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Monetary alchemy, fiscal science
2013 marks the 100th anniversary of US federal income tax and the establishment of the Federal Reserve. What lessons have we learnt about macroeconomic policy since then? This column assesses the postwar lessons and argues that fiscal expansion is much more likely to be effective in the short term than any monetary expansion stimulus. Indeed, compared with fiscal policy, monetary policy seems more alchemy than science. The year 2013 marks the 100th anniversary of two major institutional innovations in US economic policy: The Constitutional Amendment enacting federal income tax (February 1913); The law establishing ... (full story)