Arnold Kling struck a great chord in a recent post on EconLog:
From the perspective of a macroeconomic textbook, journalists write as if the aggregate supply curve is nearly vertical with respect to monetary policy and nearly horizontal for fiscal policy.
1. You would be rich if you had a dollar for every time a journalist writing about the Fed said that it faced a terrible dilemma, with the economy poised on the “knife edge” between worse recession and a major acceleration of inflation.
2. On the other hand, fiscal policy faces no such trade-off. You never see a journalist writing about fiscal stimulus and pointing out that it risks setting off a major acceleration of inflation.
Among economists who subscribe to the AS-AD paradigm (which is nearly every everyone), there is vigorous disagreement over whether the aggregate supply curve is closer to vertical or closer to horizontal, but once an economist takes a point of view on that, he or she will stick to that point of view regardless of whether you are talking fiscal policy or monetary policy. The macroeconomists who support fiscal stimulus take the notion of a liquidity trap seriously, which is the opposite of believing (1). I defy you to find any academic economist who would endorse (1) and (2) simultaneously.
After I thought about this, I realized it was so true.
In general, it pains me to read reports on monetary policy from any source other than my beloved WSJ. (I’d include the FT if they didn’t write in the passive voice so often, but that’s a separate issue.)
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