Lindsey and DeLong discuss me

Well that’s certainly something I’d never expected to see, some prominent pundits talking about my ideas on Bloggingheads.tv.

Brink Lindsey is sympathetic to my argument.  Brad DeLong suggests that my plan would require the Fed to do twice as much bond buying as under QE2, and keep doing it month after month.  (I.e. about $200 billion/month in bond purchases.)  I’m not sure where he got those figures, but I won’t criticize him.   After all, right after QE2 I said it was roughly half of what the Fed needed to do.  He may have been referring to that comment, or perhaps that’s just his own take on what would be needed.  Brad made the quite reasonable point that it’s politically difficult for the Fed to do enough to end the recession.   I agree; if it weren’t difficult they probably would have already done it.  

And yet, I’m not willing to give up so easily.  Here’s a few other possibilities. 

1.  There are things the Fed could try that don’t involve printing money, and hence might be less controversial.  The most obvious is a lower IOR.  Interest on reserves is seen as a subsidy to fat cat bankers, and it’s opposed by many on both the left and the right.  Of course if you believe the banks control the Fed, you will tell me this can never happen.  But if the banks control the Fed, why would they let NGDP expectations fall so sharply in 2008, and again recently, badly hurting bank balance sheets.

2.  The Fed could try Greg Mankiw’s suggestion of level targeting.  That’s not a cure-all.  But I’m convinced core inflation is likely to remain below 2% for some time.  And 2 and 1/2 year TIPS spreads are only 1.3%.  This would give the Fed room to ease.  It would provide even more room if that started the level targeting from the point at which rates hit zero—which is the theoretically appropriate point in time, according to Woodford, et al.  We are now well below that trend, according to either the core or headline rate. 

3.  The Fed could try for 5% NGDP targeting.  This might be acceptable to the right, as it would take “hyperinflation” off the table.  In addition, throughout history I’d guess that at least 75% of the economists who advocated NGDP targeting were right of center (Hayek, McCallum, quasi-monetarists, etc.)  They could tell Barney Frank that unlike a strict inflation target it addresses the Fed’s dual mandate.  I’d actually prefer slightly higher than 5% during the catch-up period.  But things are so bad now that even 5% would be an improvement.

DeLong might argue that those alternative policies would also require the Fed to buy up lots of bonds.  But that isn’t necessarily the case.  Indeed if the policy were credible, it’s very possible that we could get by with a reduction in the currently bloated base, which includes trillions of excess reserves that are doing nothing.

So even though Brad DeLong’s skepticism about the politics of monetary stimulus is quite persuasive, I’m not willing to throw in the towel.  There are things the Fed can do that are less controversial than QE2 on steroids, and surprisingly, might be even more effective.

HT:  Dennis and Brito


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41 Responses to “Lindsey and DeLong discuss me”

  1. Gravatar of TravisA TravisA
    20. August 2011 at 17:26

    Scott, you’ll want to put this link in your post, so that it goes directly to the part where they discuss you:

    http://bloggingheads.tv/diavlogs/37836?in=08:09&out=14:56

    Only half in jest, but maybe if we got all of the econo-bloggers on the left and right to organize a protest in front of the Federal Reserve Board in DC, we might get more press for your ideas and push the Fed in our direction. I can just see the crowd ablaze with signs: Target NGDP!

  2. Gravatar of W. Peden W. Peden
    20. August 2011 at 17:46

    In 1961, the mainstream Keynesian view would have been “Monetary stimulus when interest rates are so low? Are you mad?”

    In 2011, the mainstream Keynesian view is apparently “Monetary stimulus? Now? People on the right might get upset about that.”

    Can we really call someone like Brad DeLong a “Keynesian”?

  3. Gravatar of Morgan Warstler Morgan Warstler
    20. August 2011 at 18:29

    “So even though Brad DeLong’s skepticism about the politics of monetary stimulus is quite persuasive, I’m not willing to throw in the towel.”

    Let me re-write that…

    “So even though DeKrugam is skeptical about the politics of monetary RIGHT NOW, we all know that AN12, it will be far easier… so I’m going to get out my long knives and force DeKrugman to admit that fiscal CANNOT work, and urge we get structural reform (which he’ll hate)… so when Perry wins, we can GO NUTS.”

  4. Gravatar of Matt Waters Matt Waters
    20. August 2011 at 19:52

    I usually roll my eyes when I hear about all the corrupt Fed bankers who just care about their buddies in Lower Manhattan, but I do think there is some truth to it. From what I gathered from reading “Too Big to Fail,” even though Geithner had never worked in a bank, he seemingly considered the welfare of Main Street and the welfare of Wall Street to be perfectly correlated. I was particularly disturbed when the book said that only Paulson really cared about the possibility of moral hazard and Geithner seemingly only cared about saving the banks, worrying about regulating away moral hazard later.

    Of course, we know that saving banks does not mean saving investment. It means we nominally save the bridges between investors and borrowers, but investors and banks still decide whether or not to invest. Investors may invest more in banks if their deposits are insured, but that doesn’t matter if the bank doesn’t invest the money.

    The reversal on debit-card interchange fees also shows the banks’ influence on the Fed. Whether or not the interchange fee regulations make sense, it makes no sense for Bernanke to call the increase from 12 cents to 21 cents a “compromise.” The banks should have zero power to force such a compromise, but somehow they got the interchange increase anyway. It’s not some cynical conspiracy with Bernanke and Soros meeting in a backroom about how to destroy America, but the Fed does think way too much of bank’s welfare for the sake of bank’s welfare.

    So I would guess negative IOR, if it ever came up in FOMC meetings (or whichever committee sets IOR), I would guess it would be shot down immediately. That would hurt confidence in the banking sector or some nonsense like that. But if there truly no opportunities for the excess reserves, the banks with excess reserves could pass along the negative IOR to customers and charge fees.

    But if there are opportunities (and there are), banks more willing to lend would soak up those depositors at banks not willing to lend. That’s the whole point of saving banks, isn’t it? To save investment? Why save banks if you’re just going to let them have excess or pay dividends instead of lending?

    I also am extremely dismayed by the tone most commenters speak about QE2 or QE3. Somehow swapping 800 billion of Treasuries for cash is considered some insane, last-ditch attempt to revive the economy. But 800B over two years is about 3% of the two-year GDP. The cash to Treasury bond holders is probably not very likely to be spent in a liquidity trap either. So what’s the multiplier of QE, then, maybe 0.5? So you increase GDP by 1.5%. No wonder it didn’t work.

    The bond buys, if they’re not done to some target, should be talked about as percentage of GDP. Suddenly 3% of GDP does not sound nearly as big as 800B. There’s also about 14T of debt out there just in Treasuries, with the Fed holding about 2.5T IIRC. So it’s not like they will run out any time soon. Any talk about “running out of ammunition” is downright silly.

  5. Gravatar of Kevin Flick Kevin Flick
    20. August 2011 at 19:58

    I was particularly impressed by this potential solution:

    The upcoming expansion of US bank credit
    http://www.financeandeconomics.org/Articles%20archive/2011.08.17%20Bank%20Credit%20Repo.htm

    I’d certainly welcome your comments on this approach.

    Thanks,

    Kevin

  6. Gravatar of Matt Waters Matt Waters
    20. August 2011 at 20:01

    I should say I use multiplier for QE in the strict Keynesian sense. According to Keynesian theory for a liquidity trap, only propensity-to-spend of the direct QE recipients matter. If the Fed became more willing to use larger QE, Scott would say (and I agree) that everybody’s propensity-to-spend would go up.

    But currently, due to the lack of credibility of the Fed to do enough action, inflation risk is not really appreciated by cash-holders. If we had twice the QE, would Steve Jobs be so willing to leave so much cash just sitting on the balance sheet? I don’t think so. Maybe twice the QE isn’t enough to change Jobs’ mind, but it would change enough investors’ minds to make more of a difference than just the direct QE recipients.

  7. Gravatar of bill woolsey bill woolsey
    21. August 2011 at 04:16

    I say focus on two for one.

    I suppose price level targeting would be better than inflation targeting rignt now in this specific situation.

    I suppose GDP growth rate argeting would be better than inflation targeting.

    But the real improvement is from targeting a growth path for GDP.

    Get rid of the no memory growth rate focus and quit using prices.

    As for the interest rate on reserves, if the banks earn less (or have to pay) for reserve balances, then they will further reduce what they pay on deposits. They will have to start charging people for keeping money in banks.

    Is this bad for banks in general?

    You just can’t go so low that the result is a currency drain–people start pulling money out of banks and putting it in the mattress. Sure, the Fed can and should print more currency if people do that, but there isn’t any point in lowering interest rates (imposing charges) such that people start doing this.

    But rather than review this, let us think more about the political problem here. It isn’t the banks who are middlemen.

    The problem, then, is the people who are earning income from holding short and safe assets. Retired people. Coupon clippers.

    Now, I believe that people who want yield should take risk. But if you are already dipping into capital to maintain retirement income, this will just make things worse for you.

    We are already getting grips that interest rates are too low and that this is reducing investment income. It is punishing thrift. (Really past thrift.) What interest rates? FDIC insured bank rates and T-bill rates.

    Further, all of this talk about how price inflation would be great is not helping. Of course, these same folks, holding near zero nominal yield t-bills and FDIC insured deposits would benefit from deflation. There is no credit risk for them and falling prices raises their real yield and a lower price level raises their real wealth. And it allows them to consume more.

    Obviously, people in stocks or even corporate bonds may have a different calculation. Given standard personal finance advice, that would be younger poeple or really rich people who are aiming to pass down wealth to decendants rather than being in the process of using up the bulk of the funds they had saved for retirement.

    I still think the Fed should “pay” interest on reserves at a rate that is pegged below the T-bill rate. Right now, they should be charging banks to hold reserves. I support negative interest on reserves now. But I think it is a mistake to see this as a subsidy for the banks exactly. It is a subsidy for those holding short and safe assets–T-bills and FDIC insured bank deposits.

  8. Gravatar of Scott Sumner Scott Sumner
    21. August 2011 at 05:43

    Thanks Travis, I made the change.

    W. Peden, Indeed in 2009 DeLong was denying that monetary stimulus could work.

    Morgan, I don’t think that would persuade them.

    Matt, There are ways to do negative IOR that doesn’t hurt banks. You offset the negative IOR on excess reserves with positive IOR on required reserves. In addition, banks would see the value of their assets rise if negative IOR boosted AD.

    Kevin, I have long advocated a policy of setting IOR below the rate on Treasury securities, so I certainly agree with that proposal.

    Bill, I just don’t see any danger from people putting cash under their mattresses. Sure some of this would occur, but there is more than 2 trillion in ERs. People aren’t going to put $2 trillion under their mattresses.

    Of course I agree about level targeting of NGDP being best (and also being better than negative IOR) but I was just trying to throw out some ideas than might be more politically acceptable.

  9. Gravatar of StatsGuy StatsGuy
    21. August 2011 at 07:09

    NGDP target and Price level target would only work if credible, and if enacted. In other words, to get a price level target, people would need to believe that IF the inflation rate came in low, the Fed WOULD compensate using existing mechanisms. But if they think those mechanisms are politically disallowed, then no one believes the Fed would do this, and the declaration loses meaning.

    For it to work, people need to believe, but to believe they need to think it’s credible. And it’s just not. Had the Fed acted in September 2008, maybe the story would be different.

    I’m struggling to see how this works. Really, I am.

    Consensus seems to be that the most likely Fed initiative in Jackson Hole (which you should be watching closely) is Twist – that is, keep total level of bond holdings steady, sell short term, and buy aggressively at the long end of the yield curve. Given that short term bonds are basically like cash right now (3 month to 2 year basically yield nothing), this is probably a good idea. It’s a good idea from two perspectives. First, IF it’s the case that inflation isn’t happening (we’re in 1% inflation for next 2 decades, or Japanese style deflation), then I’d rather the market holding short term liquid bonds at 0.25% or less interest, and the government holding long term bonds at 4% interest (and remitting funds to the government). It’s the closest thing to monetization we can get, and we need some monetization. Second, lowering the long end of the curve may change expectations… Or, maybe not.

    IOR might help… still no good explanation for current IOR other than a measly subsidy to banks, who would be much better helped by a bit of asset inflation.

    Oh well… Enjoy Wisconsin. IMO, there are two states with the best pizza, and one is Wisconsin. It’s the cheese.

  10. Gravatar of StatsGuy StatsGuy
    21. August 2011 at 07:15

    Actually, now that I think about it, the Fed declaration of no change to fed funds rate for 2 years is a pretty good predecessor to Twist. It drops the yield on the two yield to nothing, which increases the value of the bonds they can resell into the marketplace (and increases the demand for those bonds too, to absorb forward <2yr bond sales). Except that, effectively, it's sucking cash out of the economy and forcing it from short term into long term securities. IT does suck cash from the economy, but re-injects more cash through remittances to the Federal government on higher yielding bonds.

  11. Gravatar of Steve Roth Steve Roth
    21. August 2011 at 07:33

    >But if the banks control the Fed, why would they let NGDP expectations fall so sharply in 2008, and again recently, badly hurting bank balance sheets.

    Because while it might hurt banks (temporarily?), it doesn’t hurt bankers? We saw how bankers’ pay was affected by the NGDP dive in 2009…

    >The Fed could try for 5% NGDP targeting. This might be acceptable to the right, as it would take “hyperinflation” off the table.

    Why would NGDP targeting take hyperinflation off the table? Please excuse me for asking about something you’ve undoubtedly explained many times, but that I don’t understand here. Couldn’t that 5% be achieved via 18% nominal growth and 13% inflation? Isn’t that the scenario that the right (and especially bondholders/creditors) are so afraid of?

  12. Gravatar of Steve Roth Steve Roth
    21. August 2011 at 07:38

    Also: I’d be very curious to hear your prediction: if tomorrow the Fed dropped IOR to zero or even negative, what would happen to:

    o Excess reserves
    o NGDP
    o Inflation

    (Yes I realize the change would be implemented more gradually, but as a thought experiment.)

  13. Gravatar of dwb dwb
    21. August 2011 at 07:49

    been pondering ngdp targeting. when inflation targeting is discussed, usually the preferred meaasures are trimmed-mean, core, etc which show the underlying “trend” in inflation excluding the volatile and less-sticky components like gasoline. what would the equivalent for rgdp and ngdp be – the components that show the underlying trend

  14. Gravatar of Steve Roth Steve Roth
    21. August 2011 at 07:50

    I think statsguy hits a key point, maybe an achilles heel:

    “For it to work, people need to believe, but to believe they need to think it’s credible.”

    For the Fed to achieve the goals of your NGDP targeting proposal, wouldn’t they have to say, effectively “we have completely changed our view of, and approach to, monetary policy,” and people would have to believe that a majority of them had in fact done so — and that they would remain in the majority.

    Maybe you’ve already addressed this, but if not, would love to hear your thoughts.

  15. Gravatar of Andy Harless Andy Harless
    21. August 2011 at 07:58

    Scott,

    I’m a bit dismayed to hear you advocating something that sounds more like NGDP growth rate targeting than NGDP level targeting. I know level targeting is your ultimate goal, but if you require only “slightly higher than 5% during the catch-up period” to a 5% growth path, you’re losing the underlying integrity of the 5% growth path, which ought to be retroactive to some point at which the economy was performing close to potential.

    I would be happy with a 4% GDP growth path if it were retroactive to 2007 (or 2006 or 2005). That essentially builds in maybe 50 basis points of opportunistic disinflation and 50 basis points of slowed trend labor force and productivity growth relative to the roughly 5% growth rate of NGDP that was in place during the previous business cycle. I would be happier with a 5% retroactive growth path, but then I’m one of these people who thinks inflation is not such a bad thing in general, so perhaps one should allow for the fact that my preferences are idiosyncratic.

    But if you start out (from 11% below trend) with a path that is only slightly above 5% and then eventually converge to a 5% path, you’re essentially giving up on the real economy’s ability to stage a full recovery while at the same time fully allowing any ultimate slowing of the long-term trend in real growth to be compensated with inflation. The latter, as noted above, doesn’t bother me but might be unpalatable to others. (It’s almost certain that long-term trend of labor force growth has slowed, and there are indications that the trend of productivity growth has slowed as well, so if people like 2% inflation, they won’t be happy with a long-term 5% NGDP growth rate.) The former, however, obviously bothers me. I say, give the economy every opportunity to stage a full recovery in real output, and if it refuses to cooperate, punish it with inflation. Given that the economy’s potential may have deteriorated as a result of the demand shock, it may be necessary to accept abnormally high temporary inflation to facilitate the reversal of that process.

  16. Gravatar of Jake Jake
    21. August 2011 at 08:03

    I appoligize if you’ve explained this already, but how could getting rid of IOR and putting an interest penalty on excess reserves help when the banks have already been recapitalized and the problem is now aggregate demand?

  17. Gravatar of Eric Morey Eric Morey
    21. August 2011 at 08:08

    Steve Roth,

    Re: 5% NGDP targeting:
    “Couldn’t that 5% be achieved via 18% nominal growth and 13% inflation?”
    No. You would have missed the 5% Nominal target by 13%. You seem to be confusing real and nominal GDP in you’re question. If the target of 5% was successfully maintained and the rate of inflation were 13%, Real GDP growth would necessarily be -8%. (Pedantically, related rates of growth have a logarithmic relationship and are not strictly additive so the mathematically correct numbers will be slightly different).

  18. Gravatar of Jake Jake
    21. August 2011 at 08:09

    Oh, one more I forgot, the whole point of NGDP targeting is to increase inflation expectations and get people to spend more. But what if they save more instead to get ready for the percieved inflation. Again if you’ve already addressed this I apoligize.

  19. Gravatar of Steve Roth Steve Roth
    21. August 2011 at 08:24

    Eric Morey:

    Oops, yes, sorry I got that backwards. (Shouldn’t type before my first cup of coffee.) Isn’t what they’re afraid of (for instance) 5% nominal growth with say, 13% inflation, for negative real growth and potential wage/price spiral? How does 5% NGDP targeting preclude that (in their minds)?

  20. Gravatar of Morgan Warstler Morgan Warstler
    21. August 2011 at 11:46

    Persuade who?

    You KNOW your very best chance at NGDP level targeting doesn’t occur until AN12, but only if Rick Perry is sitting int he White House…

    So get campaigning.

    If you aren’t campaigning please EXPLAIN why Perry AN12 is not your BEST chance.

  21. Gravatar of Andy Andy
    21. August 2011 at 11:55

    Steve, I believe Scott would say the Fed cannot choose the breakdown between real GDP and inflation, it can only choose a nominal target. I don’t think a -8/13 breakdown is something plausible to be concerned about.

  22. Gravatar of flow5 flow5
    21. August 2011 at 12:51

    Credit, properly used, is the “life blood” of a healthy economy. And if the monies represented by the deficits are spent on projects which increase productivity and reduce waste, the deficits are beneficial NO MATTER HOW FINANCED. The initial inflationary effects of bank financing are quickly overcome by the larger output and lower unit costs.

    The frbNY’s trading desk could selectively target projects which would meet certain eligible criteria at the more efficient state level (absent rider legislation). I.e., have the FED monetize municipal bonds (state level or lower jurisdictions), i.e., counties, cities, local utility, special purpose, & redevelopment (of schools, rails, highways, hospitals, water service, sewer systems, etc., publicly operated projects).

  23. Gravatar of flow5 flow5
    21. August 2011 at 12:52

    “the Fed cannot choose the breakdown between real GDP and inflation”

    Of course they could. Both have separate & unvarying monetary lags.

  24. Gravatar of Scott Sumner Scott Sumner
    21. August 2011 at 13:02

    Statsguy, Actually, I’m going to Italy, so I won’t be able to follow Jackson Hole (I wasn’t invited for the 15th straight year) :(

    I’m afraid I disagree strong on both points. A strong level targeting promise would be highly credible. And operation twist would be a huge mistake. It would probably fail, and it would tend to make people more skeptical about monetary policy in general. There are only three types of expansionary monetary policy:

    1. More base supply today.
    2. Less base demand today.
    3. A promise of easier money in the future.

    Operation twist won’t work in my view (unless it leads to expectations of easier money in the future–but it’s hard for me to see how it could.) Even Jim Hamilton came out for level targeting today–he’s hardly a radical. Greg Mankiw as well. If the Fed can’t even do as much as those eminently moderate people recommend, then we’re screwed.

    Steve; You said;

    “Because while it might hurt banks (temporarily?), it doesn’t hurt bankers? We saw how bankers’ pay was affected by the NGDP dive in 2009…”

    I don’t think you did see what you claim–banker pay did take a hit. Remember that big bankers often own shares of bank stock, or options.

    You asked:

    “Couldn’t that 5% be achieved via 18% nominal growth and 13% inflation? Isn’t that the scenario that the right (and especially bondholders/creditors) are so afraid of?”

    No, that would be 18% NGDP growth.

    The IOR question is a good one, and at the risk of being annoying I’m going to slightly dodge the question. I do think it would be expansionary, but it’s hard to know how much, because it’s almost inconceivable to me that it would be done by itself, without any other policy changes. It could be slightly expansionary, or if accompanied by other moves, wildly expansionary.

    dwb, There is no equivalent for NGDP, as it is supposed to overcome the supply shock problem of headline inflation. But some have argued that there are two slightly better policies along the same line as NGDP targeting. One is targeting NGDP/person, and even better one is targeting average nominal wage rates per hour. The latter policy is aimed at keeping the labor market in equilibrium.

    Steve, It would be completely insane for the Fed to declare an NGDP target, unless they really believed in it and intended to carry through with it. If they don’t, then I strongly recommend that THEY DON’T TARGET NGDP. Do price level targeting instead. But I believe the Fed understands the importance of credibility.

    Andy, I partly agree and partly disagree. I would prefer a 4% target with catchup, or even Woolsey’s 3% target with catchup. But either of those are far to expansionary for the Fed to even consider. (Which is shocking) It just won’t happen in my view. So in suggesting a 5% target I am pushing for the most that I think is politically feasible. I actually do think it might lead to a real recovery, although I can’t be sure. My hunch is that real trend growth is barely 2% right now, and a 5% NGDP target would deliver about 3.5% RGDP growth. Obviously we’ve been well below that growth rate over the past year, and yet unemployment has fallen. If we had grown 3.5% in real terms, unemployment would have fallen significantly faster. In addition, any sort of nominal target would make certain types of fiscal stimulus (like a payroll tax cut) much more effective. It would also make supply-side reforms much more effective. It would provide something for Obama to work with.

    I realize this is pretty pathetic, but NGDP growth has only averaged 3.4% this year, and the rate seems to be slowing further. It at least should be politically feasible to do 5%, as that has been the norm.

    But your criticism is valid, it obviously should be higher, and it certainly doesn’t represent my first best choice.

    Jake, Lower IOR reduces the demand for the monetary base, which is the medium of account in America. If you reduce the demand for the medium of account, and hold the supply constant, then AD must rise.

    No, the point is not to increase inflation, it is to increase NGDP growth expectations. That’s what gets people to spend more. And I have no trouble with people saving more if they want to. Saving is just spending on investment goods. What I want to avoid is people hoarding currency, which is deflationary.

    Steve, You said;

    “Oops, yes, sorry I got that backwards. (Shouldn’t type before my first cup of coffee.) Isn’t what they’re afraid of (for instance) 5% nominal growth with say, 13% inflation, for negative real growth and potential wage/price spiral? How does 5% NGDP targeting preclude that (in their minds)?”

    No, there would be no wage/price spiral because wages depend on NGDP growth, not inflation. When there is an adverse supply shock, like early 2008 or early 2011, wages follow NGDP growth, not inflation.

    Morgan, Romney’s the one who favors easy money, not Perry.

  25. Gravatar of Scott Sumner Scott Sumner
    21. August 2011 at 13:03

    flow5, I’m impressed by your confidence, but is it warranted?

  26. Gravatar of Morgan Warstler Morgan Warstler
    21. August 2011 at 13:29

    Jesus Scott, do you act like this in the classroom?

    We have already decided that AN12, Republicans will allow QE and further, it will likely be commensurate with the depth of the fiscal reforms.

    So:

    1. Your Romney argument is specious.
    2. The guy who’s most likely to cut with a cleaver is most likely to get BIG QE.
    3. You NOW need to explain why Perry isn’t your best choice AN12.

    Purely on AN12, which candidate it most likely to bring the GIANT changes that the GOP will be DESPERATE to prove worked (lots and lots of QE).

    These are arguments I’m making Scott, your goal is to respond to them, and not some side show.

  27. Gravatar of dtoh dtoh
    21. August 2011 at 17:58

    Or…. They could put in place capital reserve requirements. By doing this flexibly, i.e. very low or negative rates on new asset acquisition, you force the banks to do QE (asset purchases) without the FED having to do it. This would be politically much more popular as it could be pitched as the FED forcing the evil bankers to stop hoarding cash instead of current policy, which is viewed as the FED printing money. SCOTT – THIS IS SO OBVIOUS I DON’T KNOW WHY YOU DON’T GET IT!

  28. Gravatar of CA CA
    21. August 2011 at 22:22

    For those who haven’t already, listen to Sumner in this 2009 podcast with Russ Roberts. It’s basically an hour of Sumnernomics in which he addresses many of the questions posed here. Outstanding discussion Russ and Scott have.

    http://www.econtalk.org/archives/2009/11/sumner_on_monet.html

  29. Gravatar of Steve Roth Steve Roth
    22. August 2011 at 00:58

    Bringing this back to your statement: “The Fed could try for 5% NGDP targeting. This might be acceptable to the right, as it would take “hyperinflation” off the table.”

    Scott: “No, there would be no wage/price spiral because wages depend on NGDP growth, not inflation. When there is an adverse supply shock, like early 2008 or early 2011, wages follow NGDP growth, not inflation.”

    I can see your point, but would hyperinflation hysterics on the right 1. understand this and/or 2. consider it “acceptable”?

    Maybe they’d only choose to understand it if a Republican president were pushing for it, and would benefit from it politically? Then they would rationalize it in any manner possible — either using your explanation or other, specious ones?

    “banker pay did take a hit. Remember that big bankers often own shares of bank stock, or options.”

    So on stock/options they currently own, yes they take a net-worth hit. They have to wait to sell. History tells them that absent a 1930s-level meltdown, they’ll get a good opportunity within two to ten years. They can ride it out (unlike the unemployed).

    On options they’re issued while their bank’s stock is depressed, they get a sweet strike price.

    Meanwhile long-term stock buyback plans providing management carte blanche let them adjust the price (to some degree) according to conditions.

  30. Gravatar of flow5 flow5
    22. August 2011 at 11:43

    Warranted? Economics is a science (except for the uneducated). It originated from a Phi Beta Kappa from your own alma mater.

  31. Gravatar of Scott Sumner Scott Sumner
    22. August 2011 at 14:31

    Morgan, I don’t like to vote for people on the assumption they’ll do exactly the opposite of what they claim they’ll do.

    dtoh, I prefer negative IOR. I don’t want banks to take lots of risks, so I have no problem with high capital requirements.

    Thanks CA.

    Steve, You said;

    “I can see your point, but would hyperinflation hysterics on the right 1. understand this and/or 2. consider it “acceptable”?
    Maybe they’d only choose to understand it if a Republican president were pushing for it, and would benefit from it politically?”

    Anyone with half a brain knows that you can’t get hyperinflation with 5% NGDP growth. If they can’t understand, nothing will convince them. Certainly not a Republican being in office, as the GOP record on inflation is really no better than the Dems. Obama has done an outstanding job of delivering low inflation.

    And stocks follow a random walk, so you can’t count on bounce backs. Bankers would prefer higher stock prices, which means easier money.

    Flow5, David Hume went to the University of Chicago?

  32. Gravatar of dtoh dtoh
    23. August 2011 at 10:45

    Scott,
    IOR is a start but it doesn’t solve the TBTF problem. Capital reserve requirements solves both problems and in a politically palatable manner.

  33. Gravatar of On the Brink of Inflationary Disaster « Fall Of The Fed On the Brink of Inflationary Disaster « Fall Of The Fed
    25. August 2011 at 07:35

    [...] upside down, and that banks are never constrained by reserves when deciding on making new loans. Quasi monetarists lament the Federal Reserve’s decision in October 2008 to start paying interest on excess reserves [...]

  34. Gravatar of On The Brink Of Inflationary Disaster?. | Elliott Wave Market Service On The Brink Of Inflationary Disaster?. | Elliott Wave Market Service
    25. August 2011 at 18:04

    [...] upside down, and that banks are never constrained by reserves when deciding on making new loans. Quasi monetarists lament the Federal Reserve’s decision in October 2008 to start paying interest on excess [...]

  35. Gravatar of Q143 Jin US dalam botol kita « Keluarga Sharif Yamah Q143 Jin US dalam botol kita « Keluarga Sharif Yamah
    25. August 2011 at 20:22

    [...] upside down, and that banks are never constrained by reserves when deciding on making new loans. Quasi monetarists lament the Federal Reserve’s decision in October 2008 to start paying interest on excess [...]

  36. Gravatar of flow5 flow5
    27. August 2011 at 14:50

    Hume died before he could wear the golden key engraved with 3 stars.

  37. Gravatar of Sull’Orlo di un Disastro Inflazionistico | Sull’Orlo di un Disastro Inflazionistico Sull’Orlo di un Disastro Inflazionistico | Sull’Orlo di un Disastro Inflazionistico
    10. September 2011 at 13:37

    [...] e che le banche non sono mai ostacolate dalle riserve quando decidono di fare nuovi prestiti. I quasi monetaristi si lamentano della decisione della Federal Reserve nell’Ottobre 2008 di iniziare a pagare un interesse [...]

  38. Gravatar of Question for Market Monetarists and MMTers: What Happens if IOR Goes to Zero? | Federal Reservations Question for Market Monetarists and MMTers: What Happens if IOR Goes to Zero? | Federal Reservations
    5. January 2012 at 09:27

    [...] in an electronic mattress. So I'm curious what would happen if the Fed no longer paid IOR. I asked Scott Sumner this a while back: if tomorrow the Fed dropped IOR to zero or even negative, what [...]

  39. Gravatar of Question for Market Monetarists and MMTers: What Happens if IOR Goes to Zero? | Bear Market Investments Question for Market Monetarists and MMTers: What Happens if IOR Goes to Zero? | Bear Market Investments
    5. January 2012 at 10:03

    [...] asked Scott Sumner this a while back: if tomorrow the Fed dropped IOR to zero or even negative, what [...]

  40. Gravatar of Interest on Reserves « azmytheconomics Interest on Reserves « azmytheconomics
    9. January 2012 at 09:56

    [...] say, “Did their target change?”. If not, then there are no consequences for NGDP. Scott Sumner gave the right answer. I did not. I tried to answer the question ceteris paribus, but my answer was not as a market [...]

  41. Gravatar of Where Dr. Paul’s Inflation Might Be – Hit & Run : Reason Magazine Where Dr. Paul's Inflation Might Be - Hit & Run : Reason Magazine
    17. February 2012 at 14:07

    [...] down, and that banks are never constrained by reserves when deciding on making new loans. Quasi monetarists lament the Federal Reserve's decision in October 2008 to start paying interest on excess [...]

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