Showing posts from tagged with: Beijing

Stable Growth likely to Continue

Posted by Tim Congdon in News Archive | 0 comments

In my last monthly e-mailed note (on 28th June) I said that money growth patterns in the four leading advanced country jurisdictions (USA, Eurozone, Japan and the UK) were more or less perfect. To recall, “4% a year is a more or less ideal rate of broad money growth in developed countries, with a trend rate of output growth of 1% - 2% and an aim to keep inflation around 2%. Amazingly, and no doubt more by happenstance than design, 4% a year is at present common to the USA, the Eurozone, Japan (just about) and the UK.” Well, not much has happened since then to alter the assessment. The picture is as follows,2016-08-25_11-45-20The numbers  for China and India, the two big developing countries (both with trend growth rates of output of over 5% a year), are as follows2016-08-25_11-47-55  

Peering over the US fiscal cliff : what is there to see?

Posted by Tim Congdon in News Archive | 0 comments

Fears are being expressed that in 2013 the American economy will plunge over a so-called fiscal cliff. On unchanged policies the budget deficit (cyclically- adjusted) is due to fall sharply. Keynesian textbook orthodoxy says that a large decline of that sort represents a marked tightening of fiscal policy which will ‘withdraw spending power from the economy’, and so reduce demand, output and employment. But will it? The thinking behind modern fiscal policy were first developed in Keynes’ 1936 General Theory, particularly in its chapter 10, and his 1939 essay How to Pay for the War. The ideas were attractive in theory, not least because they accorded the government a large role in ‘managing the economy’. That appealed, and continues to appeal, to ‘the socialists in all parties’. (The phrase ‘socialists in all parties’ comes from Friedrich Hayek, The Road to Serfdom.) But does Keynesian thinking on fiscal policy work in practice?    In the last few years  the  International  Monetary  Fund  has  published  a  database  which includes  numbers  for  both  the  output  gap  and  the  cyclically-adjusted  (or ‘structural’) budget balance for all its important member nations. Analysts can therefore check the evidence on the relationship between changes in the structural budget balance and growth relative to trend. The Keynesian worldview would be confirmed if above-trend growth were associated with (or ‘caused by’) increases in the structural budget deficit. In my 2011 book Money in a Free Society I looked at the US evidence and established, at least to my own satisfaction, that the data up to 2008 flatly contradicted Keynesianism. In today’s note I extend the analysis to 2012 and also allow for some changes to old data. My conclusion in Money in a Free Society is not only confirmed, but reinforced. Naïve fiscalist Keynesianism does not work in the USA. The further implication is that the fiscal cliff does not mean that the American economy will suffer from another recession, or even demand weakness, in 2013.  

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