Refighting the Civil War Department
It's Not Clear that Mundell-Fleming Is the Right Model Here...

Maybe, Ben, Maybe

Ben Bernanke says:

Recovery can survive coming fiscal drag: Bernanke: The U.S. economy is strong enough to withstand the fiscal tightening that is ahead, Federal Reserve Board Chairman Ben Bernanke said Wednesday. "Although the support to economic growth from fiscal policy is likely to diminish in the coming year, the incoming data suggest that gains in private final demand will sustain the recovery in economic activity," Bernanke said in remarks prepared for the House Budget Committee. Budget experts project that, under current trends, the federal budget deficit will shrink by as much as $500 billion next year...

That there is only a 20% chance that the unemployment rate will rise in the next year does not make this the right time to reduce the federal deficit or to reduce state and local spending.

Comments