Strange bedfellows

The Economist has an excellent new article on heterodox economics in the blogosphere.  Lars Christensen should be proud; he created the name “market monetarist” just a few months ago, and now it has the official imprimatur of The Economist.

The article discusses three heterodox schools; neochartalism (MMT), market monetarism and Austrianism.  The Economist is careful avoid any suggestion that the three are comparable in all respects:

These three schools of macroeconomic thought differ in their pedigree, in their beliefs, in their persuasiveness and in their prospects.

Market monetarism has recently been the most successful in garnering high level endorsements.  The Austrian school has probably gained the greatest number of adherents (think about the Ron Paul phenomenon.)  As for neo-chartalism, I always thought of them as being a bit wacky, and thus was surprised that Warren Mosler was cited more than any other individual, indeed 4 times as often as the Austrian representative (Lawrence White.)  I might have reversed that ratio had I written the article.  In any case, I see this article as a big win for both MMT and market monetarism, as Austrianism was already pretty well-established.

I don’t have any significant issues with the article, but will provide a slightly different take on a couple issues.  Most of the market monetarism discussion focused on NGDP targeting, which of course is only one aspect of our model.  But I think that was a wise move by The Economist, as you can’t possible explain all the theoretical nuances in a magazine article.  And NGDP is where the attention is focused right now.  Here’s their comment on the political feasibility of NGDP targeting:

The market monetarists argue that fiscal stimulus should be redundant, because a central bank can always revive spending—if it sets its mind to it. If the Fed’s efforts have disappointed, it is not because market monetarism is wrong, but because the Fed is not sufficiently committed to the cause.

This is probably true. But it makes it hard for the market monetarists to clinch their case. Until a central bank truly commits to their policy, they cannot prove their point. But until they prove their case, central banks will be reluctant to commit to their policy

As with almost all discussion of monetary policy these days, this mixes the issue of feasibility and desirability in a rather ambiguous fashion.  NGDP targeting is actually not all that different from the Taylor Rule, or some other version of the Fed’s dual mandate.  And Bernanke continually insists that the Fed doesn’t have to worry about running out of ammunition.  So they can certainly boost NGDP if they want to. The question is; do they want to?  Or perhaps I should say; is their desire to do so strong enough to overcome the perceived risks? 

When I point this out to other economists they are inclined to smile politely, and say;  “Well of course Bernanke would say that, imagine the market panic if he said they were out of ammunition.”

I point out that Bernanke held these views as an academic, when he had no reason to lie.  Some argue that he changed his views after joining the Fed, for some mysterious unspecified reason.  So although he’s always said the Fed never runs out of ammo, and he used to really believe it, now he’s lying.  I have a two word response.  Occam’s Razor.

Here The Economist exaggerates the amount of “activism” in market monetarism:

The market monetarists do not fret about the side effects of the activism they seek, which can misdirect capital, inflate bubbles and seduce people into over-borrowing.

I think they are confusing “activism” with “different policy.”  We want the Fed to adopt a different policy, but the NGDP targeting regime would certainly be less “activist” than current policy, even if it didn’t involve the futures targeting regime that Woolsey and I have advocated.  The current dual mandate/dual target approach allows for all sorts of activism.  NGDP targeting has a single target, and would result in far less activism, and almost certainly far less of the bubble phenomena that are associated with dramatic changes in NGDP growth rates.

Tyler Cowen had this to say about the article:

I know that Scott would insist he is not heterodox macro at all, but I can report I found it striking to be cited in this article as a more or less establishment source, rather than heterodox myself.  In both cases the journalist is probably correct.

Because Tyler anticipated me making a mistake before I actually made it, I must of course try to frustrate his expectations.  Here’s the reply I left in his comment section:

I was an orthodox economist in 2007, completely heterodox by early 2009, and am now becoming slightly more orthodox. Interestingly, my views haven’t changed at all during that 4 year span.

Seriously, Tyler has been the biggest factor in the success of my blog.  I’m constantly getting invitations, and then am told that Tyler Cowen recommended they contact me.  Next to Tyler, Ryan Avent has probably been the most helpful.  Note that Ryan works for The Economist (although he’s probably not the author of this particular article) and also note the title of the article: “Marginal Revolutionaries.”

Update:  Here’s Arnold Kling:

Krugman’s liquidity trap analysis is a blogosphere phenomenon; in the professional journals, it has little credence. One can make a good case that Scott Sumner, portrayed as heterodox in the article, is more mainstream than Krugman.

So Tyler, Arnold, and I offer 3 different perspectives, all of which are valid.  There is no “fact of the matter.”  (Just as there is no fact of the matter as to whether China is larger than the US, or whether the Ryan plan would abolish Medicare.)  In response to a comment below, I replied:

I suspect there is no “orthodox” view of monetary economics, as many economists lack coherent views. The same economist might believe in liquidity traps, or not, depending on how the question is worded.

PS.  Any thoughts on the artwork?  At first I thought that was Bob Murphy chasing Krugman.  But Bob’s not mentioned, and in any case he’s much more handsome than the cartoon character.  I’m also not quite sure what to make of the Goya etching reference, which I believe is entitled something like “The sleep of reason produces nightmares.”

Update:  Oh dear, I didn’t realize what I was getting into when I agreed to debate Bob Murphy.

PPS.  Because of the holidays I won’t be able to catch up on comments for a few more days.

PPPS. I did see the story about the two Fed appointees, but have no comment because the press told us nothing about the only thing that matters—their views on monetary policy.  A sad comment on our press, unless they don’t have any monetary policy views.  In which case a sad comment on our political system.


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50 Responses to “Strange bedfellows”

  1. Gravatar of Nick Rowe Nick Rowe
    29. December 2011 at 11:35

    This is maybe not exactly right, but still fairly close to the truth: MMT was orthodox economics circa 1960. It’s what Alan Coddington used to call “hydraulic Keynesianism”.

  2. Gravatar of Benjamin Cole Benjamin Cole
    29. December 2011 at 11:37

    Excellent blogging again, and my thoughts exactly on the press covering the two new Fed appointments (that is why I asked if anybody out in Sumner-land knew anything).

    One could argue these are THE key appointments of Obama’s career and of our time. Instead, you would think some sub-Postmaster General deputies were being appointed. To give credit where probably none is due, perhaps Obama is hoping to “slip” a couple reasonable appointments past the gold nuts and currency fetishists in the House and Senate, where obstructionism trumps statesmanship (regardless of who is in power).

    BTW, I recently wrote and gently contested a Bloomberg reporter’s take on monetary policy, and had some success. I chided the reporter for quoting the typical hardliners money-fetishists only, and not “the other side,” being Market Monetarists. (I know these are off-key definitions, but sometimes shorthand is necessary…..)

    I advise all Market Monetarists to start writing to editors and reporters covering monetary policy, and gently insist that Market Monetarism be accredited its due, at least.

    If we try, I believe 2012 can be our year.

    Forward!

  3. Gravatar of dwb dwb
    29. December 2011 at 11:46

    I do not really know what orthodox, heterodox, means. We are all smarter for reading this blog. I wish more people read it. Happy New Year to all.

  4. Gravatar of ssumner ssumner
    29. December 2011 at 12:01

    Nick, That sounds right. (Although I guarantee the MMTers would disagree, regardless of how you described it.)

    I was surprised how respectfully the Economist treated the theory, but I suppose to outsiders my views are equally “wacky.”

    Ben, Thanks for keeping the press on its toes.

    dwb, I suspect there is no “orthodox” view of monetary economics, as many economists lack coherent views. The same economist might believe in liquidity traps, or not, depending on how the question is worded.

  5. Gravatar of Lars Christensen Lars Christensen
    29. December 2011 at 12:36

    Well Scott, I am surely proud but you should be alot more proud!

  6. Gravatar of Bill Woolsey Bill Woolsey
    29. December 2011 at 12:38

    Simon Cox was the reporter from the Economist who interviewed me.

  7. Gravatar of johnleemk johnleemk
    29. December 2011 at 12:38

    Scott/dwb:

    Re orthodox macro, the classic example of an economist who may or may not believe in liquidity traps is probably Paul Krugman.

  8. Gravatar of James Oswald James Oswald
    29. December 2011 at 12:41

    I think the comic has to be Bob Murphy. Right after the article was published, I emailed it to him. The comic is a reference to Bob Murphy challenging Krugman to a debate, and in the promotional video, he is shirtless and boxing. The comic has got to be a reference to that video. Can you think of any bloging, boxing, debating, Austrian economists who look more like the comic?

  9. Gravatar of Kristjan Kristjan
    29. December 2011 at 12:42

    Can you explain as simple as possible how exactly can Fed target NGDP? Pump bank reserves? Set negative rate? Buy real assets?
    Is It anything other than swaping one financial asset for another?
    Thank you

  10. Gravatar of Bob Murphy Bob Murphy
    29. December 2011 at 12:45

    James Oswald, Scott was kidding. He’s insane, not stupid.

  11. Gravatar of K K
    29. December 2011 at 12:52

    Scott: “Occam’s Razor.”

    Which, to an economist, I suppose means people say what they are incentivized to say. As always.

  12. Gravatar of The Economist, la Blogosfera y el Ceteris Paribus en los Ciclos Económicos « Punto de Vista Economico The Economist, la Blogosfera y el Ceteris Paribus en los Ciclos Económicos « Punto de Vista Economico
    29. December 2011 at 13:25

    [...] que los journals. Scott Sumner y Tyler Cowen han comentado este artículo en sus respectivos blogs (aquí y aquí). Dudo que el título del artículo, Marginal Revolutionaries, sea [...]

  13. Gravatar of libfree libfree
    29. December 2011 at 13:32

    I would imagine that the press doesn’t tell us about the monetary views of the people selected for the Fed because most people don’t understand monetary economics (as if I do). In that case, the average person needs to know more about the person (smart, experienced, knows what he’s doing) rather than his/her views on monetary policy.

  14. Gravatar of johnleemk johnleemk
    29. December 2011 at 13:59

    libfree,

    That doesn’t make sense. The press reports on decisions of the Fed routinely; at the very least there’s reference to whether they cut or hike interest rates, and how that might affect the economy. Little reporting’s been done even on how these men would vote with respect to keeping rates low or raising them (putting aside that, as all good market monetarists know, setting interest rates is not a good tool or indicator of monetary policy).

  15. Gravatar of ChacoKevy ChacoKevy
    29. December 2011 at 14:03

    Thoma sends us to this link on Jeremy Stein:
    http://real-estate-and-urban.blogspot.com/2011/12/jeremy-stein-for-fed-governor-reprise.html

    The works cited would suggest Obama wants this guy as an active, regulating, don’t-ever-let-2003-to-2007-happen-again type of board member instead of the don’t-ever-let-NGDP-collapse-like-that-again type that would be hoped for.

  16. Gravatar of Lars Christensen Lars Christensen
    29. December 2011 at 14:43

    Bob, who is insane?

  17. Gravatar of Cameron Cameron
    29. December 2011 at 15:10

    Is the drummer supposed to be Scott?

  18. Gravatar of c8to c8to
    29. December 2011 at 15:28

    If a man loses pace with his companions, perhaps it is because he hears a different drummer. Let him step to the music which he hears, however measured, or far away.

  19. Gravatar of Matt Waters Matt Waters
    29. December 2011 at 16:23

    Scott,

    This has nothing really to do with this post. I was actually trying to make a comment on MR’s post about gold and I wanted to ask you a question about the FDR gold-buying program.

    I understand more that expectations are the key to Market Monetarism. Future nominal demand expectations and investment have to rise and fall together. If nominal demand expectations decrease, then investment will decrease to levels that make sense for lower future cash flows.

    So, my question is why, exactly, the FDR gold-buying program led to such a big increase in future demand expectations. In particular, most of the increase in NGDP came from increased business investment. So for whatever reason, FDR purchasing gold with new money increased future demand expectations.

    That’s where my understanding of the issue stops. Clearly it wasn’t because FDR announced that he would do everything necessary until NGDP increased, because that didn’t happen. Therefore, I don’t see any reason why the gold-buying couldn’t have had zero effect on demand expectations. If expectations were still for demand to decline, then why didn’t the new money for gold just stay on the sideline? Why did the market expect it to be spent and thus increase future demand expectations?

    Was gold considered safer than banks or mattresses the new money had to be kept in? When did the FDIC get started and what was the limit? That would be a big argument for negative IOR, which would offset the fact that even big non-insured deposits (or really, repo and money market agreements) at TBTF banks are tacitly insured, unlike in 1933.

  20. Gravatar of Bob Murphy Bob Murphy
    29. December 2011 at 16:45

    Lars, Scott Sumner is insane. He thinks the ultimate reason for the world economy’s financial crisis since 2008, is the inadequate central bank action. That is insane.

  21. Gravatar of ssumner ssumner
    29. December 2011 at 16:46

    Thanks Lars.

    Bill, He sent me some questions by email. I suppose he wrote most of the article.

    Johnleemk, Good point.

    James, I see that Bob disagrees, which makes me want to push the theory more forcefully.

    Kristjan, The most important thing is to set an explicit NGDP target, and do level targeting. My National Affairs article has more to say on the topic. The Fed insists it’s not out of ammunition, and I believe them. There are all sorts of things they could do, but setting an explicit target and doing level targeting is essential.

    K, No, it means don’t construct bizarre, convoluted, far-fetched explanations when the simple explanation (he believes it and always has) is the most likely.

    libfree. But in a long article why not one or two sentences on the only think that matters?

    ChacoKevy, Yes, I know he’s a regulator, but that really doesn’t matter. What matters is his views on monetary policy. What are they?

    If Obama doesn’t want 2003-07 to ever happen again, why is the Obama adminstration actively promoting subprime lending?

    Cameron, If it was me it would certainly be a first.

    C8to, Perhaps that explains the MMTers.

    Matt, Very good question–I published a very long paper on the topic. The bottom line is the “gold-buying” was a ruse–what actually mattered was the buying price, which was continually raised. The higher prices for gold created expectations of a higher future gold peg (eventually raised from $20.67 to $35) which led to expectations of a higher future money supply.

    FDIC started in 1934.

  22. Gravatar of ssumner ssumner
    29. December 2011 at 16:47

    Bob, I prefer to say “wrong action” not inadequate action. I don’t think the main problem is too little money, but rather bearish expectations.

  23. Gravatar of c8to c8to
    29. December 2011 at 16:50

    the interesting symmetry between MMT and MM is that both think more NGDP will solve the crisis. the MMTers rely on the government whereas the market monetarists rely on the fed first, but then the market to allocate these new funds.

    Interestingly the symmetry can be broken by an austrian or public choice critique: why would the government be better at allocating extra N than the market?

    (also i’m coining the variable N to be whatever is measured by NGDP or NGNP or whatever; basically more nominal income. we should be able to say more N meaning more MV or PY but we need to make N primary!)

  24. Gravatar of c8to c8to
    29. December 2011 at 16:53

    No scott, you are the drummer. But the world will soon be marching to your beat: pa rum pum pum pum!

  25. Gravatar of c8to c8to
    29. December 2011 at 17:30

    kristjan, printing money?

    also stop paying IOR…money will flood out of banks into the real economy (real here as opposed to the financial system, not real/nominal)

  26. Gravatar of K K
    29. December 2011 at 18:28

    “K, No, it means don’t construct bizarre, convoluted, far-fetched explanations”

    Fine, Scott :-). But we’re all tired of waiting to get this over with. What the heck is he waiting for?

  27. Gravatar of John Papola John Papola
    29. December 2011 at 19:16

    Just a guess that a certain video featuring Keynes and Hayek in a boxing match was inspirational in that drawing of Keynes, Hayek, Bob and Krugman.

  28. Gravatar of John Papola John Papola
    29. December 2011 at 19:23

    I believe MMT also has the distinction of being endorsed by the epic (and bizarre) viral web documentary “Zeitgeist” as well as “Money as Debt”, if I’m not mistaken.

  29. Gravatar of libfree libfree
    29. December 2011 at 19:59

    Sorry, I think we assume to much. Main stream reporting understands changes to interest rates because it makes sense to them. How NGDP targeting effects interest rates, they are uncertain.

    Fresh out of George Selgin’s class on Money and Banking, I was surprised at how ignorant my corporate bankers were of these ideas. In their view, the Fed set interest rates. I eventually found that my bankers view didn’t match my real world experiences and abandoned them. Hence, I’ve become addicted to this blog. Seems to match the real world. In summary, Market Monetarists = Quantum Mechanics. Awesome but misunderstood.

    @Scott Sumner: Incentives matter. Hope you stay addicted to blogging, wish I’d gone to Bentley!

  30. Gravatar of Samuel Samuel
    29. December 2011 at 20:03

    John Papola “I believe MMT also has the distinction of being endorsed by the epic (and bizarre) viral web documentary “Zeitgeist” as well as ‘Money as Debt’, if I’m not mistaken.”

    Zeitgeist and Goldman Sachs agree on something for once?

  31. Gravatar of johnleemk johnleemk
    29. December 2011 at 20:17

    I almost had an apoplectic spasm when I read this BBC article: http://www.bbc.co.uk/news/business-16301630

    It’s actually a very fine piece of reporting, but as I told the friend who sent me the link:

    ‎”Cut spending……and you are pretty sure to deepen the recession. That probably means even more unemployment (already over 20% in Spain), which may push wages down to more competitive levels – though history suggests this is very hard to do. Even so, lower wages will just make people’s debts even harder to repay, meaning they are likely to cut their own spending even more, or stop repaying their debts. And lower wages may not even lead to a quick rise in exports, if all of your European export markets are in recession too. In any case, you can probably expect more strikes and protests, and more nervousness in financial markets about whether you really will stay in the euro.”

    AAAAAAAAAAAAAHHHHHHHHHHHH NOOOOOOOOOOO THIS IS SO DAMN WRONG

    ‎/exaggeration

    But seriously, the solution to the problem of wanting people to take wage cuts when you know you can’t make them is very well known: inflation. The ECB needs to ease. It ****ed up, plain and simple. This is a great article, but it’s missing the fact that monetary policy is way too tight.

    The hole in the article which I could sail an oil tanker through is that there’s a third (and technically fourth) option: cut spending and inflate the Euro. Southern Europeans take a real wage cut without the mess of nominal wage cuts, which addresses the demand crisis, makes private debt easier to pay off, and doesn’t get the governments deeper in the fiscal hole.

  32. Gravatar of johnleemk johnleemk
    29. December 2011 at 20:18

    libfree:

    Correct, but my point remains: reporters understand interest rates and believe the Fed sets them and believe they are the main indicator of monetary policy. So why the eff don’t they report what the Fed nominees’ views are or might be on interest rate policy?

  33. Gravatar of johnleemk johnleemk
    29. December 2011 at 20:46

    Actually, that BBC article made me so mad that I dashed this off to them via their online comments form:

    Just wanted to say, this is a great summary of the Eurozone crisis. However, the last part of the flowchart is frustratingly missing the third (and technically fourth) option: cut spending, and ease monetary policy.

    South Europe has a problem which the chart states succinctly: wages need to fall and private debts must be paid. The classic solution in such a scenario, which I learned in ‘A’ Level economics and later in university when I read economics, is for the central bank to ease monetary policy and create inflation. If the ECB prints money, real wages fall (lowering unemployment) and debts are easier to repay. It will not deepen the recession, and in all probability will lead to growth (via higher employment, spurring demand) unless the ECB prints money at Zimbabwean levels.

    Many reasonable economists believe that mild inflation would address all 3 problems better than the status quo. e.g., Here is Nobel Laureate Paul Krugman: “given the evident need for a large decline in the relative prices of Spain and other countries, a low overall euro area inflation rate means destructive deflation in the periphery.”

    This is basic macroeconomics, and I think it is extremely inaccurate for the BBC to state that the only choices facing the EU are for governments to cut spending or maintain/increase spending, both of which are certain to cause negative consequences if the ECB fails to ease monetary policy. Please indicate in the story that this dilemma can be averted if appropriate monetary policy action is taken.

    Thanks for your great reporting,
    John Lee

    Benjamin Cole, I hope you are proud! This strikes me as something you would do :)

  34. Gravatar of The Economist comments on Market Monetarism « The Market Monetarist The Economist comments on Market Monetarism « The Market Monetarist
    30. December 2011 at 00:36

    [...] also the comments on the Economists from Scott Sumner, Marcus Nunes and David Beckworth. GA_googleAddAttr("AdOpt", "1"); GA_googleAddAttr("Origin", [...]

  35. Gravatar of Mark A. Sadowski Mark A. Sadowski
    30. December 2011 at 02:02

    Scott,
    Please tell my I haven’t gone insane.

    Between Chartalists/MMTers and Austrians and RBC/Neo-Classicists I think my head is going to explode.

    Besides which I’m even blocked from commenting on Mark Thoma’s often reasonable site. The only thing I can think of was I that I made the mistake of admitting that my father frequently celebrated the pulverizing of Hamburg after WW II. (Oops! I didn’t know that being happy at defeating the same people who pulverized your own cities was not permitted.)

  36. Gravatar of Luis H Arroyo Luis H Arroyo
    30. December 2011 at 02:58

    Neo chartalism sounds to me like an old Fried man´s article, that I comented herehttp://www.miguelnavascues.com/2011/10/un-mundo-imperfecto-comentarios-milton.html.
    I think that is a very good idea, perphaps not very aceptable politically.
    On the other hand, I suspect MMT is pure monetarism disguised, as the article of Friedman is obviously, monetarist.
    So, the differences are not so scandalous.
    I wouldn´t like to close all the door to some elements of other schools that in the fundamentals are not so away from monetarism.
    I mean that reducing all the debate aboy monetary policy to the reasonably of NGDP objective is a little impoverishing.
    I am strongly attracted by the Friedman article and some coincidences with MMT, in the sense that fiscal and monetary policy wuld be coordinanted, both pursuing a credible objective of estability. I don´t see why not to analyse the pros and cons of an idea of which Friedman was pioneer.

  37. Gravatar of Luis H Arroyo Luis H Arroyo
    30. December 2011 at 03:04

    Sorry, erase the previus post
    Neo chartalism sounds to me like an old Friedman´s article, that I commented herehttp://www.miguelnavascues.com/2011/10/un-mundo-imperfecto-comentarios-milton.html.
    I think that is a very good idea, perhaps not very aceptable politically.
    On the other hand, I suspect MMT is pure monetarism disguised, as the article of Friedman is obviously, monetarist.
    So, the differences are not so scandalous.
    I wouldn´t like to close all the door to some elements of other schools that in the fundamentals are not so away from monetarism.
    I mean that reducing all the debate about monetary policy to the reasonably of NGDP objective is a little impoverishing.
    I am strongly attracted by the Friedman article and some coincidences with MMT, in the sense that fiscal and monetary policy would be coordinated, both pursuing a credible objective of estability. I don´t see why not to analyse the pros and cons of an idea of which Friedman was pioneer.

  38. Gravatar of ChacoKevy ChacoKevy
    30. December 2011 at 08:43

    If Obama doesn’t want 2003-07 to ever happen again, why is the Obama adminstration actively promoting subprime lending?

    Race. To over-generalize, if sub-prime = non-white populations, then the retreat from sub-prime also means you are fundamentally underbanked if you are a minority. I can’t find levels of sub-prime lending since what you mention made news back in May, but I can only hope that Obama’s push back into sub-prime is to restore the pendulum to a healthy “at rest” level. Too much sub-prime is bad. None at all is also bad. I share your reservations, though.
    My larger point was poorly stated though. Obama’s inattention to the open spots at the Fed and his refusal to use recess appointments suggest to me that he doesn’t understand (me neither, of course) or care about monetary policy. Why would we expect him to care much about who he appoints? You ask what are the monetary views of the appointees. I’m suggesting that Obama doesn’t know either. Fed appointments are looking more like Supreme Court appointments all the time.

  39. Gravatar of Morgan Warstler Morgan Warstler
    30. December 2011 at 09:14

    MMT= dirty hippies who desperately want to be in charge and will never be.

    Austrians = god like ubermen who will someday inherit (own) the earth.

    MM = realists. the next best thing to Austrianism, but far more attainable, a step towards the small c right, with fewer public employees, and less inflation than we have had historically.

    There is NO continuum here… MMT is a joke.

    We’re moving past Friedman style monetarism which dealt with a far more human Fed, and towards Sumerian monetarism which uses trickery to get us onto Friedman’s “computer.”

    But, eventually we’ll get to a global currency, or multiple private currencies and the Austrians will be even closer to rejoicing.

    Note: we should all hail Mundell who did more to push us towards this end.

  40. Gravatar of Jon Jon
    30. December 2011 at 13:35

    Bob Murphy:

    Lars, Scott Sumner is insane. He thinks the ultimate reason for the world economy’s financial crisis since 2008, is the inadequate central bank action. That is insane.

    So you don’t think the Fed sterilized just about all of their intervention? They did, ergo, they did very little vis-a-vis monetary stimulus while seeming to do a lot.

    If they hadn’t sterilized, we would have seen the price level increase 100-200%. We didn’t see that.

    I’d agree that the Fed worked their way into a somewhat precarious position but please lets not conflate that with whether they did a lot.

  41. Gravatar of Jonathan M.F. Catalán Jonathan M.F. Catalán
    30. December 2011 at 14:12

    With regards to the Austrian School, I think this article comes off as a big win if only because the Economist can maybe be considered a “big-wig” newspaper and it directly acknowledges the Austrian School (not that it hasn’t before) in a less negative fashion. It makes it seem as if Austrian ideas are being more widely accepted. It may impact how future academics (those presently in school) see economics.

  42. Gravatar of Lorenzo from Oz Lorenzo from Oz
    30. December 2011 at 18:38

    On MMT aka neo-chartalism, it strikes me that there are two different questions:
    (1) what sets the ambit of the use of money (i.e. why do people use which money for which transactions).
    (2) what sets the value/price of money (i.e. why do people use particular amounts of money for particular transactions).

    These are not the same question. The question of why I was able to buy a Siberian rabbit fur hat using $US in Red Square in 1995 is a different question from how many $US I used ($10, from memory).

    It strikes me that MMT is on to something about (1): alas, they think they are answering (2), when they are so not.

  43. Gravatar of Bonnie Bonnie
    30. December 2011 at 18:48

    LOL for the Bob Murphy video. When is the debate? Will there be live streaming? I’d love to see it – just don’t turn your back.

  44. Gravatar of Craig Dempsey Craig Dempsey
    31. December 2011 at 09:04

    I question the policy goals themselves more so than the validity of mathematical models of monetary manipulation to achieve them. Goals to sustain price stability, full employment, and growth over the short term seem calculated to perpetuate past trends in the economy. The measures are perverse because they attempt to forecast future achievement from past activity. These goals would seem ideally suited to produce over investment in asset classes well beyond their intrinsic value (e.g., housing), perpetuation of jobs that technology would otherwise supplant over time, and mindless “growth” that strangles innovation in new industries. As we built ever larger McMansions in the suburbs, sold larger SUVs sucking gas to travel back and forth from them, got whole families hooked on super-sized meals in a dizzying array of food franchises, and sent our kids off to get worthless degrees and party like rock stars, it all fit the model. What we might have spent to exploit the revolution in technology that continues in spite of these abuses we will wind up spending on health care and paying able people to retire who might otherwise have 10 or 20 more years to contribute something to society. Why doesn’t economics work on that problem?

  45. Gravatar of ssumner ssumner
    31. December 2011 at 09:18

    c8to, I agree about the market vs the government. And yes, I did mean to say the drummer.

    K, You’d think a reporter or two would ask him this at the press conferences, but it seems they don’t understand the inconsistency in Bernanke’s position.

    John, Check out the update (above) with Bob’s video.

    Thanks libfree.

    Johnleemk, I’m frustrated too.

    Mark, You won’t ever be banned over here.

    Luis, I’m afraid that MMT is about as far from monetarism as one could get. They have a money doesn’t matter view of the world, only fiscal policy matters.

    ChacoKevy, I agree that Obama doesn’t understand monetary policy and doesn’t care about it.

    Morgan, I certainly agree that we are realists.

    Jonathan, That might be right.

    Lorenzo, I agree that the ambit of the use of money is an interesting issue, but it’s not really central to monetary theory.

    Bonnie. Bob says it will be pay-per-view.

  46. Gravatar of Morgan Warstler Morgan Warstler
    31. December 2011 at 14:36

    Scott, this is why I don’t get Bob’s desire for the Austrian debate…

    Targeting level NGDP is a step closer to Austrianism.

    The reality is that we need a smaller far more distributed government form for Austrian thought to take hold.

    Tech will get us the other half of the way.

    Your thinking is incredibly helpful in getting us to smaller government. (it is hilarious how so many faux deep thinkers on the left don’t get this). The only possibility is government shrinking under your system.

    It is not as good as a Balanced Budget Amendment, but it comes close.

    The impact of private citizens worrying about government eating up the 4% allotted growth YOY is ginormous.

    It is a thunderstroke.

  47. Gravatar of Miraj Patel Miraj Patel
    31. December 2011 at 15:46

    You were mentioned on the Economist again: http://www.economist.com/node/21542193?fsrc=scn/tw/te/ar/alessdismaldebate

  48. Gravatar of Lorenzo from Oz Lorenzo from Oz
    31. December 2011 at 17:50

    Scott: I agree that the ambit of the use of money is an interesting issue, but it’s not really central to monetary theory. Quite, in the sense that monetary theory tends to be focused on appropriate policy within the ambit of a given currency.

  49. Gravatar of ssumner ssumner
    1. January 2012 at 19:58

    Thanks Morgan, I agree that it certainly clarifies the issues.

    Thanks Miraj, I’m flattered they are devoting so much attention to this blog, and market monetarism more broadly. I wonder if that drummer is supposed to be me?

    Lorenzo, That’s right.

  50. Gravatar of ssumner ssumner
    1. January 2012 at 20:07

    craig, Economics needs to work on many different problems. I am working on one quite big one–the business cycle.

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