Imagine there’s no hawks or doves

Sometimes people will ask me what I think of a liberal or conservative being put on the Supreme Court.  I usually answer that I don’t care whether the nominee is a communist or fascist or vegetarian or utilitarian, as long as he or she is a good judge.  Of course they role their eyes at my naivete.  “You’d don’t really think that ideology has no impact on their decisions, do you?”  No I don’t, but it shouldn’t.  If I were on the court I’d rule Obamacare constitutional, even though I don’t like the bill.  And I’d expect the actual justices to be equally unbiased.  It’s sad that they are not.

Tim Duy recently linked to this interesting speech by Cleveland Federal Reserve President Sandra Pinalto:

I’ve been part of the Federal Reserve for a long time, more than 28 years. Those labels actually came into play when there wasn’t agreement around an inflation objective. There were some members of the Committee who felt a higher rate of inflation was appropriate. Those individuals were dubbed doves. And there were some that felt that we needed a lower rate of inflation. In fact, one of my predecessors, Lee Hoskins, was focused on achieving zero inflation. And he was considered a hawk.

We now have agreement and a statement by the Committee that 2 percent is the appropriate level of inflation. So I don’t think the titles of hawks and doves are useful when the Committee has stated that we have a 2 percent inflation goal.

If there are titles that people want to use, I would like to be labeled someone who is open-minded. Or someone who is pragmatic…

Of course a 2% inflation target should eliminate inflation hawks and doves at the Fed, and of course it won’t.  That’s because even with the Fed target of 2%, policy is neither accountable nor transparent.  The Fed has a dual mandate (not just inflation targeting), and the Fed doesn’t do level targeting.  This allows lots of wiggle room for ideological bias.

With level targeting, Fed officials would be forced to lay their cards on the table.  If a hawk wanted less inflation now, he’d know it came at the expense of more inflation later.  And if a dove wanted more inflation now, she’d know that it came at the expense of less inflation later.  They’d be forced into choosing the inflation path that resulted in maximum macroeconomic stability, which just happens to be pretty close to NGDP targeting (especially if the trend rate of real growth is stable.)

During 1933 most of the experts on Wall Street railed against FDR’s dollar depreciation program, insisting it wouldn’t work.  Meanwhile traders drove stocks higher and higher as dollar depreciation triggered rapid growth in output.  In the 1970s high inflation drove stocks lower, even as Keynesian economists peddled their Phillips Curve theories.  Since 2008 lower inflation expectations have driven stocks lower, even as old-time monetarists insist there’s an inflationary time bomb waiting to explode.  That’s why we need to replace the FOMC with an NGDP futures targeting regime.  There are no hawks or doves on Wall Street, no ideologues.  Just realists.


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57 Responses to “Imagine there’s no hawks or doves”

  1. Gravatar of dwb dwb
    17. April 2012 at 05:39

    the hawks and doves IMO applies to how balanced the emphasis on employment vs inflation.

    But even if you take Pinalto’s comments at face value, even if the Fed was strictly inflation tageting, epic fail:

    http://www.bloomberg.com/quote/USGGBE02:IND

  2. Gravatar of Ryan Ryan
    17. April 2012 at 05:56

    I’m kind of disappointed in the legal notion that if some bad thing happens for a high enough number of years, then it must be “precedent.” ObamaCare is one of hundreds or even thousands of things that are definitely, objectively, and unquestionably unconstitutional. I don’t even see how it’s a debate.

    If the constitution is little more than a “guideline, unless the violation in question has persisted for long enough” then we don’t live in a constitutional republic. Simple as that.

    I understand it’s politically unsavory to admit that, but sometimes facts are more important than warm-fuzzies.

  3. Gravatar of Nick Rowe Nick Rowe
    17. April 2012 at 06:00

    “If a hawk wanted less inflation now, he’d know it came at the expense of more inflation later. And if a dove wanted more inflation now, she’d know that it came at the expense of less inflation later.”

    Good point Scott. I hadn’t realised that.

    I notice, by the way, that there seem to be consistent hawks and doves on the Canadian CD Howe shadow monetary policy council. Each of us ought to be a dove 50% of the time and a hawk the other 50% (roughly speaking, assuming mean=median). But we aren’t.

  4. Gravatar of John hall John hall
    17. April 2012 at 06:02

    I don’t I recall you ever saying your opinion on the constitutionality of the healthcare bill. I’m not sure that’s a good example as many reasonable, unbiased people to think it is unconstitutional. A better example might be if you liked Bush, but thought Bush v. Gore was a bad decision. That case come closer to being like a Republican vs. Democrat sort of thing.

  5. Gravatar of Jason Odegaard Jason Odegaard
    17. April 2012 at 06:35

    Maybe this is due to some members of the FOMC (generally regional members) who doubt the impact of money on real output? That would be the worst, but is the disagreement that bad?

    I have a hard time convincing reasonable persons that expansive monetary policy (they call it money printing) can help alleviate the issue, as money printing is always regarded as wrong. The opinion of the “majority of economists” also shadows that wrong-headed instinct.

  6. Gravatar of Negation of Ideology Negation of Ideology
    17. April 2012 at 06:42

    Obviously, I agree that ideology should have no impact on their decisions. But I blame Congress, not the FOMC. Congress has the Constitutional authority to “Coin Money and regulate the value thereof.” They pass a vague Federal Reserve Act that says something along the lines of “keep inflation and unemployment low” without any definitions for what that means. Of course that means the FOMC has to be a policy making body rather than an implementation body.

    Congress should pass a law setting the target, then the FOMC would be like the patent office. Are there patent office hawks and doves?

  7. Gravatar of Morgan Warstler Morgan Warstler
    17. April 2012 at 06:53

    SCOTUS laying cards on table is easy.

    Less power to Federal Govt. Which is both originalist and far economically sound.

    I understand the legal precedence that could support Obamacare being legal, but I’d prefer to toss it AND those precedence.

    There is NO reason whatsoever not to view the FDR court and indeed our entire grandparents generation as idiots and fools, whose mess we clean up.

    There is nothing wrong with a federal govt. that is constitutionally hamstrung because words mean things, and we are just United States, we are not America.

    —–

    A level target is great, BUT AGAIN, as open minded as Sumner is, he knows that this policy swings towards the smaller government system we both favor.

    He just wishes to say that’s a nice side effect, I point out the decision makers only vote on the side effect.

    Scott knows whats coming for liberals, he just wants you to be OK with it when it happens.

    —-

    “I dedicate my new Macroeconomics Textbook to @morganwarstler, who taught me that ultimately economics is a tool of politics, and it is won by the same people who win at economics.”

    something close to that will suffice.

  8. Gravatar of Morgan Warstler Morgan Warstler
    17. April 2012 at 06:53

    precedents

  9. Gravatar of D R D R
    17. April 2012 at 06:59

    There is NO reason whatsoever not to view the “founding fathers” and indeed our entire grandparents grandparents generation as idiots and fools, whose mess we clean up.

  10. Gravatar of Becky Hargrove Becky Hargrove
    17. April 2012 at 07:36

    As to Obamacare, it represents a certain impossibility to me that is also not lost on my elderly parents: how is someone unemployed such as myself going to pay? I’ve never heard that approached in any debates. I feel I have already cost the healthcare establishment enough in my lifetime with my inability to pay which is a big part of why I try to be as productive as possible while I still can. It is also why I believe doctors would rather teach the poor how to heal one another, than trying to deal with the impossibility of providing for those without money into the indefinite future.

  11. Gravatar of If Steve Waldman is right, we´re screwed! | Historinhas If Steve Waldman is right, we´re screwed! | Historinhas
    17. April 2012 at 07:49

    [...] I take solace from the concluding paragraph in this Scott Sumner post: During 1933 most of the experts on Wall Street railed against FDR’s dollar depreciation [...]

  12. Gravatar of To To
    17. April 2012 at 07:51

    “There are no hawks or doves on Wall Street, no ideologues. Just realists.”

    Ahem, that might be a bit optimistic. Ever heard of Bill Gross ? Sure, the market is supposed to sift through the BS, but still.

    As for Obamacare vs the Constitution: if the latter prevents this country from having a functional health insurance system, my advice is to write a new one.

  13. Gravatar of Cthorm Cthorm
    17. April 2012 at 08:38

    If I were on the court I’d rule Obamacare constitutional, even though I don’t like the bill. And I’d expect the actual justices to be equally unbiased. It’s sad that they are not.

    That disappoints me Scott. Not the nonpartisan bit, but the implicit support of a federal government that is not limited to enumerated powers. I think Obamacare obviously oversteps the proper role of the federal government, though hardly without precedent. Gonzales v. Raich and Wickard v. Filburn should be overturned as well. If the Federal Government is to have such expansive powers, Congress should amend the Constitution. At least the prohibitionists had the decency to do that before banning alcohol.

  14. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    17. April 2012 at 08:44

    To, we have a functioning health care system now. Always have. The question is (constitutionality aside) will Obamacare make it more efficient or less. I think almost certainly less, but maybe your experiences with government agencies are different than mine.

  15. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    17. April 2012 at 08:49

    For no other reason than that these guys deserve someone reading their hard work explaining the shadow banking system;

    http://www.ny.frb.org/research/staff_reports/sr458.pdf

    Be sure to scroll down to the appendices (in living color!). A friend asks if they aren’t the blueprints for a nuclear submarine. They remind me of the Grand Canyon; breathtaking.

  16. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    17. April 2012 at 08:52

    ‘A better example might be if you liked Bush, but thought Bush v. Gore was a bad decision. That case come closer to being like a Republican vs. Democrat sort of thing.’

    Which one? There were three SCOTUS decisions back then, the votes being 9-0, 7-2, and 5-4.

  17. Gravatar of ChacoKevy ChacoKevy
    17. April 2012 at 08:52

    @John Hall
    I agree, if for no other reason that discussion of health care as a topic can hijack the point Scott was making.

    I do think there is a conservative case to hope for Obamacare as constitutional. If someone cites the Singapore model, as Scott has, as the desirable health care system, then Obamacare needs to be constitutional. Singapore mandates personal savings accounts, so I don’t know how you could make the case that mandated consumption is unconstitional, but mandated savings would be just fine.
    Of course, I don’t know about the viability of the Singapore model without the mandated accounts, nor do I believe Scott has ever commented explicitly on mandatory savings.

    What was this post about again? :)

  18. Gravatar of D R D R
    17. April 2012 at 09:03

    Not sure what Patrick means by “functioning” let alone “efficient”

  19. Gravatar of Cthorm Cthorm
    17. April 2012 at 09:04

    “I dedicate my new Macroeconomics Textbook to @morganwarstler, who taught me that ultimately economics is a tool of politics, and it is won by the same people who win at economics.”

    Don’t get too attached to that definition Morgan. It didn’t hold true for Russia in 1917, for Spain in 1936, or in Mexico since 1910. Remember Varys’ wise words “It is a trick, a shadow on the wall. Power resides where men believe it resides.” If you don’t get the reference, you are missing out.

  20. Gravatar of Cthorm Cthorm
    17. April 2012 at 09:13

    @ChacoKevy

    Interesting that you bring up forced savings plans. That is exactly what FDR had in mind with the Social Security system. While he was alive he strongly opposed “tapping” funds from the payroll taxes, because he did not want SS to become welfare for the old. But that is exactly what happened. Chile has one of the better models for State-pushed saving plans. All workers have individual accounts which they can control. We really should return SS to an individual accounts basis, with an “opt out” option, and conservative asset allocations as a default.

  21. Gravatar of Tony N Tony N
    17. April 2012 at 09:13

    ChacoKevy:

    “I do think there is a conservative case to hope for Obamacare as constitutional. If someone cites the Singapore model, as Scott has, as the desirable health care system, then Obamacare needs to be constitutional. Singapore mandates personal savings accounts, so I don’t know how you could make the case that mandated consumption is unconstitional, but mandated savings would be just fine”

    I don’t think it would be. I can’t think of a constitutional vehicle by which the federal government could compel personal savings. It would have to tax you like it does for Medicare, SS, etc.

    Then again, I could be simply overlooking something.

  22. Gravatar of Benjamin Cole Benjamin Cole
    17. April 2012 at 09:17

    Excellent blogging.

    Actually, I think the labels “left” and “right” are becoming less accurate, even as hysterical partisans, polemics and radio talk show hosts fear-monger and knee-jerk to everything.

    Really, I like Market Monetarism, which is very close to what John Taylor proposed for Japan.
    And I recognize that the price signal does not anticipate pollution.

    I am for a vastly smaller federal government, wiping out the USDA, Labor, HUD and most of Defense, VA and Homeland Security.

    I find more people are developing views that are not partisan per se, even as partisans browbeat on the airwaves and blogs.

    As to the US Constitution, I have bad news for all polemics: It was written in ambiguous fashion, often to gain consensus. Like scripture, anyone can cite the Constitution or some judicial precedent somewhere.

    Sheesh, the Supreme Court goes 5-4 on everything. That tells me that four of our top legal minds think it is Constitutional to do something, and five do not. In other words, it is not clear.

  23. Gravatar of Becky Hargrove Becky Hargrove
    17. April 2012 at 09:17

    I apologize for my part of the hijack. The herd mentality set in pretty quick!

  24. Gravatar of ssumner ssumner
    17. April 2012 at 09:22

    dwb, You said;

    “the hawks and doves IMO applies to how balanced the emphasis on employment vs inflation.”

    Someone who puts more emphasis on growth would support lower inflation during booms that someone who puts more emphasis on inflation. In my view it makes no sense to call either one an “inflation hawk.”

    Ryan, Almost nothing is “unquestionably” unconstitutional, that’s why we have courts. I have two views on this issue:

    1. One can argue that the constitution disallows 90% of what the federal government has done since day one. But there are problems with that interpretation. Why did those living in that early period seem to pay no attention to these constitutional limits? Indeed it wasn’t initially clear that the Supreme Court had the power to rule laws unconstitutional. The constitution is a highly flawed document. If the founders had seriously wanted to limit the powers of the Federal government, they needed to be far more specific. Because they did such a poor job we are left with the current mess, a document that is hopelessly vague on what the Federal government can do.

    2, If we are going to start dramatically limiting the role of the Federal government at this late date, we really should re-write the entire document, it’s a complete mess. It seems odd to rule Obamacare unconstitutional, leaving all sorts of other programs intact. Obviously the Supreme Court has no intention of ruling 90% of the Federal government unconstitutional. So if it rules Obamacare unconstitutional, then it will obviously be doing so for political reasons, not principle.

    Having said that I don’t think the feds have unlimited powers. In areas like speech, religion, civil liberties, taking of property, right to bear arms (within reason, considering they obviously didn’t intend that to apply to powerful weapons not yet invented) etc, the court has something to work with. The document is at least slightly specific. But when you start talking about run of the mill spending programs and phrases like “promote the general welfare”, the constitution seems a hopeless muddle to me. Way too vague.

    Nick, I’m not at all surprised to hear that.

    John, I also think Bush/Gore was badly decided, although I’m not a Republican so I didn’t use that example. My intention wasn’t to criticize those who thought differently from me on Obamacare, but just to point out that it’s not too much to ask our judges to not let personal political bias affect their decisions. I find it easy to do, whereas they seem incapable.

    Jason, But logically speaking even people who think money has no impact on output should favor the exact same 2% inflation rate as those who think it does, at least on average.

    Negation of Ideology. Good point.

    Morgan, They’d also have to toss out your wage subsidy program.

    DR, ‘Idiots’ is too strong, but see my comment above that calls the original constitution a mess.

    Becky, If you are unemployed you don’t have to pay, or am I mistaken?

    To, I should have been more specific. I meant traders on Wall Street, not pundits. In 1933 the pundits opposed dollar devaluation, but Wall Street traders supported it.

    Cthorm, I agree the constitution should be amended, but see my comment to Ryan.

    Patrick, One look at those flow charts and I realize that paper’s not for me. I’m so glad I focus on money, not banking.

    Everyone, I bought a new 27 inch iMac today, but don’t plan to remove it from the box for at least a month. Don’t know if it will help my blogging, but my $279 hamster wheel-powered Acer computer is on it’s last legs.

  25. Gravatar of ssumner ssumner
    17. April 2012 at 09:24

    Ben, I agree about the constitution, and that left and right are becoming less and less clear.

  26. Gravatar of Tony N Tony N
    17. April 2012 at 09:49

    Scott,

    I don’t think anyone doubts the court would leave Obamacare untouched had Congress explicitly utilized the taxing power. But Congress didn’t do that. And that was because of politics, not principle.

    The commerce clause doesn’t have the legs to carry the mandate, and expanding the scope of the clause to do so would not be conceding to just one more federal program; it would mean the establishment of a precedent that completely alters the relationship between citizen and state. Hence the Court’s many appeals for a “limiting principle.”

    So I’m not sure it’s fair to suggest that the striking of the law would be political and not principled.

  27. Gravatar of Cthorm Cthorm
    17. April 2012 at 10:03

    @TONY N

    +1

  28. Gravatar of Morgan Warstler Morgan Warstler
    17. April 2012 at 10:10

    Cthorm,

    “Don’t get too attached to that definition Morgan. It didn’t hold true for Russia in 1917, for Spain in 1936, or in Mexico since 1910. Remember Varys’ wise words “It is a trick, a shadow on the wall. Power resides where men believe it resides.” If you don’t get the reference, you are missing out.”

    Dude, ever year it gets cheaper to provide the exact amount of goods it takes to keep people from revolution!

    Poor folks with enough food to be fat watching 500 channels do not topple 20-30% of the population.

    If they had those things in 1910, 1917 or 1936, nothing would have happened.

    The reason we can afford progress, is because is made cheaper.

    That’s why high paid public employees are ALWAYS the real problem.

    Countless software projects are now possible because one coder can move mountains in days, weeks, and months.

    As long as govt. is run this way, I’d support virtually any govt. program being tried.

    It is a small hurdle.

    —-

    Scott,

    the Constitution is mostly a way to make sure the little states don’t have to put up with shit from the big states.

    Thats IT.

    Whats more, the historical record is mostly one of AMENDMENTS.

    Anything like Obamacare from the get go, should require that giant hurdle.

    NOTE: This is a helpful frame, to imagine what kind of Amendment providing healthcare could be ratified.

    It surely would allow each state to determine their own level care without mandates. It would probably be a block grant based on population. I would not be surprised if it didn’t have to put Medicare and Medicaid into the mix. It would likely even hinge on getting rid of the law that hospitals MUST treat patients in emergency rooms.

  29. Gravatar of Morgan Warstler Morgan Warstler
    17. April 2012 at 10:17

    I don’t mean to look a gift horse in the mouth, but who buys a 27″ inch mac and leaves it in a box for a month?

  30. Gravatar of MikeM MikeM
    17. April 2012 at 10:29

    Scott,no where in your comment or your post do you answer whether the bill has a limiting factor or whether the bill establishes the right of Congress to compel participation in any market it desires. Whether it’s permitted in your reading of the constitution has no bearing on the fact that it’s still outside the scope of congressional powers as they’re understood by modern legal theory.

    Talk of a new constitution scares me too, how are we to know radical Christians or wild eyed progressives won’t have a significant contribution that we’re stuck with for 200 years?

  31. Gravatar of Rich Rich
    17. April 2012 at 10:41

    “If I were on the court I’d rule Obamacare constitutional, even though I don’t like the bill. And I’d expect the actual justices to be equally unbiased. It’s sad that they are not.”

    And:

    “If it rules Obamacare unconstitutional, then it will obviously be doing so for political reasons, not principle.”

    You haven’t even bothered to familiarize yourself with the arguments for limited, enumerated powers advocated by Randy Barnett and other legal scholars, yet you make these claims. ARROGANT.

    I enjoy your blog, where I’ve learned much about market monetarism and economics. You seem to exert great effort and energy to understand the arguments of economists with differing views, and address those arguments with honesty and in good faith. I admire you for that, especially given some of those other economists have not returned the favor.

    It is a disappointment to see your approach differing in the legal sphere.

  32. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    17. April 2012 at 11:07

    ‘Not sure what Patrick means by “functioning” let alone “efficient”’

    He means that if we didn’t have a functioning health care system, he wouldn’t be able to read this blog (or anything else). Nor would northern tier health care facilities like the Mayo Clinic be servicing Canadians (some of them friends of mine) who can’t get their health needs filled by their ‘free’ system.

  33. Gravatar of ChacoKevy ChacoKevy
    17. April 2012 at 11:45

    re: new computer – I do believe you will find a large viewing area to be more productive. To split a screen between two applications instead of alt-tabbing between them is something I’ve grown to enjoy.

    Is the acer a desktop or something portable? I’d hate to see you pitch a functioning machine if all that is needed is a clean install of windows.
    If it was a desktop, then by all means, out with the old and rejoice.

  34. Gravatar of Cthorm Cthorm
    17. April 2012 at 11:48

    @Morgan

    Don’t get me wrong Morgan, I hope you’re right. I think your thesis is appealing, but I’m afraid that an alternative thesis may prove true. What if the great unwashed is not content even with high and rising absolute living standards, because in relative terms they’re not doing well? Robert Reich basically made the case for this in the 1990s. I think it’s a disgusting vision, but I’m not a fan of the Leninists either.

  35. Gravatar of Bonnie Bonnie
    17. April 2012 at 11:57

    Pinalto overlooks a very obvious problem revolving around the 2% target. Suppose that we get a deflationary episode and inflation sinks like a stone, well below the 2% target, and some members of the governors come out and say that it is very difficult to control inflation once it takes hold and because of that erring on the side of doing too little is better than doing more, if they decide to do anything at all.

    This hypothetical is very similar to reality where the Fed consistently failed to meet its 2% target since the crisis began, which came complete with the deflationists on the board publicly showing their true colors. I don’t believe that even the 2% target has been agreed among them as something they must all take responsibility for, especially since their own rules show -6% FF rate is required, not 0%, [Bullard - Seven Faces of the Peril] to maintain their target and there is no additional monetary stimulus forthcoming. They are deep in a hole and refuse to climb out of it because… the hawks have eaten the doves well beyond the point of being consistent with rational analysis, good policy governance, and legislative mandates.

  36. Gravatar of D R D R
    17. April 2012 at 12:14

    Patrick means that the system functions for people who can afford it, even though it is much more expensive than those in other countries and even though health outcomes are inferior to those in other countries.

    Patrick means the system functions in a way that over decades, the upper half of income earners have seen large gains in life expectancy while those in the bottom half have not.

  37. Gravatar of Morgan Warstler Morgan Warstler
    17. April 2012 at 12:17

    Cthorn,

    Will you change your mind if Obama loses?

    Or does it take actually seeing the folks who own actually their house and 200M guns, put down a rebellion?

    It is very hard to enjoy a TV bigger than 55″ – and thats what the would-be rioters do 8 hours a day.

    So, a rich guy has a couple more. His food tastes better. Lots of people bow and curtsy, he flies on jets.

    The only thing Robert Reich is upset about is the % of rich guys income that Robert Reich gets to hand out.

    The day a TV can educate kids better than most schooling is fast upon us, and when that happens the whole bureaucrat enchilada will be just as replaceable as the USPS.

    The only thing truly sacred is commerce.

  38. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    17. April 2012 at 12:22

    D R, there is no respectable research supporting your assertions about health outcomes. Different countries have different racial and ethnic mixes, different nutrition, even different violent crime rates.

    When it comes to surviving diseases or illnesses we’re pretty much at the top.

    Btw, what does it say about a country like Canada where even people who ‘can afford it’ can’t get treated in a timely fashion in their own country (unless they’re hockey players), and have to leave for friendlier climes?

  39. Gravatar of Saturos Saturos
    17. April 2012 at 12:36

    “If a hawk wanted less inflation now, he’d know it came at the expense of more inflation later. And if a dove wanted more inflation now, she’d know that it came at the expense of less inflation later. ”

    And yet this clear logic never seems to prevent the budget deficit from exploding. (Yes I know there’s a difference.)

  40. Gravatar of Saturos Saturos
    17. April 2012 at 12:47

    Imagine there’s no hawks or doves

    And no central bankers too

    Imagine all the people

    Living life acyclically …

  41. Gravatar of To To
    17. April 2012 at 13:02

    @Patrick: Having experienced health care systems in Europe and the US (so has my wife, a registered nurse), I must say you have low standards.

    I certainly have a different experience of American health-insurance companies, obviously, as we have lost most of our savings due to a paperwork SNAFU with one.

  42. Gravatar of David David
    17. April 2012 at 13:36

    Scott, you wrote “I’d rule Obamacare constitutional, even though I don’t like the bill.” But what part of the Constitution allow congress to force people to engage in commerce? If the congress has the authority to require us to buy insurance, could they also require us to buy broccoli b/c it is good for us? or mandate everyone buy 20lbs of bread to help wheat farmers? or, rather than bail out GM, require everyone to buy a GM car? If not, I ask you the same question the solicitor general was asked (but was unable to answer): What is the limiting legal principle which allows the one, but not the others?

    You also wrote “I also think Bush/Gore was badly decided.” Recall that the Florida supreme court issued a unanimous decision setting a deadline and guidelines for the recount. Three weeks later the Florida court issued a new opinion in a 4-3 decision. Given that the courts are supposed to interpret the law and that the law had not changed during those 3 weeks, what possible basis was there for a new decision? The 3 dissenting justices also found no legal basis justifying a new decision. Requiring the Florida court to adhere to their own decision was proper.

  43. Gravatar of D R D R
    17. April 2012 at 13:47

    Patrick,

    Even for being obese and violent, Americans’ health care is generally poor for all we put into it. The fact of the Mayo Clinic doesn’t change that any more than the North Carolina School of Science and Mathematics indicates that state’s high school system is of excellent quality.

    Someday, we’ll have trade in heath care such that Americans can buy into Canada’s system rather than just the other way around. Then maybe we can talk about individual preferences. Until then, I’ll stick with the facts we have.

  44. Gravatar of D R D R
    17. April 2012 at 13:58

    Okay, okay.

    I was going to let that s*** slide, but there’s just no way that BvG was decided correctly. Stopping the recount early turned Title 3 U.S.C. Section 5 on its head. The whole point of that law is to provide safe harbor when there was no legal controversy concerning a timely appointment of the electors– not to dismiss any controversy which actually exists.

  45. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    17. April 2012 at 14:49

    ‘Someday, we’ll have trade in heath care such that Americans can buy into Canada’s system rather than just the other way around.’

    Prior to about 1984 we effectively had that, then Canada made it illegal to pay privately for medical services.

  46. Gravatar of ssumner ssumner
    17. April 2012 at 14:56

    Tony N, It actually is based on their taxing power, it’s just disguised to look like a mandate.

    Morgan, You asked;

    “I don’t mean to look a gift horse in the mouth, but who buys a 27″ inch mac and leaves it in a box for a month?”

    Someone too busy to deal with learning Apple until school is out.

    I wish all this would be left to the states, but Bush greatly expanded Medicare a few years ago, so it’s a bit late to be making that argument.

    MikeM, I don’t think anyone is actually being “forced” to but health insurance. I see it as a subsidy to people with health insurance paid for with a tax on those who choose not to buy. Lots of libertarians favor tax credits for private schools financed by taxes on everyone. That’s basically the same idea.

    Rich, I think it’s naive to assume decisions are made on principle. The conservatives love to cite the constitution in overruling the states, as in Bush/Gore, when it’s in their interest. In other cases they defend states rights. And the liberals find all sorts of unenumerated rights (such as the right to abortion) when it’s in their interest. But they fail to see the right to bear arms, which is actually spelled out. It’s mostly power politics in my view, it’s not based on sincere principles.

    In any case, this post is about monetary policy, not the Supreme Court. I just used that as a throwaway example, as the same lack of principle occurs in monetary policy with the “hawks” and “doves.”

    ChacoKevy, It was a desktop, and my screen size is actually shrinking, as my old monitor is 32 inches.

    Bonnie, Yes, that’s a good point.

    Saturos, There’s a big difference, as there is no agreement on size of government as a share of GDP, just that budgets must balance in the long run.

    David, I don’t think people are being forced to buy health insurenace, see my answer to MikeM.

    Why did the 4 liberals think it was a states rights issue and the 5 conservatives think it was a federal issue. Seriously, even if I am completely wrong, how could it not be pure politics on both sides? After all, both happened to go in the opposite direction of their usual bias. If Gore was 100 votes ahead I guarantee it would have been 5-4 the other way.

  47. Gravatar of dwb dwb
    17. April 2012 at 15:26


    Why did the 4 liberals think it was a states rights issue and the 5 conservatives think it was a federal issue. Seriously, even if I am completely wrong, how could it not be pure politics on both sides? After all, both happened to go in the opposite direction of their usual bias. If Gore was 100 votes ahead I guarantee it would have been 5-4 the other way.

    if you get time, read balkanization. for example: http://balkin.blogspot.com/2012/04/bounded-minimalist-way-to-uphold-aca.html

    i think labeling it politically oversimplifies it. i think its valid to ask how to draw theline. some of the questions presented about market failures (in health care, but when theres adverse selection or externalities) i think might be intuitive to economists but not to the rest of the world. “this one is different” is not a principle that limits federal authority. frankly, im glad they struggle with it.

  48. Gravatar of Michael Michael
    17. April 2012 at 16:12

    Scott,

    I am a non-economist who enjoyed reading your blog for the last several months.

    NGDPLT makes a lot of sense to me, because I don’t like having the federal government in the “fiscal stimulus” business, for a variety of reasons. First, I don’t have high expectations that Congress can be trusted to act appropriately and in a timely manner. I think ARRA was the best that could have been reasonably hoped for, and it left a lot to be desired. I’d like to think the Fed could do a better job. Second, I’d like to see the government at least trying to get value for its dollar. But if the goal is simply fiscal stimulus… then it would be nice to give money to construction workers to rebuilding bridges, but even better to give more money for fewer (even zero) bridges. The government has enough trouble getting value for its dollar without complicating the issue with fiscal stimulus.

    Having said that, an explicit NGDPLT policy seems as if it would take a lot of power away from the federal government. Could it be that politicians on both sides of the aisle simply don’t want to give up that power?

    Bill Clinton was elected on a platform of a “middle class tax cut” as well as various Democrat-friendly programs, and he ended up putting all of that aside to be the deficit reduction President – even before the GOP took Congress in 1994. Some have suggested that he did this because Greenspan (who perhaps followed a more implicit NGDP growth policy) nudged/bullied him into doing so. Maybe no one in Congress (or running for President) wants to have their “fiscal hands” tied to achieve stable monetary policy?

  49. Gravatar of Tony N Tony N
    17. April 2012 at 17:24

    Scott,

    I realize this post is about economics so I won’t belabor the legal elements. I will suggest, though, that you may be conflating distinct and incompatible concepts in light of certain functional equivalencies. Functional equivalency is often a nonstarter in the legal realm.

    On a different note, I want you to know that I’m relatively new to your blog and that I enjoy it immensely. Also, I think it’s commendable that you take the time to address your readers’ comments– even if they’re a bit paltry at times.

  50. Gravatar of MikeM MikeM
    17. April 2012 at 17:51

    Thanks for the response Scott, I don’t think your example applies because most libertarians I know favor allowing parents to choose home school, obamacare has no such escape hatch

  51. Gravatar of David David
    17. April 2012 at 17:53

    You asked “Why did the 4 liberals think it was a states rights issue and the 5 conservatives think it was a federal issue?”

    The answer is they didn’t. Seven of the justices conceded the Florida Supreme Courts (FSC) remedy failed to meet constitutional muster. The majority (conservatives) used the FSC’s interpretation of Florida law that set a Dec 12 deadline to select electors. It was the liberal wing that rejected Florida law. Justice Breyer, for example, proposed overriding Florida law (in this case) and setting a new deadline of Dec 18 for selecting electors.

    With respect to the individual mandate you wrote “I see it as a subsidy…paid for with a tax…”

    How you “see” it is irrelevant; what matters is the language of the law. If individuals fail to purchase insurance, they are fined. That the fine is collected by the IRS does not make it a tax. While congress could have enacted the legislation in the form of a tax, the fact is, it didn’t. Bear in mind that whatever the Court decides will apply not only to the Affordable Care Act, but to every piece of legislation that follows. If they can mandate you buy insurance or pay a fine, then they can mandate you buy broccoli, GM car, 20lbs of flour, etc., or pay a fine to be collected by the IRS.

  52. Gravatar of Rich Rich
    17. April 2012 at 18:00

    I agree it’s naive to believe politics are never involved on the Supreme Court – there are some difficult to square decisions by both conservative and liberal justices. But you claimed in this specific case the conservative justices would be unprincipled to void the Individual Mandate, as doing so is inconsistent with their prior rulings and with respect for “90% of the Federal government.”

    The reality is that conservative justices have tried for years to maintain a limited reach of Commerce Clause powers. Thus, United States v. Lopez in 1995, or United States v. Morrison in 2000. Likewise, conservative legal scholars have described at length how the Individual Mandate is qualitatively a new extension of CC power, rather than a traditional application.

    Of course it has been in the vested interest of liberal elites to paint a very different picture of a slam dunk on Constitutional principles. Here for anyone interested:

    http://volokh.com/2012/03/30/why-did-legal-elites-underestimate-the-case-against-the-mandate/

    http://volokh.com/2012/03/31/legal-elites-and-strategic-behavior/

    I won’t further belabor the point in a post properly about economics. Regards.

  53. Gravatar of Rajat Rajat
    18. April 2012 at 02:51

    “Since 2008 lower inflation expectations have driven stocks lower, even as old-time monetarists insist there’s an inflationary time bomb waiting to explode.”

    Scott, did you mean to say bond yields instead of stocks?

  54. Gravatar of D R D R
    18. April 2012 at 04:56

    Patrick,

    That reply tells me you fail to understand at all.

  55. Gravatar of Jason Odegaard Jason Odegaard
    18. April 2012 at 06:25

    Scott,

    Congratulations on the new iMac! Safari is a fine web browser, but I’ll still recommend to you Google Chrome web browser. It’s faster.

  56. Gravatar of Saturos Saturos
    18. April 2012 at 11:54

    Rajat,

    No I’m pretty sure he means stocks: http://finance.yahoo.com/echarts?s=%5Edji+interactive#symbol=%5Edji;range=20070212,20120418;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

  57. Gravatar of ssumner ssumner
    19. April 2012 at 06:57

    dwb, I’d prefer they let Congress write the laws, unless there was a clear constitutional violation, like banning political speech or seizing hunting rifles.

    Michael, Maybe, but I think you are giving Congress too much credit. I doubt anyone in Congress even understands the implications of NGDPLT. As you say we did something very close for about 20 years, and Congress didn’t really seem to mind. When NGDP fell Congress got very upset. I think they’d be fine with NGDPLT, if they understood it.

    Tony N, I agree that the legal world is different, and I don’t understand it very well.

    MikeM, Good point. I seem to recall that Romney originally proposed allowing self-insurance for the rich in Massachusetts, but the provision was removed by the legislature. Perhaps someone can check whether I am right.

    David, You said;

    “If they can mandate you buy insurance or pay a fine, then they can mandate you buy broccoli, GM car, 20lbs of flour, etc., or pay a fine to be collected by the IRS.”

    Every time Congress subsidies activity X, they are fining Americans who don’t do X. The Court’s role should not be deciding whether laws are sensible, that’s the purpose of voters in a democracy.

    I do recall the two liberals that offered a separate decision, but I see that as supporting my point. They saw the federalism issue the same way, and yet (conveniently) reached the opposite conclusion.

    Rich, See my previous answers. I do understand the agenda of conservative legal scholars, I just don’t see it as a sound approach to law (although I obviously agree with their policy preferences.) Nor do I see it applied consistently.

    Rajat, No I meant stocks.

    Thanks Jason.

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