The NGDP tsunami

I did a highly critical post of Simon Wren-Lewis a while back (mostly in retaliation to a highly critical post he did on my former adviser, Bob Lucas.)  Today I’m happy to be able to do a positive post.  Here’s Wren-Lewis:

It is of course interesting to speculate why this is. Perhaps it is, as John Kay suggests, an obsession with credibility, involving a misreading of the theoretical literature. Perhaps they suspect, like Chris Dillow, further QE will be ineffective, so there is nothing they can do. (But if it is that, they should say so.) Perhaps it is because policymakers are really serving particular economic interests, as Steve Waldman suggests. Perhaps Rogoff was right, and central bankers really are ‘conservative’, in the sense of caring much less about unemployment than the rest of society. But whatever it is, it is not producing good policy for society as a whole. So we should think about moving to a monetary policy target that better reflects social costs. Maybe, as Britmouse in the UK and many others elsewhere suggest, that is a nominal GDP target, or maybe it is something else, but the status quo is not looking too good right now.

Inflation targeting is being rapidly discredited (see my previous post) and more and more people are attracted to NGDP targeting.  It looks to me like the momentum is almost unstoppable; and as Europe goes downhill NGDPLT will look better each day.

What’s causing this re-evaluation?  Probably lots of things, but I see this as the most important:

1.  Almost everyone thinks the US, UK, EU, and Japan could use at least a bit more AD.

2.  The Fed, BOE, ECB and BOJ say they won’t do more, for fear of inflation.

3.  NGDP proponents point out that NGDP is way below trend.

Ergo NGDP targeting looks better right now.

But that’s not the only reason.  Most macroeconomists recognize the advantages of NGDP when there are supply shocks or VAT changes.  Most understand the beauty of a single target, which addresses the dual mandate.  It’s got lots of support from both liberals and conservatives.  Indeed one could write a long article on all the advantages.  So I don’t believe that interest in NGDPLT will disappear when it no longer seems expedient to favor the policy.

Every economic crisis yields a sea change of attitudes in the field of macroeconomics.  Why would this one be any different?

HT:  Britmouse

BTW, Britmouse pointed out that blogs have more influence than you might expect:

Will Hutton has outed Business Secretary Vince Cable as a supporter of NGDP targeting. The Guardian have Hutton interviewing Cable this weekend. Will Hutton frequently advocates for an NGDP target in his Observer/Guardian columns; it was also known that Cable’s Special Advisor, Giles Wilkes, was a reader of Scott Sumner’s blog and supporter of NGDP targeting. The influence of blogs on policymakers is revealed!

And they laughed when Tyler Cowen said this in my first month of blogging:

Here is the excellent Scott Sumner: an open letter to Paul Krugman.  It’s also the best recovery plan I’ve seen so far, by far.  It’s too good to excerpt, so you’ll have to click through and read the whole thing.  From my point of view, right now the whole world should be beating a path to Scott Sumner’s door.

He has two unpublished book manuscripts and he probably would be free to meet with President Obama as well.

Too bad I never got an opportunity to explain the importance of those empty Fed seats to President Obama.

PS.  The “they” who laughed included me.


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76 Responses to “The NGDP tsunami”

  1. Gravatar of dwb dwb
    17. May 2012 at 10:55

    I was going to post this on the previous (Frankel) thread, but i still prefer ngdp targeting because: a) Scott Sumner is a really smart and cool guy and the only to take on Krugman and win (ok it took a while to get begrudging acceptance of ngdp but thats still a W); and b) the “risk-sharing” debt-deflation avoidance argument suggests its NGDP that we want to keep from falling to prevent another debt crisis (IMO the early 90s real estate bubble did not get out of hand because inflation was higher etc etc).

    I hope we do not have to wait until the next cycle. I suspect a lot of conservative economists are muffled until after the election – bad strategy if true.

  2. Gravatar of Major_Freedom Major_Freedom
    17. May 2012 at 11:01

    Fast forward to 2030 AD:

    1. Almost everyone thinks the US, UK, EU, and Japan could use at least a bit more NGDP.

    2. The Fed, BOE, ECB and BOJ say they won’t do more, for fear of over-shooting NGDP.

    3. ANGDP (Accelerating NGDP) proponents point out that ANGDP is way below target.

    Ergo ANGDP targeting looks better right now.

  3. Gravatar of D.Gibson D.Gibson
    17. May 2012 at 11:24

    Yeah Scott!! It is pretty cool that you can use your blog to (hopefully) improve the lives of millions of unemployed/underemployed. That is beyond what even the youngest economists dream of.

    Your job is done, when the ladies of The View chat NGDPLT with the Fed Chairman.

  4. Gravatar of ssumner ssumner
    17. May 2012 at 11:31

    dwb, I think the central banks are pretty committed. They may act, but only to keep things from getting even worse–to promote a fast recovery now would show that I was right and they were to blame.

    MF, That’s when I become a hawk.

    D Gibson. It’s far beyond what I dreamed of. Remember I teach at a small school with no econ grad program. I’m shocked that officials in other countries even read my blog.

  5. Gravatar of Mike Sax Mike Sax
    17. May 2012 at 12:12

    Well hey sounds good. Whether or not NGDP does start being used by these CBs, from my standpoint it’s already a win if IT is becoming discredited.

    However to look at the more pessimistic scenario, assuming we don’t in the short term get NGDP or any Fed action-or fiscal action either for that matter-could Europe’s pain turn out to be our gain?

    “For the past three weeks, U.S. interest rates have been falling. But, unlike normal times, it’s not because of actions taken by the Federal Reserve . This time, rates are dropping because of fears that Greece, which is still trying to form a government, will totally default on its loans.”

    “So, as in the 2008 financial crisis, investors are looking for a safe haven in a storm. And, as in other times of trouble, they are moving into U.S. Treasury securities, driving interest rates lower and lower.”

    “For the U.S., there are ramifications for this flight to safety — most of them positive. Mortgage rates are now hitting record lows. Automobile loan rates are falling as well. And the cost of borrowing money for the U.S. Treasury is also dropping, perhaps helping to lower the national debt. Whether the decline in interest rates might foreshadow something more sinister, such as a global economic slowdown, is still too early to know.”

    So assuming that something sinister doesn’t happen could interest rates being pushed down actually be stimulative for the US-this could also apply to Britain, Japan, etc, all countries off the euro…

    http://www.cnbc.com/id/47456361

  6. Gravatar of Andy Harless Andy Harless
    17. May 2012 at 13:44

    FYI the link to your old blog post (“an open letter to Paul Krugman”) is broken. Here is the correct link.

  7. Gravatar of Tommy Dorsett Tommy Dorsett
    17. May 2012 at 14:33

    Scott – Did you ever read Monetary Policy: A Market Price Approach by Johnson and Keleher published in the early 1990s? If so, what did you think of it?

    PS – Five-year tips breakevens are now 10 bps away from the threshold seen a few months before QE2 in 2010 and the multi-year rate commitment/Twist in 2011. Perhaps we’re on the cusp of a three-pronged (Fed/ECB/BoJ) bout of monetary stimulus.

  8. Gravatar of Liberal Roman Liberal Roman
    17. May 2012 at 15:24

    Major Freedom = anti-obesity advocate in Mao-era China.

  9. Gravatar of Liberal Roman Liberal Roman
    17. May 2012 at 15:27

    Major Freedom: “I know you’re almost starved to death, but don’t you eat that Snicker bar. It can lead down a dark path in 20 years.”

  10. Gravatar of Becky Hargrove Becky Hargrove
    17. May 2012 at 15:44

    Liberal Roman,
    Some things are just too rewarding and can hence be addictive…

  11. Gravatar of Bill Ellis Bill Ellis
    17. May 2012 at 15:58

    ” NGDP proponents point out that NGDP is way below trend.”

    Chart ? I love charts. Any one got a link ? My lame googling tuned up nada.

  12. Gravatar of Bob A Bob A
    17. May 2012 at 16:14

    So, I finally discovered the source of the NGDP pimping! O.K., I’ll read what you got.

  13. Gravatar of Mike Sax Mike Sax
    17. May 2012 at 16:22

    The Fed seats are now filled for first time since 2006

    David Vitter complains: “the two could strengthen Bernanke’s hand in issuing new regulations under the Dodd-Frank financial reform law that many Republicans oppose. “These two new members change the map,” he said. “I think that will significantly push these regulations to the left.”

    http://www.cnbc.com/id/47465112

    Imagine that a government function that actually works properly.

  14. Gravatar of Liberal Roman Liberal Roman
    17. May 2012 at 20:46

    ***pondering if that was sarcasm in Becky Hargrove’s post above or was she actually serious***

  15. Gravatar of Saturos Saturos
    17. May 2012 at 21:23

    Bill Ellis, try this site: http://thefaintofheart.wordpress.com/
    Or this one: http://macromarketmusings.blogspot.com/

  16. Gravatar of Bonnie Bonnie
    17. May 2012 at 21:44

    One reason to prefer NGDPLT that isn’t on your list:

    There is a definition of undershooting, overshooting and defined remedies for each in NGDPLT.

    There is no definition of undershooting, and consequently no defined remedy of it in the IT experience, and therefore is only a commitment to price stability in the upward direction. This produces a perverse incentive do nothing at all during a deflationary episode because it doesn’t count as a failure of policy. I would love to have a job that pays the big bucks where I could nearly always succeed by doing absolutely nothing. Heck, I wouldn’t even have to go to work, ever.

  17. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    17. May 2012 at 22:23

    Next time you want to get close to the rich and powerful, Scott, just call me. Or didn’t you know I’m Karl Rove’s brain;

    http://baselinescenario.com/2012/05/17/geithner-to-dimon-resign-from-the-board-of-the-new-york-fed/#comment-116527

    ————quote———-
    I’ve done some extensive digging on Patrick R. Sullivan on the Internet – and it turns out he is a GOP operative that has been active in the blogosphere since 2004, and might be employed by American Crossroads (a GOP Super PAC). Here is the whale of them all: Patrick R. Sullivan is possibly directly affiliated with, or might even be, Karl Rove. Wow! Who would have thought someone like that would be trolling baselinescenario.com?

    Why do I think this?

    1. Patrick R. Sullivan’s blog was started in 2004. The special prosecutor assigned to the Valerie Plame Affair on December 30, 2003, is none other than Patrick Fitzgerald. The pen name “Patrick R. Sullivan” was likely used in reference to him. The Irish last name “Sullivan” may also have been used to attack John Kerry with an Irish sounding name to gain legitimacy. “R” might even stand for “Rove.”
    —————endquote————-

    Of course that’s nothing like the libel MIT’s Simon Johnson put on Jamie Dimon in the above linked blog post, but still, I’ll bet you didn’t know with whom you’ve been dealing.

  18. Gravatar of Major_Freedom Major_Freedom
    17. May 2012 at 23:05

    ssumner:

    MF, That’s when I become a hawk.

    If in 2030 you won’t care if unemployment is 20% and price inflation is 20% or -20%, as long as 5% NGDP is successfully being targeted, then why not be a hawk in 2012 with the current unemployment and price inflation? Why care about unemployment, or price inflation, or output now?

  19. Gravatar of Major_Freedom Major_Freedom
    17. May 2012 at 23:08

    Liberal Roman:

    Major Freedom = anti-obesity advocate in Mao-era China.

    Major Freedom: “I know you’re almost starved to death, but don’t you eat that Snicker bar. It can lead down a dark path in 20 years.”

    Yeah, you’re calling for inflation because somehow people would otherwise starve to death, and inflation somehow doesn’t make food more expensive for those who earn fixed incomes and prices for food rises before their incomes do.

    It’s truly amazing how brainwashed you really are.

  20. Gravatar of Major_Freedom Major_Freedom
    17. May 2012 at 23:11

    Becky Hargrove:

    Liberal Roman, Some things are just too rewarding and can hence be addictive…

    Yet another sorry brainwashed citizen.

    How in the world are you rewarded by other people printing and spending money on themselves and their friends? They are taking wealth out of the economy for their benefit, leaving you with less opportunity to buy real wealth, and not only that, but they don’t put real wealth back into the economy, they only put dollars back in, which makes the prices you pay for the lower quantity of available goods higher than they otherwise would be.

    Keep drinking the Kool-Aid.

  21. Gravatar of Major_Freedom Major_Freedom
    17. May 2012 at 23:14

    You two are complaining about lack of food, and yet your silly solution is for others to put more dollars into the economy and eat food for themselves, leaving you with less food and devalued paper money.

    The solution to lack of food is more food production, not more paper note production. You can’t eat paper, although with you fiat bugs one can never tell.

  22. Gravatar of Bob A Bob A
    18. May 2012 at 01:24

    Lol, I have stared at money supply numbers for hours wondering what Greenspan was doing. Once, while reading some Fed research on velocity, I asked myself if the person who wrote it ever looked at the actual data. Never did I put two and two together.

    Question,is this affected by sweeps? I had looked at the data for a while but didn’t know it was skewed from 94 on. The series I saw constructed made this phenomenon stand out less.

    Not sure how Fed avoids NGDP drop post crisis. There has to be a channel in which the money flows to the real economy and not get horded by banks. Once the events of September happened The only thing that the Fed could do would be to launch an aerial assault dropping money all over America. Remember helicopter Ben?

    Not a fan of models that rely on Rational Expectations to work. However, it seemed to work without an explicit target being announced not sure why anybody needs to know.

    It’s late. I’ll read more in the morning.

  23. Gravatar of Becky Hargrove Becky Hargrove
    18. May 2012 at 02:26

    Liberal Roman,
    No sarcasm here! I really need to be nicer to Major Freedom and let up on the teasing. He’s got his points but doesn’t have a lot of thought out counterpoint, so can sound like a ‘bot’.

  24. Gravatar of Becky Hargrove Becky Hargrove
    18. May 2012 at 02:48

    Bonnie,
    Your point is important. One of the ways I’ve learned to defend NGDPLT at other sites is to explain how it makes life a bit simpler for everyone, and easier for the average person to understand monetary policy in general.

  25. Gravatar of JJA JJA
    18. May 2012 at 03:41

    Scott,

    I come back to this. I have enjoyed your blog and many other blogs (like Christensen and Nunes, amongst others). I still see you market monetarists and DeLong with Krugman (with the-blogger-of-his-own-ilk Yglesias) to aim for the same thing: economic recovery and well-being.

    From my practitioner’s point of view, you are looking more and more the same (yes, I know the theoretical and ideological obstacles). I think that is a good thing. The idea of NGDP targeting looks better all the time.

    It is even a concept I can understand from my sales-oriented point of view.

    By the way, I hope that you can consider this a compliment: I think that your NGDP-targeting scheme is straightforward and simple enough to be usable. Therefore it is attracting people from very different theoretical models.

    My engineers keep telling me that a practical methodology or “recipe” than can unite or combine theoretically different approaches is the most valuable. Could it be the same in macroeconomics also?

  26. Gravatar of Bob Dobalina Bob Dobalina
    18. May 2012 at 04:49

    I have been a true believer in the Church of NGDP Level Targeting for years now, but seeing Vince Cable in a neighboring pew has prompted in me a crisis of faith.

    Lying down with dogs, we are.

  27. Gravatar of W. Peden W. Peden
    18. May 2012 at 05:00

    Bob Dobalina,

    If there’s one thing the News International scandal teaches us, it’s that Vince Cable is sometimes right, even if for the wrong reasons.

  28. Gravatar of Saturos Saturos
    18. May 2012 at 06:35

    Is it a coincidence that the importance of those seats seems to have been realized just as Obama was getting reelected?

    MF, 20% inflation p.a. under stable 5% NGDP growth means output is falling 17% per annum. We’ll have bigger worries then.

  29. Gravatar of RJ RJ
    18. May 2012 at 07:06

    …falling 15%?

  30. Gravatar of John Bennett John Bennett
    18. May 2012 at 07:22

    As a relative newcomer to NGDP level targeting, I need to ask what has been the experience of the economies that have tried it? I read somewhere that the UK tried it for some years but abandoned it. Details? Any others?

  31. Gravatar of Saturos Saturos
    18. May 2012 at 07:26

    Sorry, output falls 12.5%

  32. Gravatar of Saturos Saturos
    18. May 2012 at 07:27

    Well the US implicitly targeted NGDP for 25 years and did OK. See Lars Christensen and Marcus Nunes for details/graphs.

  33. Gravatar of RJ RJ
    18. May 2012 at 07:51

    Saturos, why 12.5%?

  34. Gravatar of Liberal Roman Liberal Roman
    18. May 2012 at 08:07

    @MajorFreedom & Becky Hargrove,

    I guess the only thing I’ll point out is that more people starved in super-deflation, super-low price Great Depression than in the decade previous to it.

    I am just completely stunned by your dim wittiness. Truly and literally stunned. I can excuse people who have no interest in economics. They don’t know any better when they blather on about some of their crazy ideas. But you two have discovered the economic blogosphere. And yet, you take the accumulated centuries of knowledge from Ricardo to Friedman to Lucas to Bernanke to Sumner and you throw it all down the toilet and blather on like you have no clue.

    You are the modern day leech doctors. Screw Fleming and his penicillin, bring in the leeches!!!

  35. Gravatar of dwb dwb
    18. May 2012 at 08:14

    @liberal roman,
    seriously you should know better: food leads to hunger, and hunger leads to starvation and death. the malinvestment in food will eventually correct itself once we take it away. that’s Rothbard Austrianism in a nutshell. I wonder why voters reject such a clearly superior policy?

  36. Gravatar of Major_Freed Major_Freed
    18. May 2012 at 09:54

    Becky Hargrove:

    No sarcasm here! I really need to be nicer to Major Freedom and let up on the teasing. He’s got his points but doesn’t have a lot of thought out counterpoint, so can sound like a ‘bot’.

    Becky, just so you know, what you call “teasing” is, from my perspective, you making an intellectual fool of yourself. I am looking down on you. You are in no way shape or form making me feel bad or inferior. You seem to have no idea what is happening to you. My thoughts are consistently far more thought out than your one dimensional talking points that prove you have no clue what the nature and effects of inflation really are. You lack the requisite knowledge.

    But please, continue to “tease” me, which I can’t see as teasing at all, since it is so beneath me I can’t even tell it’s teasing.

    Saturos:

    MF, 20% inflation p.a. under stable 5% NGDP growth means output is falling 17% per annum. We’ll have bigger worries then.

    You unsurprisingly missed the point.

    Liberal Roman:

    I guess the only thing I’ll point out is that more people starved in super-deflation, super-low price Great Depression than in the decade previous to it.

    It wasn’t because the prices were low that people starved.

    I am just completely stunned by your dim wittiness. Truly and literally stunned. I can excuse people who have no interest in economics. They don’t know any better when they blather on about some of their crazy ideas. But you two have discovered the economic blogosphere. And yet, you take the accumulated centuries of knowledge from Ricardo to Friedman to Lucas to Bernanke to Sumner and you throw it all down the toilet and blather on like you have no clue.

    You sound mad. You’re an ignoramus who has no clue how the market works because you’re too busy trying to intellectually run the economy as if you are in power when the state is in power, as if controlling people’s monetary lives through deception and signal distortions makes them better off.

    You talk about Ricardo, Friedman, Lucas, Bernanke and Sumner? No wonder you’re clueless. You’re talking the knowledge accumulated by Bohm-Bawerk, Hayek, Mises, Rothbard, and through it all down the toilet and blather on as if you had a clue.

    You are the modern day leech doctors. Screw Fleming and his penicillin, bring in the leeches!!!

    Look in the mirror. Inflation is a leech on the productive, who are expected to produce not for the sake of their own consumption, but for the sake of other people’s consumption through arbitrary wealth transfer.

    What you advocate HURTS innocent people.

    dwb:

    seriously you should know better: food leads to hunger, and hunger leads to starvation and death. the malinvestment in food will eventually correct itself once we take it away. that’s Rothbard Austrianism in a nutshell. I wonder why voters reject such a clearly superior policy?

    I thought it was paper money that satisfied hunger? That by removing paper money inflation, people will be able to eat less paper, and thus starve.

    And you’re right, the majority of voters are always right. It why your desired slavery was “right” in the US. The majority believed it was right! We must give the mob what they want because the mob is never wrong.

    Yes, let’s not allow people to correct the errors brought about by too much paper money. Let’s continue to flood them with it, and distort economic calculation, so that they can focus on eating the paper, rather than producing food in a sustainable division of labor.

  37. Gravatar of dwb dwb
    18. May 2012 at 10:34

    @Becky Hargrove:

    I really need to be nicer to Major Freedom and let up on the teasing.

    after reading the above trash by MF, i have to say i admire your restraint.

  38. Gravatar of Major_Freedom Major_Freedom
    18. May 2012 at 10:36

    after reading the above trash by MF, i have to say i admire your restraint.

    That “trash” is IN RESPONSE to Becky’s attempt to tease, and your attempt to tease.

    You have it backwards. I remain respectful when my interlocutors remain respectful. If you bark however, expect to get bitten.

    You want to dish it out, but you can’t take it.

  39. Gravatar of Becky Hargrove Becky Hargrove
    18. May 2012 at 10:48

    I am really sorry if I offended anyone, and it hurts me terribly to think I could have even harmed the cause of people I am in such awe of. I am a person who has been without a job for years and am trying to find ways to keep people such as myself alive. It does seem best that I continue my work offline.

  40. Gravatar of dwb dwb
    18. May 2012 at 10:53

    @Becky Hargrove
    nah, stick around i like reading your comments. nobody here is offended. there’s no harm done.

  41. Gravatar of Liberal Roman Liberal Roman
    18. May 2012 at 10:56

    Becky,

    I am sorry. It’s unfortunate that Major Freedom’s (and policy makers who share his viewpoint) lack of understanding of the difference between monetary and supply inflation is keeping you out of work.

    Recently, there has been a helium shortage in America. Helium prices have soared http://seattletimes.nwsource.com/html/nationworld/2018209561_helium15.html

    Obviously, this is Ben Bernanke’s fault that the prices have risen. Prices cannot possibly go up because of supply & demand reasons.

    Oh and the collapse in the price of natural gas doesn’t indicate anything. We will just conveniently ignore that data point since it doesn’t go along with our story.

  42. Gravatar of Saturos Saturos
    18. May 2012 at 10:58

    RJ, because (1 + deltaY) = (1 + deltay)*(1 + i)

    Becky, please don’t leave the blog! Your comments are great.

  43. Gravatar of Saturos Saturos
    18. May 2012 at 10:59

    Whoops, I meant (1 + deltaY) = (1 + deltay)*(1 + pi)

  44. Gravatar of Saturos Saturos
    18. May 2012 at 11:00

    Liberal Roman, you know that if we all decided to ignore MF from now on, he would eventually go away. But that would be no fun ;)

  45. Gravatar of Major_Freedom Major_Freedom
    18. May 2012 at 11:35

    Becky:

    I am really sorry if I offended anyone, and it hurts me terribly to think I could have even harmed the cause of people I am in such awe of.

    Well you didn’t “offend” me so much as present yourself as being immature. Why would you purposefully try to tease me?

    I am a person who has been without a job for years and am trying to find ways to keep people such as myself alive. It does seem best that I continue my work offline.

    Well that makes sense. You want to find a way to keep yourself alive, even if it means harming innocent people who did you no wrong. I guess I can’t say I am surprised that someone who considers themselves above working for minimum wage sweeping floors, would be so patronizing to someone who appears to be advocating for even less “spending” and “incomes” in the economy, which makes it appear that you will have less opportunity to earn gainful employment. You’ve been completely brainwashed by inflationists, rather than realizing it is because of inflation in the past, that has thrown the economy so out of whack that you can’t find work now. The problem isn’t lack of “spending”, the problem is lack of economic coordination, of matching consumer preferences with investments and worker skills. You want the easy way out of gaining via purchasing power theft from others including me. You want free money from the printing press, which will only dilute my income even further. Do you see me calling for theft against you? No, and yet there you are, calling for purchasing power theft from me. And yet you want me to join in with you and what you want, which is directly counter to my own interests? What did you expect? Respect? Awe and admiration? Why should I treat you as any different than a common street thug who refuses to get a real job because it’s “beneath” him?

    I just lost whatever respect I had for you. I won’t be a sap like the rest of these yokels below:

    Liberal Roman:

    I am sorry. It’s unfortunate that Major Freedom’s (and policy makers who share his viewpoint) lack of understanding of the difference between monetary and supply inflation is keeping you out of work.

    You have it backwards. You lack an understanding of economic calculation, and it is precisely your advocacy of inflation that has resulted in such a deplorable state of the economy that Becky can’t find work at the real wage rate she expects.

    It’s unfortunate that your lack of understanding economics, and policy makers who share your view, is keeping Becky out of work.

    It truly is a remarkable sight to behold watching you inflationists actually believing to yourselves that you are helping. You could not be more wrong. I don’t know of anything more terrible than people on a destructive warpath who actually believe they are helping. It’s so terrible because it’s so hard to convince idealistic people like yourself that their good intentions have such destructive consequences.

    Inflation does not help you. Repeat that over and over and over again until it sinks in.

    Recently, there has been a helium shortage in America. Helium prices have soared http://seattletimes.nwsource.com/html/nationworld/2018209561_helium15.html

    Chalk up yet another confusion in economics. That isn’t a shortage.

    If the prices are free to rise, thus decreasing the quantity demanded down to available supply, that eliminates any possibility of a shortage because whoever is able and willing to buy it, can buy it. A shortage occurs when people are able and willing to pay the price for a good, but the good is not available. This typically occurs when there are price controls, such as the price control on gasoline in the 1970s.

    Obviously, this is Ben Bernanke’s fault that the prices have risen. Prices cannot possibly go up because of supply & demand reasons.

    Chalk up yet another confusion in economics. Wow you’re on a roll.

    Price inflation is NOT the presence of prices for particular goods rising here and there. Price inflation is a sustained, general increase in prices, brought about by money printing.

    People like me are not blaming Bernanke for relative price increases in things like helium, and the straw man to the contrary is just absurd.

    In the aggregate, prices cannot sustainably keep going up without an increase in the money supply.

    But this isn’t even the most serious problem with money printing. Of course you can only think it is the worst problem because you lack an understanding of economic calculation. You have no clue how inflation changes not only aggregate prices, but relative prices as well, which brings about changes to the physical structure of the economy, and these changes just happen to be physically unsustainable. It would have been great if the changes were sustainable, because then I’d join your cult and be an inflationist as well.

    But resources are scarce. Inflation into the loan market, which is where most of inflation in our economy comes from, just so happens to allow the economy to be thrown off onto a physically unsustainable trajectory, which of course implies a wasting of resources and a lower standard of living than would otherwise have been possible. For that reason, and that reason alone, I refuse to join your cult.

    Oh and the collapse in the price of natural gas doesn’t indicate anything. We will just conveniently ignore that data point since it doesn’t go along with our story.

    Even if the price of natural gas increased it doesn’t necessarily mean anything regarding monetary inflation either. But in reality, the price of natural gas has been rising in the long term, and that is because of money printing, which hits all goods eventually.

    Saturos:

    Liberal Roman, you know that if we all decided to ignore MF from now on, he would eventually go away. But that would be no fun.

    You’d actually be doing me a favor by ignoring me. It would mean I won’t have to correct you so often. So you don’t have to pretend in your mind that I will go away if ignored, or that you are the reason I don’t.

    But if you have fun in not ignoring me, then by all means, don’t ignore me if you’d like. It’s not for me to decide that anyway.

  46. Gravatar of Saturos Saturos
    18. May 2012 at 11:42

    MF, please leave Becky alone. She’s distraught as it is.
    Becky is not trying to hurt anyone.

  47. Gravatar of dwb dwb
    18. May 2012 at 12:11

    MF, please leave Becky alone. She’s distraught as it is.
    Becky is not trying to hurt anyone

    I am in agreement: We all tease MF, i think he needs to put the big boy pants on, man-up and stop whining like a 3 year old about it.

  48. Gravatar of Major_Freedom Major_Freedom
    18. May 2012 at 12:25

    Saturos:

    MF, please leave Becky alone. She’s distraught as it is.
    Becky is not trying to hurt anyone.

    Give Becky a break. She’s not a baby.

    I would have left her alone if she left me alone. But she didn’t, so I didn’t. What, are you saying people should get a free pass on teasing others when they don’t have a job?

    dwb:

    I am in agreement: We all tease MF, i think he needs to put the big boy pants on, man-up and stop whining like a 3 year old about it.

    I’m not whining, you guys are.

  49. Gravatar of Major_Freedom Major_Freedom
    18. May 2012 at 12:26

    You are whining that I am not just shutting up and taking it. You seem to be able to dish it out, but you have a little problem in taking it.

  50. Gravatar of ssumner ssumner
    18. May 2012 at 12:29

    Mike Sax, You quoted:

    “Whether the decline in interest rates might foreshadow something more sinister, such as a global economic slowdown, is still too early to know”

    I think the stock market has provided a very clear answer to that question.

    Andy, Thanks, I changed it.

    Tommy Dorsett. I vaguely recall reading some summaries, but not the book itself. I think those market approaches are moving in the right direction, but we really need that NGDP futures market.

    Thanks for the tip on the TIPS.

    Bill Ellis, David Beckworth and Bill Woolsey frequently post that chart.

    Bob A, Yes, I’m the evil mastermind manipulating the global economy from a cave in the South Pacific.

    Seriously, google my National Affairs piece (or link in right column.)

    Bonnie, That’s right.

    Patrick, Wow! I didn’t know who I was dealing with. I’ll be much more careful answering your comments in the future.

    (2 Irish names–that can’t be coincidence!) :)

    JJA, I agree that Krugman/DeLong/Yglesias seem somewhat more market monetarist than in the past.

    Bob Dobalina, I confess to not even knowing Vince Cable (I’m one of those provincial Americans.)

    John Bennett, No one has tried it. I think it’s best suited for big countries.

    Saturos, I hate the fact that one can’t just add percentage changes–makes it harder to teach macro.

  51. Gravatar of dwb dwb
    18. May 2012 at 12:36

    “I would have left her alone if she left me alone. But she didn’t, so I didn’t.”

    thats *exactly* what my 6 year old says.

  52. Gravatar of dwb dwb
    18. May 2012 at 12:38

    MF: and by the way, this was all part of a secret conspiracy to tease you, step back, and make you make an idiot of yourself. guess what. its working.

  53. Gravatar of Saturos Saturos
    18. May 2012 at 12:39

    I still think it’s really Scott. Quit pretending, we know who you are.

  54. Gravatar of Major_Freedom Major_Freedom
    18. May 2012 at 12:41

    thats *exactly* what my 6 year old says.

    It’s also *exactly* what leaders of sovereign nation states say.

    What’s your point? I’m not either a 6 year old or a leader of a sovereign nation state, so the inference you’re making is way off.

    PS I know you can’t refute my arguments so that’s why you’re resorting to ad hominem. It’s a sign of intellectual weakness. You’re intellectually weak.

  55. Gravatar of Major_Freedom Major_Freedom
    18. May 2012 at 12:43

    dwb:

    MF: and by the way, this was all part of a secret conspiracy to tease you, step back, and make you make an idiot of yourself. guess what. its working.

    I think you and I both know whatever it is you are doing is certainly not working.

    And you’re the idiot.

  56. Gravatar of Mike Sax Mike Sax
    18. May 2012 at 12:47

    Becky you’ve got to understand what I think most others have figured out-Major Freedom is the village idiot around here.

    To take his feverish ramblings seriously gets you nowhere.

  57. Gravatar of Mike Sax Mike Sax
    18. May 2012 at 12:48

    I know you don’t like to be mean but you got to just know when to disengage

  58. Gravatar of dwb dwb
    18. May 2012 at 12:49

    …but is incredibly entertaining to make his ramblings ever more feverish.

  59. Gravatar of Major_Freedom Major_Freedom
    18. May 2012 at 12:52

    Mike Sax:

    Becky you’ve got to understand what I think most others have figured out-Major Freedom is the village idiot around here.

    How nice. Look at all these insults being flung around. You too are intellectually weak.

    To take his feverish ramblings seriously gets you nowhere.

    It’s gets YOU nowhere because you don’t know how to get to what’s true about the real world.

    Your feverish inflationist ramblings got us into recession after recession.

  60. Gravatar of Mike Sax Mike Sax
    18. May 2012 at 12:52

    dwb that’s right which is why I sometimes to mix it up with up with him LOL

  61. Gravatar of Major_Freedom Major_Freedom
    18. May 2012 at 12:52

    dwb:

    …but is incredibly entertaining to make his ramblings ever more feverish.

    You are taking us there with your petty insults and childish ad hominem.

  62. Gravatar of Major_Freedom Major_Freedom
    18. May 2012 at 12:55

    Ah face it people, you like having me around because I’m the only sane voice in this asylum. You might as well call me Mr. McMurphy.

  63. Gravatar of IVV IVV
    18. May 2012 at 12:55

    PS I know you can’t refute my arguments so that’s why you’re resorting to ad hominem. It’s a sign of intellectual weakness. You’re intellectually weak.

    “You just used ad hominem attacks. Here’s my ad hominem.”

    The next round of this debate will be in lolcat format.

    (I’m not even involved. This is hilarious.)

  64. Gravatar of Mike Sax Mike Sax
    18. May 2012 at 13:16

    MF I agree that one of two ideas is true: either you’re the only sane one around here or you’re the craziest one around here.

    I will grant you that you provide comic relief now and again. While Hayek lost any crediblity in the 30s debates and only wrote anything worth reading after he left Macro you are here to reassume these debates as if we’ve learned nothing over 80 years.

    And yeah Hayek didn’t make it as a macroeconomist-Milton Friemdna wouldn’t let him near an Econ classroom when he was at Chicago in the early 50s.

    I know it’s all about gold and the South will rise again!

  65. Gravatar of dwb dwb
    18. May 2012 at 13:21

    lolcat format: thats hilarious.

  66. Gravatar of Austin Austin
    18. May 2012 at 13:55

    Hi Scott,

    Student here, so a distinction would be helpful.

    Would it be an accurate statement to say that inflation targeting and NGDP targeting would have roughly the same effect if the inflation target were set high enough?

    Thanks.

  67. Gravatar of maximillian maximillian
    18. May 2012 at 19:14

    NGDPLT is a terrible acronym, i think we need to go with Nominal Income Target or NIT: (http://en.wikipedia.org/wiki/Nominal_income_target) . this has the benefit of not specifying GDP over say GDI; and also since people are calling inflation targeting IT, NIT can also be read tongue in cheek as Not Inflation Targetting!

  68. Gravatar of maximillian maximillian
    18. May 2012 at 19:20

    Austin,

    no: one reason is because we don’t know what inflation should be. because of the money illusion (not this blog, the actual illusion) we basically want nominal incomes to grow continuously; sometimes this will be real growth and a little bit of inflation, at other times it will be all inflation when real growth stagnates.

    more inflation in these times is good because it reduces debts and real incomes, and also real money balances, all good things to get people spending and employing and producing again. “greasing the wheels” so to speak.

    then in times where real growth is high, we automatically are reducing inflation since more of the nominal growth is going to real growth.

    OCD money zealots like to think the perfect solution is for money growth to match real growth exactly (ie, nominal growth but zero inflation). but we can’t really predict real growth so NGDP targetting is the second best thing, and first best in a practical sense. (also as mentioned above, some inflation is probably good for reasons in and of itself)

  69. Gravatar of Major_Freedom Major_Freedom
    18. May 2012 at 19:48

    Mike Sax:

    MF I agree that one of two ideas is true: either you’re the only sane one around here or you’re the craziest one around here.

    I agree that all declarative statements are either true or false.

    Profound.

    I will grant you that you provide comic relief now and again. While Hayek lost any crediblity in the 30s debates and only wrote anything worth reading after he left Macro you are here to reassume these debates as if we’ve learned nothing over 80 years.

    Hayek didn’t lose credibility in the 1930s. That’s when he rose to prominence.

    As for not learning anything in the past 80 years, well, economics has gone through lulls. We’re currently in a lull because economics has been unfortunately hijacked by positivists, hermeneuticists, and historicists.

    And yeah Hayek didn’t make it as a macroeconomist-Milton Friemdna wouldn’t let him near an Econ classroom when he was at Chicago in the early 50s.

    He still got a pseudo-Nobel.

    PS criticizing Hayek is not a criticism against me, because I am not even a Hayekian. I disagree with him more often than I agree with him.

    I know it’s all about gold and the South will rise again!

    Nope. It’s all about legalizing monetary competition, and allowing the individual to rise, and the destructiveness of fiat inflation.

  70. Gravatar of dwb dwb
    18. May 2012 at 20:46

    MF:
    no you are wrong, i dont want to shut you up. quite the opposite. I will be the first in line to hand you a megaphone and clap. I will help you get a gig to speak at the Dallas Cowboys stadium. the best cure for bad ideas is a full-blown complete airing and frankly between the contradictions and silly circular logic, you provide a far better rebuttal and refutation of you own positions than i ever could. all i do is facilitate the silliness, so have at it. I predict you come back with an stupid response like “no YOUR arguments are circular”

    nuff said.

    cheers.

  71. Gravatar of RJ RJ
    19. May 2012 at 10:53

    dwb –

    Just to throw in my 2 cents, MF’s long-winded posts and their systematic rebuttals by Scott’s readers are very instructive to me as an econ novice. It’s useful to have examples of how not to think.

    Saturos,

    Is there a name for that relationship so I can investigate further?

  72. Gravatar of ssumner ssumner
    19. May 2012 at 17:08

    Saturos, I’m not that skilled at writing fiction.

    Austen. Perhaps at a point in time, but over any period of time the two approaches would be quite different. So I think it’s misleading to view them as the same policy. The real need is not for something to do today, but for a policy that will work over an extended period of time.

    Maximillian, That’s clever.

  73. Gravatar of Major_Freedom Major_Freedom
    19. May 2012 at 21:32

    dwb:

    i dont want to shut you up. quite the opposite. I will be the first in line to hand you a megaphone and clap. I will help you get a gig to speak at the Dallas Cowboys stadium. the best cure for bad ideas is a full-blown complete airing and frankly between the contradictions and silly circular logic, you provide a far better rebuttal and refutation of you own positions than i ever could. all i do is facilitate the silliness, so have at it. I predict you come back with an stupid response like “no YOUR arguments are circular”

    Empty antagonism.

  74. Gravatar of Jason Rave Jason Rave
    20. May 2012 at 12:26

    Forget The NGDP Tsunami, more like excellent posts Tsunami. Having spent the last few days locked away from the world, working on definite solutions to simultaneous differential equations, difference equations and dynamic stability conditions, I’ve had a nice return to reality today and a blog catch up session. Some of your posts over the last few days have been some of your best, and that’s saying something!

  75. Gravatar of Austin Austin
    20. May 2012 at 16:56

    Scott,

    I understand. Thanks. Maximillian, thanks for the explanation.

  76. Gravatar of ssumner ssumner
    21. May 2012 at 04:55

    Thanks Jason.

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