Thursday, December 8, 2011

John Taylor Clarifies His Summary

John Taylor is not happy with a critic from Paul Krugman. His most recent summary states:

Krugman says my conference summary suggested that “Bloom, Baker and Davis had showed that fear of Obama was holding the economy down.” No, my summary said or implied no such thing; there is no mention of Obama, Bush, or any politician in my summary. It simply says that these authors “presented their empirical measures of policy uncertainty and showed that they were negatively correlated with economic growth.” … As part of his presentation Bob said that now and going forward we should assume “no chance of conventional fiscal expansion; rather, possible cutbacks motivated by excessive federal debt.”

Contrast this to what Taylor originally wrote:

In sum there was considerable agreement that (1) policy uncertainty was a major problem in the slow recovery, (2) short run stimulus packages were not the answer going forward

Wow – I read (1) as saying a lot more than simply negatively correlated. I also read (2) as asserting fiscal policy was ineffective but now we know that Dr. Taylor meant fiscal stimulus was never tried and will not be tried. I’m so glad he cleared this up!

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