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Last week we got GDP numbers for Q2 in both the Czech Republic and Hungary. Both countries plunged deeper into recession and as it is the case in most other countries in Europe the cause of the misery is monetary disorder. This is documented in two news pieces of research. One on Hungary by Steve Hanke and one the Czech Republic by myself.
I have recently written a number of posts (here and here) in which I have been critical about Arthur Laffer's attempt to argue against fiscal stimulus. As I have stressed in these posts I do not disagree with his skepticism about fiscal stimulus, but with his arguments (and particularly his math). It is therefore only fair that I try to illustrate my view on fiscal stimulus and why fiscal stimulus (on it own) is unlikely to work.
I often ask myself what Milton Friedman would have said about the present crisis and what he would have recommended. I know what the Friedmanite model in my head is telling me, but I don't know what Milton Friedman actually would have said had he been alive today.
Barry Eichengreen provides a Summer reading list for European policy makers in his latest article on Project Syndicate. Here is Eichengreen:
Deflation can be good or bad. I am sure that our friends in Ireland like this kind of deflation:
I guess that most of my readers have noticed that I have been somewhat upset by Arthur Laffer's attempt to demonstrate that fiscal stimulus doesn't work. While I am certainly very skeptical about how fruitful fiscal stimulus will be I was not impressed with Laffer's "evidence" that fiscal stiumulus does not work. I did, however, not plan to write more on this - as I certainly do not want to promote fiscal easing anywhere and find this fiscal issue somewhat boring and irrelevant for understanding the present crisis - but then I got an interesting email from Jim Allbery.
Arthur Laffer's recent piece in the Wall Street Journal on fiscal stimulus has generated quite a stir in the blogosphere - with mostly Keynesians and Market Monetarists coming out and pointing to the blatant mistakes in Laffer's piece. I on my part I was particularly appalled by the fact that Laffer said Estonia, Finland, Slovakia and Ireland had particularly Keynesian policies in 2008. In my previous post I went through why I think Laffer's "analysis" is completely wrong, however, I did not go into details why Laffer got the numbers wrong. I do not plan to go through all Laffer's mistakes, but instead I will zoom in on Estonian fiscal policy since 2006 to do some justice to the fiscal consolidation implemented by the Estonian government in 2009-10.
Take a look at these articles from the American Enterprise Institute's James Pethokoukis:
During George W. Bush's years as president I most say that I lost a lot of respect for Paul Krugman. It was very clear that he was suffering from what Charles Krauthammer called the "Bush Derangement Syndrome" (BDS). BDS undoubtedly made Krugman write crackpot articles about all kind of subjects. Krugman for example on numerous occasions has argued in favour of protectionism - something the pre-Bush Krugman would never have done.