We will not be ready to fight the next recession. Gavyn Davies tries a Hail Mary: Gavyn Davies: Can Automatic Fiscal Stabilisers Replace Monetary Policy? https://www.ft.com/content/7c3498c0-0523-11ea-a984-fbbacad9e7dd?segmentid=acee4131-99c2-09d3-a635-873e61754ec6: 'Monetary policy, whether conventional or unconventional, will be found wanting in the face of the next global recession.... Central bankers now admit that they will need help from fiscal policy in such circumstances. However, in the past, discretionary budgetary injections have usually been implemented with long delays, and political wrangling has resulted in tax and spending measures that have failed to stabilise demand in the economy. An example of these problems came after the financial crash in 2008.... The eventual ARRA stimulus was not large enough to stabilise the US economy and was reversed too quickly during the recovery. It prevented a financial collapse, but it did not avoid high and persistent unemployment. Even having Democratic control of the White House and Congress did not stop political roadblocks hindering the fiscal stimulus from shortening the recession. Meanwhile, in the eurozone, meaningful fiscal response was prevented by the absence of a mechanism that allowed significant risk-sharing among member states.... The proven disadvantages of discretionary budgetary changes to cushion a recession explain why there is growing interest in enhancing the so-called automatic fiscal stabilisers. Macroeconomists have argued for decades that the scale and effectiveness of built-in methods to raise spending or cut tax revenue should be increased to make fiscal policy more successful...


#noted #2019-12-27

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