Mike Konczal and Paul Krugman claimed earlier this week that the contraction of U.S. fiscal policy in 2013 [the so called 'sequester'] was trumping the Fed's QE3 program and, in so doing, undermining the views of Market Monetarists like Scott Sumner and me. The [latest] employment report and its revisions to the previous months throw some cold water on their claim. But this should not surprise anyone, since fiscal austerity has been happening from 2010 and it has yet to stop the steady progression of nominal GDP (NGDP) growth.Steady, but not spectacular, growth of GDP. I.e., not what is needed for a return to normalcy. Beckworth provides some spiffy graphs to illustrate his argument;
...the cyclically adjusted (i.e. structural) budget balance as a percent of potential GDP has been shrinking since 2010. This is the budget balance due to policy changes, not from changes to the economy.
....This broader 3-year experiment of fiscal policy versus money policy is the one Konczal and Krugman should be examining. Instead, they focus on the first quarter of 2013 and miss the forest for the trees.Not that this excuses the incredibly stupid policies that have raised marginal tax rates on some of the nation's low income earners to over 100%. Such as increasing unemployment compensation benefits to over 99 weeks (paying people to remain idle). Neither did raising minimum wages (especially at the state level, in many cases) help, nor the monster Dr. Obamacare being let loose from the laboratory, which increased the costs of employing people.