Hoisted from Others' Archives from Two Years Ago: (2014): The Zombie Confidence Fairy: "First up: Brad DeLong is bothered by Robert Rubin’s latest deficit-hawk op-ed...
...which doesn’t seem to recognize how much the arithmetic of fiscal policy in a liquidity trap favors fiscal stimulus. I agree. But surely the worse thing about Rubin’s piece is that its whole premise is that the confidence fairy is alive and well:
The US recovery remains slow by historical standards--even if recent signs of improvement are borne out. One reason is that our unsound fiscal trajectory undermines business confidence, and thus job creation, by creating uncertainty about future policy and exacerbating concerns about the will of Congress to govern. Business leaders frequently cite our fiscal outlook as a deterrent to hiring and investment.
Do business leaders really express those kinds of concerns? Maybe--if they’re guests at a Peterson-hydra event, where that’s the kind of thing they’re expected to say. But there isn’t a shred of evidence that long-term deficit fears are actually exerting any drag on the economy, let alone that some kind of medium-term austerity plan would be expansionary through the confidence channel....
Business investment isn’t especially low given the weakness of the overall economy (why expand capacity when you aren’t selling enough to use the capacity you have?).... The US economy has suffered an extraordinary, persistent plunge in residential investment; the fall in business investment was only normal for recessions and aftermaths, and the recovery has been comparable to past experience. There’s just nothing in this picture that would lead you to believe that you need to invoke some special factor like deficit fears to explain business behavior.... Of course, Rubin isn’t alone. I keep hearing the same argument in Europe. Why, it’s almost as if very serious people are willing to grab any argument that supports their deficit-reduction obsession, never mind the facts.
I must confess I never understood how business confidence could be low while stock values and Treasury bond prices were high, along with non-residential investment flows...
