>According to the Levy Institute paper, authored by economists Scott Fullwiler, Stephanie Kelton, Catherine Ruetschlin, and Marshall Steinbaum, canceling all student debt would increase GDP by between $86 billion and $108 billion per year, over the next decade. This would add between 1.2 and 1.5 million jobs to the economy, and reduce the unemployment rate by between 0.22 and 0.36 percent. Oh man, those are big numbers. And we're basically already at full employment. How on earth are they getting those numbers? Let's find out!
Looks like they have four main modeling scenarios. Two Fair (note: not actually fair. Named after a Dr. Fair) models and two Moody's models. The Moody's model is like a middle ground between a pure VAR regression model and a DSGE style of model. Nothing super interesting or controversial, I guess, beyond that
<Macro forecasting is on the borderline of being badeconomics in and of itself
But fine. The Fair model... let's see... ummm...
>Whereas the Moody’s model has a self-described “Classical core”—or long-run assumptions based upon estimated supplyside fundamentals—to complement a more “Keynesian” short run, the Fair model is more traditionally Keynesian throughout. In contrast to the Moody’s model, Fair’s econometric studies have rejected the so-called nonaccelerating inflation rate of unemployment (NAIRU) dynamics. To be more precise, Fair finds that the more accurate relationship between inflation and unemployment is nonlinear, whereby inflation is not very responsive to unemployment rates across a wide range, but could become much steeper at very low unemployment rates, perhaps around 2 percent (that is, at very low unemployment rates, inflation could rise substantially). To be clear, though, with so few real-world observations, Fair’s econometric studies were not able to entirely confirm or reject the likelihood of a steep rise in inflation at very low unemployment rates (Fair 2013, 147–60).
So the Fair model basically denies that NAIRU exists. It concedes that maaaaaybe around 2% unemployment you might see some inflation, but that basically you can just keep lowering U3 without ever hitting bottom. Full employment at 4% isn't really a thing, you can always go deeper. This is pretty far from standard macroeconomics as far as I'm aware. So the paper looks at two Fair models and two Moody's models. Both Fair and Moody's have a version where the Fed sees the stimulative action taken and reacts, and one where the Fed is asleep does nothing.
Pic related is the results of the four models
Unsurprisingly, the Fair models show big effects either way. If you assume that full employment isn't a thing and NAIRU is a dirty lie until 2% or lower, then stimulus is stimulative. Who knew? The Moody's model shows big effects if the Fed is asleep. If the Fed is awake, as they tend to be, then the effects are relatively tiny. I wonder what's a more realistic assumption - that a Fed with 4% unemployment is jumpy about inflation, or that they'll just ignore a gigantic stimulus?
If you take the most realistic scenario, this is something like 20B per year GDP growth - about a tenth of a percent. Probably not different from statistical noise given the complexity of the models we're working with here. Is that the estimate that makes it into the abstract? hahahahahahahaha no.
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