-- Hi, Carlos
--- What's up Larry?
--- I wonder whether FK saw my paper with De Longo, convincingly showing fiscal consolidation is a self-defeating strategy even if the government's objective is solely to stabilize debt/gdp...
---Oh yes, he read it.
--- And?
----He said it sucks, Larry. You know FK is a firm believer of Ricardian Equivalence. He teaches his students that the multiplier is zero: more spending is totally offset by higher expected tax rates in the future.
--- But with ultra-low interest rates, government infrastructure in tatters and hysteresis in the labor market the multiplier cant possibly be zero, for god's sake!
--- Oh, almost fogot, FK said the hysteresis assumption is cheap...he added you guys should be very desperate to resort to that. Take that out and your results vanish, he said, with a sort of derisive smile in his face.
--- The problem with FK is that he is so arrogant he can't see beyond his stupid RBC model with no market failures. Antoninho de Botucatu was always right in this regard. I deeply lament he passed away recently.
I didn't die. And your comment about Ricardian Equivalence is wrong. It does not imply zero fiscal multiplier. Larry, you are the only guy I know which is as arrogant as FK. And, buy the way, that paper really sucks.
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