This is the Cato Daily Podcast for Thursday, January 3rd, 2019.

I'm Caleb Brown.

One error of monetary policy and fiscal policy is to spend like mad and keep the money easy when the economy is booming.

But knowing when to take away the monetary punch bowl is a matter of some dispute.

I spoke with Harvard's Jeff Frankel about monetary and fiscal policy in difficult

times. For those who haven't looked at a macro textbook in a long time help us understand once again how does how are

certain policies cyclical or counter cyclical or pro cyclical and what does that mean? So to say that something is cyclical or pro-cyclical and what does that mean?

So to say that something is cyclical is to say it goes up during the expansion or boom

phase of the business cycle and then it goes down during the downturn in recession

phase of the business cycle.

In the case of government policies such as fiscal policy, monetary policy, regulatory policy,

to say it's pro-cyclical is to say that you give the economy an additional boost when it's going

up anyway or when it's at the top, you exaggerate the upswing, and then when the economy

turns and goes into a downturn into a recession you adopt more

contractionary monetary policies, fiscal policies and regulatory policies and

you exaggerate the downswing which is clearly not what we want.

All right, so in terms of smoothing the edges of economic cycles,

what do we know works?

Well, I mean, there always has been some controversy

about the ability to get the timing right.

So Keynes said that we should, John Maynard Keynes famously said that the boom is a time for austerity

at the Treasury and the downturn is the time for easing.

...