented today than in 2011)...
The research question that has been answered is that, in the USA, aggregate multiplies greater than one cannot be found because the federal government has been clearly more pro-cyclical than counter cyclical since 1980, obvious looking at the sequence of blue bars.
To say that the Federal government can occasionally do something right is a useless unquantifiable tautology. A built in a tautology, because up to 2014, the government in DC has clearly been a costly, cyclical mess.
Are we doing better? So far, the longest expansion in post war, and it continues into 2019, that is unprecedented. But that gives us since 2014 or so as a data series on that, not enough to say if we have changed.
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