MACMILLAN Why Fiscal Stimulus Programs Fail, Volume 2: Statistical Tests Comparing Monetary Policy to Growth Effects

This book scientifically tests the assertion that accommodative monetary policy can eliminate the “crowd out” problem, allowing fiscal stimulus programs (such as tax cuts or increased government spending) to stimulate the economy as intended. It also tests to see if natural growth in th economy can cure the crowd out problem as well or better. The book is intended to be the largest scale scientific test ever performed on this topic. It includes about 800 separate statistical tests on the U.S. economy testing different parts or all of the period 1960 – 2010. These tests focus on whether accommodative monetary policy, which increases the pool of loanable resources, can offset the crowd out problem as well as natural growth in the economy. The book, employing the best scientific methods available to economists for this type of problem, concludes accommodate monetary policy could have, but until the quantitative easing program, Federal Reserve efforts to accommodate fiscal stimulus programs were not large enough to offset more than 23% to 44% of any one year’s crowd out problem. That provides the science part of the answer as to why accommodative monetary policy didn’t accommodate: too little of it was tried. The book also tests whether other increases in loanable funds, occurring because of natural growth in the economy or changes in the savings rate can also offset crowd out.  It concludes they can, and that these changes tend to be several times as effective as accommodative monetary policy.  This book’s companion volume Why Fiscal Stimulus Programs Fail explores the policy implications of these results. Review The book is well laid-out and designed. The topic is very important and timely given the economic conditions that are currently present. Additionally, the analysis provides an important examination of what not to do during economic downturns and how to ensure that monetary policy will have the impact that is hoped for. The topic of the book is extremely important and the Federal Reserve should read the book themselves. I am confident that this book should be a key part of any macroeconomists’ library and should be read by policy makers. This book proposal does offer an important and original contribution to the field. The book offers an exhaustive analysis of the accommodative monetary policy issue, which, if covered at all, is largely just a theoretical issue in macroeconomic books. This proposal shows that Keynesian monetary policies did not fail; what failed was the Federal Reserve’s use of accommodative monetary policy which were not large enough to overpower the crowding out impacts. The analysis provided in this book illustrates that if loanable funds are increased sufficiently and appropriately, Keynesian macroeconomic policies will work. The importance of this finding cannot be overstated. (John Polimeni, Albany College of Pharmacy, Albany, NY, USA) From the Back Cover “Keynesian macro policy has been thought to fail because of crowding out. To compensate … accommodating monetary policies were developed by the Federal Reserve … this book shows that Keynesian macro policy was not the failure, it was the accommodating monetary policies that failed; they were not large enough to overcome … crowding out.”  - John Polimeni, Albany College of Pharmacy, Albany, NY, USA This book comprehensively and scientifically tests the assertion that accommodative monetary policy can eliminate the “crowd out” problem, allowing fiscal stimulus programs (such as tax cuts or increased government spending) to stimulate the economy as intended. The book is intended to be the largest scale scientific test ever performed on this topic. It includes about 800 separate statistical tests on the U.S. economy testing different parts or all of the period 1960 – 2010. These tests focus on whether accommodative monetary policy, which increases the pool of loanable resources, can offset the crowd out