Dude, where’s your model?

Whenever I get taunted about not having a “model,” I assume the commenter is probably younger than me, highly intelligent, but not particularly wise.  I often disagree with Paul Krugman, but he’s right that simple, off-the-shelf models are all we need to evaluate aggregate demand problems.  Supply-side issues are another story—they are much more complicated.

There are basically two types of demand-side models, both of which are nearly useless:

1.  Some general equilibrium models are used to find which stabilization policy regime is optimal from a welfare perspective.  Most of these models assume some sort of wage/price stickiness.  And 100% of the models taken seriously in the real world assume wage/price stickiness.  The problem is that there are many types of wage and price stickiness, and many ways of modeling the problem.  You can get pretty much whatever policy implication you want with the right set of assumptions.  Unfortunately, macroeconomists aren’t able to prove which model is best.  I think that’s because lots of models are partly true, and the extent to which specific assumptions are true depends on which country you are looking at, as well as which time period.  And then there’s the Lucas Critique.

2.  A second type of model tries to show how to best implement a specific type of policy regime, like inflation targeting.  Thus the Taylor Rule is one way of implementing a flexible inflation target.  Unfortunately, these “implementation models” conflict with the EMH—it’s not clear why the central bank wouldn’t just peg the price of a futures contract linked to the goal variable.  This is embarrassing given that they are mostly based on New Keynesian models, which incorporate rational expectations.

To summarize, despite all the advances in modern macro, there is no model that anyone can point to that “proves” any particular policy target is superior to NGDPLT.  There might be a superior target (indeed I suspect a nominal wage target would be superior.)  But it can’t be shown with a model.  All we can do is construct a model that has that superiority built in by design.

And once we have decided on a nominal aggregate target, there is no model that can outperform a policy of having the central bank peg the price of futures contract linked to the policy goal.  And once you do all that, fiscal policy becomes a fifth wheel.

Models are toys to show our students.  When we face serious real world dilemmas it’s time to put away the toys and get real . . . er, I’m mean get nominal.

PS.  Wise readers will notice that I do have a model, indeed lots of them.  They’re just not mathematical models.

PPS.  One reason that very few models find NGDP targeting to be optimal is that very few models include a variable called “NGDP.”


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140 Responses to “Dude, where’s your model?”

  1. Gravatar of Morgan Warstler Morgan Warstler
    29. May 2012 at 06:20

    “Some general equilibrium models are used to find which stabilization policy regime is optimal from a welfare perspective. Most of these models assume some sort of wage/price stickiness. And 100% of the models taken seriously in the real world assume wage/price stickiness. The problem is that there are many types of wage and price stickiness, and many ways of modeling the problem. You can get pretty much whatever policy implication you want with the right set of assumptions. Unfortunately, macroeconomists aren’t able to prove which model is best.”

    This brings us back to yet ANOTHER argument DeKrugman, Matty, et al have no answer to…

    You CANNOT ARGUE wage and price stickiness if you favor policies that promote wage ans price stickiness.

    Frankly, the only thing we can really say is:

    We currently have sticky wages and prices because Morgan’s team haven’t taken a hammer to system that supports them.

    Until such time as we do so, we should operate as if they are not true so as to create as much pain and suffering for DeKrugman’s team as possible, until they are forced to let Morgan’s team change the policy.

    It doesn’t matter that some workers preferred contracts, that’s what futures are for… real risk to lock in prices.

    We live in a new near friction-less digital price clearing world.

    At the VERY MINIMUM you must admit that things are much more friction less than 30 years ago, so we should expect far less adherence to any idea that is based on wage and price stickiness.

    It is a dying fact, one that is basically becoming a liberal preference and nothing more.

  2. Gravatar of Brito Brito
    29. May 2012 at 06:22

    It’s not about proving things; it’s just making your ideas actually coherent. Since there are such a huge amount of confounding factors to consider, it becomes far to difficult to consider this matter with words only; you need to be able to show how this works in some sort of formal system. Also it’s not a generalised macro model you need, rather a model of the transmission mechanism; that is where 99% of your opponents disagree with you.

  3. Gravatar of Jason Rave Jason Rave
    29. May 2012 at 06:36

    Morgan,

    If “we live in a new near friction-less digital price clearing world” could you maybe explain the second graph in the below Krugman post (which was posted by Delong a while back but I can’t find the link)…

    http://krugman.blogs.nytimes.com/2012/05/28/anglophone-potential-wonkish/

    There is massive unemployment and yet a sticky, yet positively biased, wage change distribution. If prices did clear in such a friction-less way then they would decrease rapidly in response to the employment overhang. Otherwise you’re saying that current unemployment levels are the equilibrium and markets have cleared, which is ridiculous.

  4. Gravatar of Martin Martin
    29. May 2012 at 06:36

    Scott,

    reminds me of the brief discussion in the 7th edition of your favorite textbook on the transmission mechanisms of monetary policy on structural vs. reduced form models: i.e. Keynesian vs. monetarist.

    Sure if you get the structure right, you can be precisely right, but also very wrong.

    Besides, any structural model will fail an econometric test, that’s why people like Prescott went to calibration. It’s a defensible strategy, but the distinction between reduced form models like the monetarist use and the structural models then is just a question of degree and not one of kind. All you prove with calibration is that the (structure of the) economy has some momentum, that’s not much more than you can do with “M causes Y”.

  5. Gravatar of Martin Martin
    29. May 2012 at 06:41

    Brito,

    “Also it’s not a generalised macro model you need, rather a model of the transmission mechanism; that is where 99% of your opponents disagree with you.”

    There is no reason to suspect that the transmission mechanism are the correct ones or that you’ve been exhaustive in mentioning them. I am pretty sure that if you make the right assumptions or choose different real world proxies (which interest rate?) you can actually see the exact opposite happening in an expansion. All you’re left with is choosing what worked well in the past, but to argue then that that’s how it’s going to play out has not made your model invulnerable to the Lucas critique. Making your argument based on past empirical data without an explicit transmission mechanism will then work just as well.

  6. Gravatar of dwb dwb
    29. May 2012 at 06:49

    well, i agree. I think of it somewhat differently, maybe cause i am in the model business.

    * All models are wrong, but some are less wrong than others: Even when correctly calibrated to forward market data, models make different suggestions. The job is to do a sensitivity analysis and determine which assumptions i am “betting on” by using the model – i.e. which assumptions have the largest “dials” and decide if i think those assumptions are likely or not based on observation. Some models, for example, predict a massive sensitivity of inflation to QE. Other models predict deflation in the face of such a large output gap. Now, given that we do not observe either, whats the probability either sets of assumptions are true? If my model suggests inflation accelerates but i don’t see it, whats the probability my model assumptions are flawed? Some models of course perform very well, like the expectations augmented phillips curve. I personally think that a simple “sticky price” model of the housing market performs very well.

    * “I tend to use simple models.” I hear this a lot from economists, including many “elder, wiser” thesis advisers. Why are we apologizing?? That’s just Occam’s Razor: use the simplest model that captures the desired phenomena. Hard scientists do it all the time, with no apology: I don’t need to re-derive and calibrate a statistical thermodynamics model to “prove” that when its hot outside, it will also be hot inside, unless i turn on the AC.

    You dont need a more complicated model unless it breaks.

    * Optimal policy has to work well under model uncertainty. A policy that depends on Fed credibility and the promise never to screw up is inherently doomed to fail the first time 17 human beings take their eye off the ball. Even Bill Belichick and Tom Brady had a perfect regular season record, then lost the Super Bowl. I don’t understand why we expect more from the Fed. http://en.wikipedia.org/wiki/New_England_Patriots

    2008 was the Super Bowl, the 70 year event Bernanke studied for…. and blew it.

  7. Gravatar of Negation of Ideology Negation of Ideology
    29. May 2012 at 06:52

    “And once we have decided on a nominal aggregate target, there is no model that can outperform a policy of having the central bank peg the price of futures contract linked to the policy goal. And once you do all that, fiscal policy becomes a fifth wheel.”

    This passage captures the reason I’ve basically been a monetarist as long as I can remember. It reminds me of a happy hour a few years back with some coworkers where an intelligent, informed non-economist was essentially making the layman’s version of the Keynesian case, and I was making the layman’s monetarist case:

    K – “I’m really worried, I’ve been reading Paul Krugman and he’s been talking about a liquidity trap.”

    M – “The liquidity trap is a myth. The Fed can issue as much money as it wants. Therefore, it can overwhelm any liquidity trap.”

    K – “That doesn’t matter if the banks refuse to lend it out, or if people hoard it.”

    M – “If people hoard our currency we should thank them. They’re basically giving the government an interest free loan. So we can issue more and bypass the banks. Buy up the entire national debt if you need to.”

    K – “Wouldn’t that cause inflation?”

    M – “Why would borrowing money from hoarders and putting it in circulation cause less inflation than putting it in circulation directly? Milton Friedman won the Nobel Prize for proving that the Great Depression was caused by a drop in the broad money supply of 33% …”

    A – “The government can’t just print money! That’s crazy! Gold! Gold! Ron Paul!”

    K – “Er, how about another round on me.”

    M – “Ok, just don’t buy it on credit – pay cash.”

    I feel like I’ve had this same conversation a thousand times.

  8. Gravatar of B B
    29. May 2012 at 06:54

    PPS. One reason that very few models find NGDP targeting to be optimal is that very few models include a variable called “NGDP.”

    Bingo.

  9. Gravatar of Major_Freedom Major_Freedom
    29. May 2012 at 07:46

    ssumner:

    To summarize, despite all the advances in modern macro, there is no model that anyone can point to that “proves” any particular policy target is superior to NGDPLT. There might be a superior target (indeed I suspect a nominal wage target would be superior.) But it can’t be shown with a model. All we can do is construct a model that has that superiority built in by design.

    And once we have decided on a nominal aggregate target, there is no model that can outperform a policy of having the central bank peg the price of futures contract linked to the policy goal. And once you do all that, fiscal policy becomes a fifth wheel.

    Look at that ad hoc bait and switch.

    “To summarize, despite all the advances in modern macro, there is no model that anyone can point to that “proves” any particular policy target is superior to money supply targeting. There might be a superior target (indeed I suspect a nominal wage target would be superior.) But it can’t be shown with a model. All we can do is construct a model that has that superiority built in by design.

    “And once we have decided on a money supply target, there is no model that can outperform a policy of having the central bank peg the price of futures contract linked to the policy goal. And once you do all that, fiscal policy becomes a fifth wheel.”

    Or:

    “To summarize, despite all the advances in modern macro, there is no model that anyone can point to that “proves” any particular policy target is superior to monetary competition. There might be a superior target (indeed I suspect a nominal wage target would be superior.) But it can’t be shown with a model. All we can do is construct a model that has that superiority built in by design.

    “And once we have decided on monetary competition, there is no model that can outperform a policy of having the private sector set the price of futures contract linked to the production of private money. And once you do all that, fiscal policy becomes a fifth wheel.”

    Or, in general:

    “To summarize, despite all the advances in modern macro, there is no model that anyone can point to that “proves” any particular system is superior to X. There might be a superior system (indeed I suspect Y would be superior.) But it can’t be shown with a model. All we can do is construct a model that has that superiority built in by design.

    “And once we have decided on X, there is no model that can outperform a policy of having ABC set the price of futures contract linked to X. And once you do all that, fiscal policy becomes a fifth wheel.”

    See? Anyone can just claim that no model is superior to one’s own prescription, and then insist that one’s own prescription should be the one adopted.

  10. Gravatar of Jeff Jeff
    29. May 2012 at 07:52

    The problem with market monetarism and Friedman-style monetarism before it is that it is too easy. Scott’s posts here amply show how he thinks the world works, which is what a model does, but no one familiar with the way professionial economics works could possibly think that any of them will ever be published in a prestigious economics journal. The purpose of journal articles is to sort people into those who get tenure and those who don’t. You do this by showcasing technical virtuosity, not by being clear or right.

  11. Gravatar of Mike Sax Mike Sax
    29. May 2012 at 08:10

    “Whenever I get taunted about not having a “model,” I assume the commenter is probably younger than me, highly intelligent, but not particularly wise. I often disagree with Paul Krugman, but he’s right that simple, off-the-shelf models are all we need to evaluate aggregate demand problems. Supply-side issues are another story—they are much more complicated.”

    Well I don’t know Scott. Stephen Williamson doesn’t impress me as highly intelligent or wise, and we know he’s not young.

    Seriously, as a layperson who is interested in Macro I’m never quite clear what all the hyperbole is about concerning models other than the “serious” macro guys seem to think it’s very important.

    The one thing I do get is that the Austrians pride themeselves as having no model-that’s something to do with their weird concept of “praxeology.”

    Also I do get that guys like Lucas chide the old Hicks IS-LM model-I know you’re no fan of IS-LM either-for being too “ad-hoc.”

    Again as an interested layperson I never get how what a model says should happen if we do X is more important than the empirical record of what acutally happenened the last time we did X is but I get it that it is for Williamson and company.

  12. Gravatar of Saturos Saturos
    29. May 2012 at 08:11

    Time to put away the toys, and …

    http://postimage.org/image/4y7st7kbl/

  13. Gravatar of Saturos Saturos
    29. May 2012 at 08:13

    Let me hear your money talk!

  14. Gravatar of Saturos Saturos
    29. May 2012 at 08:14

    I’m heterosexual, btw.

  15. Gravatar of Negation of Ideology Negation of Ideology
    29. May 2012 at 08:17

    I’m not sure the point of my last comment was clear.

    My point is I’ve always been puzzled by those who believe we need to stimulate with fiscal policy. What is the goal? A higher CPI level? Higher M2? More AD? Whatever they believe the correct target is can be more easily hit by monetary policy. I didn’t know what target I was for, but I knew they seemed to believe we were falling short of some goal. It seemed to me the obvious thing to do is decide what that goal is and hit it with monetary policy.

    If the target is right, then monetary policy is sufficient; if the target is wrong, then fiscal policy is superfluous.

  16. Gravatar of Cthorm Cthorm
    29. May 2012 at 08:21

    A lot of the obsession with models is the fallacy of complexity. The fact that economies are extremely complex does not imply that the rule/principles that spawned that complexity are themselves complex. Stephen Wolfram would call this computational irreducibility. Until and unless “models” literally compute consequences from the ground up, which is not impossible in principle, then they are just a simplifying tool and should not be relied upon to come to conclusions. Fynn Kidland (inspired by the Lucas Critique) is working on such models at UCSB, but I have no idea how far along they are.

  17. Gravatar of Dude, here is your model « The Market Monetarist Dude, here is your model « The Market Monetarist
    29. May 2012 at 09:00

    [...] is Scott Sumner: “Whenever I get taunted about not having a “model,” I assume the commenter is probably [...]

  18. Gravatar of Don Geddis Don Geddis
    29. May 2012 at 09:17

    Negation asks: “I’ve always been puzzled by those who believe we need to stimulate with fiscal policy. What is the goal?”

    Isn’t it obvious? The logic surely is something like this: the US currently has an output gap, because there are too many idle workers, sitting around unemployed. That’s a waste of potential. The economy is below its Pareto frontier.

    So you fix this directly. Start a new public works project to build a bridge or a dam, and the economy gets more real wealth produced, basically for free.

    That’s fiscal stimulus. Just take the idle resources, and order them to do something productive. Very intuitive.

    It takes a deeper understanding of macro, in order to see how monetary stimulus could somehow accomplish the same thing indirectly, but cheaper and faster and more efficiently and more wealth produced.

  19. Gravatar of Saturos Saturos
    29. May 2012 at 09:25

    Don Geddis, but doesn’t that same intuitive reasoning lead you to ask, where does the money come from?

  20. Gravatar of Mike Sax Mike Sax
    29. May 2012 at 09:36

    I got to agree with Don Geddis here, fiscal stimulus is easier to understand no harder than monetary stimulus.

    It easier to see how the government either getting people jobs or sending them checks is going to benefit the economy than by having the Fed do quantiative easing.

  21. Gravatar of Major_Freedom Major_Freedom
    29. May 2012 at 09:40

    Don Geddis:

    Isn’t it obvious? The logic surely is something like this: the US currently has an output gap, because there are too many idle workers, sitting around unemployed. That’s a waste of potential. The economy is below its Pareto frontier.

    So you fix this directly. Start a new public works project to build a bridge or a dam, and the economy gets more real wealth produced, basically for free.

    There is no such thing as a free lunch. You are ignoring the law of opportunity costs. If the state uses up those resources, and builds more bridges to nowhere, then the cost is all those projects that could have been built in the market, but couldn’t.

    Government bridges and dams are wealth consuming activities, not wealth generating activities. They are not self-sustaining. Once the money is spent, it’s gone. Only profit making activity is self-sustaining, and wealth generating.

    What you call “deep understanding of macro”, is in fact a superficial understanding of economics.

    If you want idle resources and labor to be put to use, then call for the free market process to be allowed to function so as to put them to use.

    Why can you only see a state solution? Is the ancient technique of force of violence the only solution you can come up with to solve complex social problems? A gun for every problem?

  22. Gravatar of Major_Freedom Major_Freedom
    29. May 2012 at 09:45

    Mike Sax:

    It easier to see how the government either getting people jobs or sending them checks is going to benefit the economy than by having the Fed do quantiative easing.

    It benefits no producer to produce for and thus support those who spend without themselves having first produced to earn that money.

    You only benefit producers and employees by what you do to earn money. Merely spending money isn’t the primary source of gain to producers. You aren’t doing anyone any good by simply consuming their products. Sure, they have more money, but there is less real wealth than there otherwise would have been had you earned that money by yourself being productive, so you are bringing about a net loss to producers and employees.

    Parasitism is not a source of gain to its victims. But leave it to Post Keynesians to believe it is, because they too believe consumption is the source of wealth generation, rather than the other way around.

  23. Gravatar of Don Geddis Don Geddis
    29. May 2012 at 09:46

    Saturos: You want me to continue a wrong, uneducated, intuitive story, and make up more answers?

    OK:

    1. The money comes from borrowing, i.e. “from the future”, with no change to anything else happening today. (This is how household budgets work, if you get a loan or use credit cards. The fact that macro involves essentially a closed economy is too complex for layman intuition.)

    Or:

    2. Since the economy, with (fiscal) stimulus, will produce more real wealth than it otherwise would have had during the recession, the overall economy is richer and thus you can afford the “money” needed for the bridge/dam project, out of the extra overall wealth you get by employing the idle workers. In essence, the workers pay for themselves, by virtue of the extra wealth they create by no longer being idle.

  24. Gravatar of Mike Sax Mike Sax
    29. May 2012 at 09:54

    Well MF as much as your like to turn economics into your little morality tail-the good worker bees and the bad lazy drones.

    Inflation is just the price of civilzation.

    “If you want idle resources and labor to be put to use, then call for the free market process to be allowed to function so as to put them to use.”

    “Why can you only see a state solution? Is the ancient technique of force of violence the only solution you can come up with to solve complex social problems? A gun for every problem?”

    The reality is you havve no solution at all as the millions that are unemployed are of no concern to you. Let’s face it only those who know no hardship preach about how rather than doing something we should just sit down watching the misery while offering stern sermons of having wrought what you’ve sown.

    You say you differ form Hayek but just like him in 1932 you have no answer just sit back and sometime the market will just decide it’s time to produce again.

  25. Gravatar of Major_Freedom Major_Freedom
    29. May 2012 at 10:04

    Don Geddis:

    The money comes from borrowing, i.e. “from the future”, with no change to anything else happening today.

    That means less money available for private loans, all else equal.

    Since the economy, with (fiscal) stimulus, will produce more real wealth than it otherwise would have had during the recession, the overall economy is richer and thus you can afford the “money” needed for the bridge/dam project, out of the extra overall wealth you get by employing the idle workers. In essence, the workers pay for themselves, by virtue of the extra wealth they create by no longer being idle.

    Your initial “since” is begging the question. The question is whether or not government spending does in fact produce more wealth than there otherwise would have been.

    For that you must compare and contrast that theory to the theory that government spending leads to less wealth production than there otherwise would have been.

    Since spending money on output, depends on wealth to have been produced prior, and not the other way around, along with other reasons your theory is wrong.

  26. Gravatar of Saturos Saturos
    29. May 2012 at 10:12

    “The money comes from borrowing, i.e. “from the future”, with no change to anything else happening today.”

    While that does resemble the various idiotic stories about “demand” that you hear in the press (I believe Kelly Evans once made an argument to that effect on this blog a while ago), I wonder why laypeople don’t have more “monetarist” intuitions. Follow the dollars. Does this hypothetical person really believe that if his government hadn’t borrowed the money, it would have just sat idle and not been spent by someone else?

    Caveat: of course in reality that is precisely how Keynesian stimulus works, the “stimulative” part of the deficit spending has to be financed from idle money balances (or equivalently people have to reduce the quantity of money stocks demanded in the aggregate) or it doesn’t add to aggregate spending. And this occurs more easily when there is an incipient glut of loanable funds, as in a ZLB situation. But I think that really is beyond the mind of a layperson.

  27. Gravatar of Major_Freedom Major_Freedom
    29. May 2012 at 10:13

    Mike Sax:

    Well MF as much as your like to turn economics into your little morality tail-the good worker bees and the bad lazy drones.

    It’s not about morality. Spending unearned money does not provide economic gains to producers. It’s morality free.

    Inflation is just the price of civilzation.

    No, inflation is the price of state monopoly in money production. End the monopoly in money production, which civilization has experienced before, and we can end inflation.

    “If you want idle resources and labor to be put to use, then call for the free market process to be allowed to function so as to put them to use.”

    “Why can you only see a state solution? Is the ancient technique of force of violence the only solution you can come up with to solve complex social problems? A gun for every problem?”

    The reality is you havve no solution at all as the millions that are unemployed are of no concern to you.

    The reality is you just turned economics into a morality tale. The good altruistic people and the bad self-interested people.

    The reality is you have no solution at all as the millions that are unemployed are of no concern to you, so you want the state to do your dirty work for you. You refuse to point your gun at people to do what the state needs to do in order for you to get what you want, so you hide behind the state’s skirt and demand they do it.

    See? Anyone can play your silly straw man game.

    Let’s face it only those who know no hardship preach about how rather than doing something we should just sit down watching the misery while offering stern sermons of having wrought what you’ve sown.

    It’s not doing nothing. It is the STATE doing nothing, instead of what they are doing, which is a cause for the millions of unemployed.

    You are hilariously claiming that only the state acts. That if the state doesn’t act, there is no action and no solution being implemented.

    Let’s face it, Mike. You’re a morality tale propagandist of the state, who refuses to even consider the possibility that the free market can solve the problems. You actually believe we have a free market at any point in time, and that the only question is whether the state should fix the problems of the free market, or sit back and let the free market continue to make a mess of things.

    You say you differ form Hayek but just like him in 1932 you have no answer just sit back and sometime the market will just decide it’s time to produce again.

    I do have an answer. You just ignore it because it doesn’t include the state, and so to you that means there is no answer, no solution. The only source of solution in your brainwashed mind is state action. You have no conception of the free market process, how millions of self-interested individuals can fix the problems the state caused in the economy such that millions are unemployed.

    The only source of production is willful production by individuals. Individuals naturally produce when you let them be. Instead of trying to play the morality tale of the state ruling the peon children, recognize that the children are adults, and can fix the problems if only you stop calling for what is causing the problems, namely state violence.

  28. Gravatar of Saturos Saturos
    29. May 2012 at 10:15

    MF, Don Geddis was talking about a hypothetical layperson’s views. You don’t have to bite into every target that presents itself.

  29. Gravatar of Major_Freedom Major_Freedom
    29. May 2012 at 10:18

    Saturos:

    Does this hypothetical person really believe that if his government hadn’t borrowed the money, it would have just sat idle and not been spent by someone else?

    Caveat: of course in reality that is precisely how Keynesian stimulus works, the “stimulative” part of the deficit spending has to be financed from idle money balances (or equivalently people have to reduce the quantity of money stocks demanded in the aggregate) or it doesn’t add to aggregate spending. And this occurs more easily when there is an incipient glut of loanable funds, as in a ZLB situation. But I think that really is beyond the mind of a layperson.

    If Keynesians understood that cash balances aren’t taxed, but rather transactions, then they would see the futility of believing that hoarded cash can be put into spending by way of borrowing and taxing.

    And even if there is money that would have otherwise been idle, but somehow the state is able to use force to turn it into “spent” money, it doesn’t mean it is of benefit to the general population. For money hoarded provides a benefit to people, or else they would not do it. Hoarded money is value creating, and destroying it would reduce people’s ability to use money holdings for things such as insurance, uncertainty, and so on.

    If a sum of money is not in circulation, then it just makes the remaining money in circulation of higher value, and prices will tend to be lower. It doesn’t harm you that I don’t spend my money on you. It benefits me at no LOSS to you.

  30. Gravatar of Major_Freedom Major_Freedom
    29. May 2012 at 10:20

    Saturos:

    MF, Don Geddis was talking about a hypothetical layperson’s views. You don’t have to bite into every target that presents itself.

    Yes, and I was addressing the hypothetical layperson who believes it, by using Don as a means.

  31. Gravatar of Saturos Saturos
    29. May 2012 at 10:29

    MF,

    So you don’t think people reduce their holdings of cash and buy more bonds when the interest rate rises? What about when the size of government increases, reducing private income and thus demand for money?

    There are plenty of activities that are privately beneficial but socially wasteful. For example, I can fish more intensively in the river at net benefit to me, but if everyone does it then stocks are depleted and we’re all worse off. Of course you can try to solve the problem by allocating property rights, but it’s hard to argue that anyone has a “natural right” to naturally occurring streams of water. In any case it’s entirely possible for people in a given situation to be acting in ways that are optimal privately but not socially. In fact it wouldn’t be much of an exaggeration to say that economics is largely the study of when and how this occurs.

    “If a sum of money is not in circulation, then it just makes the remaining money in circulation of higher value, and prices will tend to be lower.”

    If only…

  32. Gravatar of Saturos Saturos
    29. May 2012 at 10:33

    “then they would see the futility of believing that hoarded cash can be put into spending by way of borrowing and taxing”

    Isn’t the Law of Demand a magic axiomatic irrefutable Austrian law? Price of a good (bonds with a given coupon value) falls, quantity demanded goes up, relative to other goods (other more liquid assets, such as money)? With a given budget constraint, people substitute towards the cheaper good, yes?

  33. Gravatar of Saturos Saturos
    29. May 2012 at 10:35

    You can learn more about money demand here. Not that anything with the word “empirical” in the title is going to convince you…
    http://www.jstor.org/discover/10.2307/1829200?uid=3737536&uid=2129&uid=2&uid=70&uid=4&sid=56216381963

  34. Gravatar of johnleemk johnleemk
    29. May 2012 at 10:36

    Saturos,

    I think monetarism is unintuitive because people intuitively grasp the long-term neutrality of money. Even if you can get them to grasp that it is stimulative in the short-term, people will likely insist that it must follow that monetary policy cannot deliver long-term growth.

    But people somehow find it easier to accept that fiscal stimulus can support long-term growth, because they can see that government will invest more in infrastructure, services, etc., and “create/retain jobs” relative to the counterfactual. It’s hard to get these same people to see that monetary stimulus accomplishes the same — except it goes beyond government, and also stimulates private sector investment. Even if the rate of investment falls to a “natural” level in the long run, nobody denies that if these investments truly are investments, they raise the long-term productive capacity of the economy.

  35. Gravatar of Mike Sax Mike Sax
    29. May 2012 at 10:38

    “It’s not doing nothing. It is the STATE doing nothing, instead of what they are doing, which is a cause for the millions of unemployed.”

    The state is doing nothing or haven’t you seen Congress in action lately? I wonder which state action you think is responsbile for the current mess. I’m sure if Bernanke hadn’t done quantiatve easing we’d have 4% unemployment. Or do you blame it on Obama’s stimulus?

  36. Gravatar of dwb dwb
    29. May 2012 at 10:51

    I wonder which state action you think is responsible for the current mess.

    MF is just an angry robot, see i can cut an paste previous responses and the make just as much sense:

    “You don’t know which state action is responsbile for the current mess, without recourse to information borne out of an unhampered price system subject to profit and loss. NGDP distorts this information.

    And even if there is money that would have otherwise been idle, but somehow the state is able to use force to turn it into “spent” money, it doesn’t mean it is of benefit to the general population. For money hoarded provides a benefit to people, or else they would not do it. Hoarded money is value creating, and destroying it would reduce people’s ability to use money holdings for things such as insurance, uncertainty, and so on.”

  37. Gravatar of Mike Sax Mike Sax
    29. May 2012 at 10:56

    That is a good point DWB-you can cut and paste his previous posts and you lose very little in terms of relevance.

  38. Gravatar of dwb dwb
    29. May 2012 at 11:11

    There is a name for something that feels good, that you don’t need a partner to do, and which produces nothing. intellectual blah blah blah. There is no relevance at all, MF even admits this is all to polish his, ahem, argument not persuade.

  39. Gravatar of Matt Waters Matt Waters
    29. May 2012 at 11:13

    You know, Bernanke said at one time he would do everything possible to prevent deflation. And you know what? Deflation didn’t happen.

    And before Bernanke said that, Sumner, Krugman and many others said that falling AD was the problem; that once AD stopped falling the bleeding in unemployment would stop. When Bernanke put the stop to falling AD, it just so happened that unemployment stopped as well.

    I suppose that all these correct predictions by Sumner/(mostly)Krugman could just be spurious luck. And perhaps continued years of <2% inflation despite dire warnings of hyperinflation are just really bad luck of the Austrians and RBC libertarians.

    I guess I don't get it. The basic demand-side view has an easy, common sense explanation for unemployment that also matches the evidence. What else is everybody else waiting for exactly?

    Supply-side models are indeed far more complex. Some common-sense exists that also has real-world empirical evidence, such as the fact that central planning doesn't usually turn out too well. That's where the real future in economics is in. But it's unfortunately that we have immense, unnecessary harm due to so many economists still believing a flat-earth version of demand-side models.

  40. Gravatar of dwb dwb
    29. May 2012 at 11:24

    for those who have not read it, here is the Beckworth/Ponnuru article in the national review.

    I give it ten thumbs up (I’m all thumbs).

    http://www.nationalreview.com/nrd/articles/300951/monetary-regime-change

  41. Gravatar of Saturos Saturos
    29. May 2012 at 11:52

    Scott, you’re probably gonna like this blog:
    http://blog.supplysideliberal.com/

  42. Gravatar of Lars Christensen Lars Christensen
    29. May 2012 at 12:08

    Dwb…thank for that link. It inspired me a bit…http://marketmonetarist.wordpress.com/wp-admin/post.php?post=2403&action=edit&message=6&postpost=v2

  43. Gravatar of Major_Freedom Major_Freedom
    29. May 2012 at 12:11

    Saturos:

    So you don’t think people reduce their holdings of cash and buy more bonds when the interest rate rises?

    Market interest rates are a function of people’s saving. They are not “given” quantities that then influence people’s rate of saving. If interest rates rise, then you have to ask whether it was market driven, or monetary driven. If it’s monetary driven, then it will almost certainly mislead investors into making the economy less capital intensive than consumers are willing to do so by way of their real saving.

    What about when the size of government increases, reducing private income and thus demand for money?

    What about it?

    There are plenty of activities that are privately beneficial but socially wasteful.

    There is no such thing as social losses or gains. There are only individual losses and gains. Gains and losses are individualistic concepts. You are reifying “society”.

    For example, I can fish more intensively in the river at net benefit to me, but if everyone does it then stocks are depleted and we’re all worse off.

    No, you’re all better off, because you all got to fish. You can’t say fish depletion makes anyone “worse off” until you can point the owner of that river, and understand/learn HIS intentions/desires. If a person owns the river, and he considers it gainful to fish until there are no fish left, then he made a gain. If he wants all the fish to be fished, but busy body environmentalists prevent him from doing so, then he incurs a loss. He looses, others gain. There is no “social” gain here.

    Of course you can try to solve the problem by allocating property rights, but it’s hard to argue that anyone has a “natural right” to naturally occurring streams of water.

    I don’t need to argue from “natural rights” to argue from property rights. It’s hard to argue that one must argue from natural rights, in order to argue from property rights.

    You hold the government as being the property owner of every resource, so you can’t say you’re against property rights. Government being the owner of all property directly follows from “society” owning it.

    In any case it’s entirely possible for people in a given situation to be acting in ways that are optimal privately but not socially. In fact it wouldn’t be much of an exaggeration to say that economics is largely the study of when and how this occurs.

    Give me an example, without violating the foundation of property rights which grounds my argument about there being no such thing as “individual gains, but social losses.”

    You’re not actually saying society looses when individuals gain in particular ways. You’re only saying YOU personally lose when individuals gain in particular ways. You personally consider an empty river devoid of fish to be a loss TO YOU. You can’t pretend that what you really meant is a loss to the people involved, because they could very well choose fishing as fast as they each can, until there is no more fish, as more valuable to them, compared to refraining from fishing. If you say that would be “bad”, then again you’d only be introducing your own personal gains and losses into a situation that you do not have property rights in, even though you are trying to exercise property rights by way of state power.

    “If a sum of money is not in circulation, then it just makes the remaining money in circulation of higher value, and prices will tend to be lower.”

    If only…

    If only what? If only prices changed? Oh that’s right, they do. Look at computers and other electronics.

    “then they would see the futility of believing that hoarded cash can be put into spending by way of borrowing and taxing”

    Isn’t the Law of Demand a magic axiomatic irrefutable Austrian law?

    No, it’s not an axiom.

    Price of a good (bonds with a given coupon value) falls, quantity demanded goes up, relative to other goods (other more liquid assets, such as money)? With a given budget constraint, people substitute towards the cheaper good, yes?

    The law of demand is not falsified by instances of the quantity of a good demanded going down when the price goes down within a range. In these instances, either a greater decrease in price is required to expend the quantity demanded further, or else people already have enough of that good and are satisfied with it. Here, a fall in the price of the good allow for an increase in the quantity demanded of other goods, now that funds have been released for their purchase.

    The law of demand is not even falsified by instances of the quantity of a good demanded going down when the price goes down. These are luxury goods like gold, silver, furs, diamonds, and perhaps fine dining restaurant foods and other “snob” appeal goods. Here, the value of the good is itself a function of its price, and so a lower price would accompany a lower value people attach to those things, and so here, a lower price would lead to a fall in the quantity demanded. It is like the quality of a good has declined, thus making it a whole new good with a whole new valuation, and so there is a whole new quantity demanded.

    Mike Sax:

    “It’s not doing nothing. It is the STATE doing nothing, instead of what they are doing, which is a cause for the millions of unemployed.”

    The state is doing nothing or haven’t you seen Congress in action lately?

    Oh for the love of Pete. I didn’t say the state is actually doing nothing in the real world, I said my “letting people be” solution, which you incorrectly labeled as a “doing nothing” solution, is in reality just the state doing nothing, and the market process of voluntary exchange in the population doing everything. Yes, I know you have zero conception of the market process, and so you can’t even begin to grasp how millions of individual market actors could act to fix economic problems, but me saying let the market process work is really me saying let millions if not billions of people act in accordance with voluntary exchange, rather than a select few morons in Washington believing they have the intellectual wherewithal to fix problems beyond their mental ability.

    I wonder which state action you think is responsbile for the current mess.

    The very state actions you believe solve it.

    I’m sure if Bernanke hadn’t done quantiatve easing we’d have 4% unemployment. Or do you blame it on Obama’s stimulus?

    Unemployment is due primarily to wage prices not declining to the level that would clear the market given the current demand for labor. All Bernanke’s “quantitative easing” (read: printing money) did was prolong the needed corrections to the real side of the economy, and in addition encouraged more errors to be made that will require future correction.

    Inflation from central banks simply do not bring general prosperity, or sustainable employment.

  44. Gravatar of Mike Sax Mike Sax
    29. May 2012 at 12:13

    There you go, NGDPT makes the National Review. I wonder if that might in any way be a good harbinger for NGDPT. I’m thinking of Kuehn’s work on the structure of scientific revolutions.

    As Beckworth’s history shows Macro revolutions don’t happen too often. But hey I guess if Volcker once tried the Monetarist experiment the Fed in principle could try a Market Monetarist experiment.

  45. Gravatar of Major_Freedom Major_Freedom
    29. May 2012 at 12:13

    dwb:

    MF is just an angry robot, see i can cut an paste previous responses and the make just as much sense

    dwb is just an angry anti-market robot.

    “You don’t know which state action is responsbile for the current mess, without recourse to information borne out of an unhampered price system subject to profit and loss. NGDP distorts this information.”

    And even if there is money that would have otherwise been idle, but somehow the state is able to use force to turn it into “spent” money, it doesn’t mean it is of benefit to the general population. For money hoarded provides a benefit to people, or else they would not do it. Hoarded money is value creating, and destroying it would reduce people’s ability to use money holdings for things such as insurance, uncertainty, and so on.”

    Notice how no rebuttals accompany those arguments. It’s almost as if you know the weakness your own nonsense that you don’t want to have them refuted for the millionth time.

  46. Gravatar of Mike Sax Mike Sax
    29. May 2012 at 12:25

    “There is no such thing as social losses or gains. There are only individual losses and gains. Gains and losses are individualistic concepts. You are reifying “society”

    Reification, it’s funny how much the Austrians lift from Marx just like “praxeology.” In truth you are the one who is trying to deny the existence of the social dimesion.

    So pollution is what- a social problem or just millions of individual problems caused by individual actors?

    This attempt to deny the reality of externality benefits and disbenefits shows what happens when you ignore empirical reality and try to understand the economy according to “behavioral” axioms.

  47. Gravatar of Major_Freedom Major_Freedom
    29. May 2012 at 12:26

    Mike Sax:

    There you go, NGDPT makes the National Review. I wonder if that might in any way be a good harbinger for NGDPT. I’m thinking of Kuehn’s work on the structure of scientific revolutions.

    Kuhn.

    You and Sumner should realize that technological progress cannot be explained by hermeuticism. Only a methodology that presupposes the notion that scientific theories are ultimately grounded in the objective reality of action can explain how such progress is possible. Relativist creeds like hermeneuticism are at a loss.

    And why? It’s because they misconceive of scientific theories, and economic theories for that matter, as being nothing but floating verbal propositions in a world of anything goes abstractions, and not grounded in the objectivity of action. If an idea contradicts the reality of action, it doesn’t matter. Just go along with the current zeitgeist, or the current popular doctrine.

    Kuhn demonstrated quite aptly that in a world of floating abstractions, of mere verbal propositioning, any one theory can stand up to any other theory, where no theory can represent a particular challenge to any other theory. As far as that goes, I will agree with him.

    But what he did not refute, is that while at the level of verbal talk, theories may be irrefutable and incommensurable, practically they can never be. When an entirely different standard of action is recognized, theories do become commensurable, and they can be refuted a priori.

  48. Gravatar of Major_Freedom Major_Freedom
    29. May 2012 at 12:33

    Mike Sax:

    “There is no such thing as social losses or gains. There are only individual losses and gains. Gains and losses are individualistic concepts. You are reifying “society”

    Reification, it’s funny how much the Austrians lift from Marx just like “praxeology.”

    It’s even funnier how the reification fallacy and praxeology both precedes and comes after Marx.

    In truth you are the one who is trying to deny the existence of the social dimesion.

    Of course I am denying the “social dimension.” I cannot accept what doesn’t exist. The fact that you used the word “dimension” is not proof, but it is circumstantial evidence that it doesn’t exist.

    There is no reality in human life beyond individual thoughts, desires, and actions.

    So pollution is what- a social problem or just millions of individual problems caused by individual actors?

    Pollution is a violation of individual property rights. If property rights are respected, no pollution is possible. It isn’t a “social” problem. It is an individual problem. The proof of this is easily seen. Some individuals VALUE polluting more than they value not polluting. You can’t claim it’s a problem for these individuals.

    This attempt to deny the reality of externality benefits and disbenefits shows what happens when you ignore empirical reality and try to understand the economy according to “behavioral” axioms.

    I did not deny externalities. I fully accept the fact that individuals can harm others and their property. I am fully aware that the state is the biggest externality creating institution ever devised by humans.

    Think about it. One person steals from another, and the state solution calls for theft to be externalized on EVERYONE, such that the state steals a little from everyone, so that they can stop the instance of theft in question.

    You’re worried about externalities, and yet there you are calling for your own problems to be externalized on millions of people.

    Look in the mirror.

  49. Gravatar of Major_Freedom Major_Freedom
    29. May 2012 at 12:37

    Mike Sax:

    This attempt to deny the reality of externality benefits and disbenefits shows what happens when you ignore empirical reality and try to understand the economy according to “behavioral” axioms.

    You keep claiming this falsehood. Nobody is “denying empirical reality”. You are just using the wrong antecedent theory to UNDERSTAND empirical reality. Empirical reality in human life is not self-explanatory. It requires an a priori theory to make sense of. Your a priori theory contradicts the empirical reality of human action.

  50. Gravatar of Mike Sax Mike Sax
    29. May 2012 at 12:45

    I know that Austrianism eschews empirical models in analysis. If you deny externalities then your antecdent theory-praxeology or whatever-contradicts empircal reality.

  51. Gravatar of Mike Sax Mike Sax
    29. May 2012 at 12:46

    Again MF it’s amazing how much Austrianism lifted from Marx who was all about “praxis” and thought that empricial reality needed an antecedent theory to explain it.

  52. Gravatar of Mike Sax Mike Sax
    29. May 2012 at 12:56

    “You and Sumner should realize that technological progress cannot be explained by hermeuticism. Only a methodology that presupposes the notion that scientific theories are ultimately grounded in the objective reality of action can explain how such progress is possible. Relativist creeds like hermeneuticism are at a loss.”

    Obviously MF my mentioning Thomas Kuhn was with regard to when disciplines-biology, physics, in this case macro-pick up new paradigms ,etc.

    So Keynes like him or not effected a new paradigm in the 30s; likewise Lucas in teh 70s.

    I am not claiming by the way that there is no objective truth in science like Rorty does.

    What’s clear is that Austrianism certainly hasn’t been able to achieve much in the way of paradigm shfit within macro nor has it been responsbile for any “technological progress”

  53. Gravatar of Edward Edward
    29. May 2012 at 13:17

    MF

    “Unemployment is due primarily to wage prices not declining to the level that would clear the market given the current demand for labor.”

    As usual, you’re ignoring the role of debt. Debt is fixed, so if people accept lower wages, their real debt burden increases commensurately by the amount their their wages dropped. Don’t forget of course as well, that contracts were fixed with 2% inflation in mind during the boom years. Unless creditors were willing to take a loss, to have the value of their debt marked down, lowering wages even if it did clear the market. would result in lower productivity, and unsatisfied workers. People would lose their homes, good people, who never missed a mortgage payment A DAY IN THEIR LIFE, like they did in the G.D.
    Are you so blinded by your hatred of money inflation that you’d sentence innocent workers to misery and suffering? (Oh and if you respond by pinging that right back at me and altering the terms a little bit like you usually do., then i know you have no imagination)

  54. Gravatar of Don Geddis Don Geddis
    29. May 2012 at 13:41

    MF wrote: “… reification fallacy … praxeology … hermeuticism … methodology … grounded … objective reality of action … zeitgeist … floating abstractions … irrefutable … incommensurable … a priori …”

    Oh yeah? Chicken chicken chicken.

  55. Gravatar of Major_Freedom Major_Freedom
    29. May 2012 at 14:05

    Mike Sax:

    Again MF it’s amazing how much Austrianism lifted from Marx who was all about “praxis” and thought that empricial reality needed an antecedent theory to explain it.

    Again it’s amazing how you continue to fail to realize that praxeology precedes Marx. Marx “lifted” praxeology from earlier philosophers that influenced him.

    Your attempt to spoil the well by claiming that because Marx adhered to a form of praxis, that it means Austrian theory is somehow neoMarxian.

    The notion that empirical data can only be interpreted by a prior theories, actually predates Marx. It goes back to Kant. Kant wrote about the idea that synthetic a priori propositions are possible. Kant predates Marx.

    To whatever extent Marx adhered to “praxis”, and to whatever extent Marx adheres to a priorism, Austrian theory is not derived from Marx. In fact, you might say Austrian theory is the antithesis of Marxian theory.

    “You and Sumner should realize that technological progress cannot be explained by hermeuticism. Only a methodology that presupposes the notion that scientific theories are ultimately grounded in the objective reality of action can explain how such progress is possible. Relativist creeds like hermeneuticism are at a loss.”

    Obviously MF my mentioning Thomas Kuhn was with regard to when disciplines-biology, physics, in this case macro-pick up new paradigms ,etc.

    I know. Obviously my response was to address the notion that new paradigms represent falsifications of all other epistemologies.

    So Keynes like him or not effected a new paradigm in the 30s; likewise Lucas in teh 70s.

    Yes, the Whig theory of history has been falsified numerous times.

    I am not claiming by the way that there is no objective truth in science like Rorty does.

    What’s clear is that Austrianism certainly hasn’t been able to achieve much in the way of paradigm shfit within macro nor has it been responsbile for any “technological progress”

    It’s not an achievement to become a paradigm. It’s an achievement to be correct. If the paradigm is not correct, then it’s not a failure of the adherents of the correct theory. It’s a failure of everyone who doesn’t understand it and doesn’t accept it.

    Edward:

    “Unemployment is due primarily to wage prices not declining to the level that would clear the market given the current demand for labor.”

    As usual, you’re ignoring the role of debt. Debt is fixed, so if people accept lower wages, their real debt burden increases commensurately by the amount their their wages dropped.

    Debt can be liquidated, and it will be liquidated without the government printing press coming to the rescue.

    You’re ignoring the role that monetary policy has on debt creation. When you ask for more “monetary stimulus”, when you plead to Bernanke to print more money, what you are really doing is asking the Fed to give more money to the commercial banks, to convince them to expand more credit unbacked by prior real saving, so that total money spending in the economy rises.

    You are asking for MORE debt when you say Bernanke should “ease”, for that is the primary channel by which the money leaves the banking system in order to affect “NGDP.”

    You just accused me of ignoring debt, even though that has a huge impact on the demand for labor. I said demand for labor however, so that includes everything that could affect demand for labor, such as debt. Everything that could affect the price of employment, will be filtered through either the demand for labor, or supply of labor, or both. If you want to list the thousands of possible factors that could affect these two main factors, be my guest. You won’t be “adding” to what I said, so much as merely breaking it down into components.

    Don’t forget of course as well, that contracts were fixed with 2% inflation in mind during the boom years. Unless creditors were willing to take a loss, to have the value of their debt marked down, lowering wages even if it did clear the market.

    Creditors can take the loss.

    would result in lower productivity, and unsatisfied workers. People would lose their homes, good people, who never missed a mortgage payment A DAY IN THEIR LIFE, like they did in the G.D.

    Lower productivity? False. Nominal changes that are more in line with market forces IMPROVE productivity.

    And what’s more unsatisfying? Making less wages, or zero wages?

    And if a lot of people lose their homes, the standard of what constitutes good credit worthiness will go down, so it’s not like you’ll be the only one with a worse credit rating. It’s all about relative credit worthiness.

    Are you so blinded by your hatred of money inflation that you’d sentence innocent workers to misery and suffering?

    But it won’t lead to as bad a suffering as what you are calling for.

    Are you so blinded by your hatred of money deflation that you’d sentence innocent workers to misery and suffering?

    (Oh and if you respond by pinging that right back at me and altering the terms a little bit like you usually do., then i know you have no imagination)

    Zing! Then you know your position is untenable. You even know the criticism of the stuff you’re peddling.

    Don Geddis:

    ” reification fallacy … praxeology … hermeuticism … methodology … grounded … objective reality of action … zeitgeist … floating abstractions … irrefutable … incommensurable … a priori …”

    Oh yeah? Chicken chicken chicken.

    You’re a perfect candidate for being a follower of NGDP targeting. It’s crude and obnoxious. You’d like it.

  56. Gravatar of flow5 flow5
    29. May 2012 at 14:10

    “there is no model that anyone can point to that “proves” any particular policy target is superior to NGDPLT”

    It’s an incontrovertiable fact: Monetary policy objectives should be formulated in terms of desired roc’s in monetary flows (MVt) relative to roc’s in real-gDp.

    There is evidence to prove that rates-of-change in nominal gDp can serve as a proxy figure for rates-of-change in all transactions(PT). Rates-of-change in real gDp have to be used, of course, as a policy standard.

  57. Gravatar of flow5 flow5
    29. May 2012 at 14:12

    To reject science is to admit one’s ignorance.

    As Albert Einstein said “politics is more difficult than physics”

  58. Gravatar of Major_Freedom Major_Freedom
    29. May 2012 at 14:13

    Edward:

    Oftentimes I have found that those who are so fixated on their own ideology on what constitutes a solution to economic problems, that they refuse to even address their own theories for internal consistency, will only ever do so if their own statements are put back on them in the same way they address counter-positions. A bully after all typically only responds to being bullied himself, so as to see what he is actually doing.

    I don’t do this because I lack imagination, I do it because I know what works on people like you who bully people into massive unemployment by preventing them from coordinating their actions using an unhampered price system. You want to insist the state be in charge, despite the fact that the state causes tens of millions of people to go unemployed, when no one institution in the market could ever do that kind of damage.

  59. Gravatar of Major_Freedom Major_Freedom
    29. May 2012 at 14:22

    flow5:

    It’s an incontrovertiable fact: Monetary policy objectives should be formulated in terms of desired roc’s in monetary flows (MVt) relative to roc’s in real-gDp.

    How in the world can “oughts” be “facts”? Facts are what is. Oughts are what should be, according to you. Your oughts are indeed controvertible, because my oughts differ.

    There is evidence to prove that rates-of-change in nominal gDp can serve as a proxy figure for rates-of-change in all transactions(PT). Rates-of-change in real gDp have to be used, of course, as a policy standard.

    The same empirical evidence is consistent with an entirely different theory, namely, that rates-of-change in what causes NGDP to change, are responsible for the changes that you see accompanying NGDP changes, but you blame on NGDP changes. In other words, the same empirical evidence shows that you’re mistaking correlation for causation.

    To reject science is to admit one’s ignorance.

    Then stop rejecting the science of human action. You’re rejecting the scientific fact that human action does not operate according to constant causal factors, that the very learning of any alleged constancy, will change the learner’s mind, and hence change their actions.

    As Albert Einstein said “politics is more difficult than physics”

    I wonder if Einstein could have predicted himself saying this, before he thought of saying it. If he couldn’t, then what makes you think Bernanke can do so with millions of people, such that 5% NGDP is “optimal”?

  60. Gravatar of Mike Sax Mike Sax
    29. May 2012 at 14:50

    “It’s not an achievement to become a paradigm. It’s an achievement to be correct. If the paradigm is not correct, then it’s not a failure of the adherents of the correct theory. It’s a failure of everyone who doesn’t understand it and doesn’t accept it.”

    Trouble is you have no basis to call yourself correct. I agree that an accepted pardigm can be incorrect but just the same you under what basis can the Major Freedom version of Austrianism be called correct? If you’ve ever justified it I missed that post.

    All you do is assert things without proof. So you claim that simply sitting back and letting the market magically cures it works but there’s no evidence of this whatsover. The days before the Fed, the New Deal, FDIC were the age of regular bank panics and recessions one out of very two years.

    This is what I mean by empiricism. You never ground any claim of yours on any empirical basis. You claim you don’t care about persausion-then why do you write so much? Is it simply to hear yourself speak, a form of mental you know what as dr suggested?

  61. Gravatar of Mike Sax Mike Sax
    29. May 2012 at 14:53

    “Then stop rejecting the science of human action. You’re rejecting the scientific fact that human action does not operate according to constant causal factors, that the very learning of any alleged constancy, will change the learner’s mind, and hence change their actions.”

    Why should anyone do this MF? Praxeology is just a bunch of arbitrary claims about human nature.

  62. Gravatar of Mike Sax Mike Sax
    29. May 2012 at 14:56

    “The notion that empirical data can only be interpreted by a prior theories, actually predates Marx. It goes back to Kant. Kant wrote about the idea that synthetic a priori propositions are possible. Kant predates Marx”

    I like that, so Kant is who we have to thank for praxelogy and Major Freedom’s Austrianism.

    Kant said they are possible not that all questions are a priori propositions.

  63. Gravatar of nemi nemi
    29. May 2012 at 14:56

    “I am fully aware that the state…”

    There is no such thing as a “state”, there are only individuals.

  64. Gravatar of Betsey and Justin Go Closet Sumnerinan | feed on my links Betsey and Justin Go Closet Sumnerinan | feed on my links
    29. May 2012 at 16:36

    [...] predict Scott Sumner will apply his model for NGDP expectations and post about these graphs from that [...]

  65. Gravatar of James James
    29. May 2012 at 19:07

    Steve,

    I suspect most people who insist on not needing a model are probably old and stupid, but believe themselves to be “wise” whatever that means. They want to immunize their view from effective criticism by not stating their case in a rigorous way. I’m only kidding (kind of) but take note: if it adds no light when I speculate unkindly about your motivations, do you really think it’s any more helpful when you speculate about the motivations of others?

    Seriously, I think you shortchange the people who are asking for a model. From reading your blog, I can’t even figure out what exactly you think NGDPLT is supposed to accomplish. Is there some other variable that you believe would increase if NGDPLT were implemented? Or is NGDPLT an end in itself?

    If you could say something like “NGDLPT will increase X. I believe this because Y. I believe NGDPLT will do this better than any feasible alternative because Z,” that would be a huge help. Otherwise, the key takeaway seems to be that one of the most vocal advocates for NGDPLT cannot even state the case for NGDPLT in a compact way. That’s hardly a favorable sign.

  66. Gravatar of Paul Andrews Paul Andrews
    29. May 2012 at 19:55

    Natural language and mathematical models are both narrative forms.

    Neither can prove anything about the social sciences. However both can be used to improve one’s understanding and that of others. Both can be used as tools of genuine debate and learning.

    A mathematical model forces the author to make his narrative explicit. It also forces him to more clearly define his terms.

    Natural language often involves the use of poorly defined terms, unclear logic, lack of tools for describing dynamic cause and effect with degrees of gradation (leading to the use of black-and-white arguments when shades of grey would be more appropriate), lack of a means to convey non-linearity and so on.

    Finally, once a model is described in mathematical form, a wide array of tools can be applied to deduce other “truths” (within the model). Importantly, some of these truths can indicate potential catastrophic outcomes that were not initially considered by the author. Natural language simply does not have this toolset.

    Given the advantages of a mathematical model in conveying a narrative and discerning a wide array of consequences, intended or otherwise, I think the commissioning of such models in relation to NGDP targeting could only be of benefit to all who take an interest in it.

    It won’t prove anything. No economics model does. Economics is too complex for any rational person to be 100% certain about any policy. Rather it is an aid to understanding, one that has more power than natural language to change beliefs.

  67. Gravatar of Major_Freedom Major_Freedom
    29. May 2012 at 21:32

    Mike Sax:

    “It’s not an achievement to become a paradigm. It’s an achievement to be correct. If the paradigm is not correct, then it’s not a failure of the adherents of the correct theory. It’s a failure of everyone who doesn’t understand it and doesn’t accept it.”

    Trouble is you have no basis to call yourself correct.

    Absolutely false. I do have a basis to call myself correct. You have absolutely no valid basis to call myself incorrect. Persuasion and denying objectivity is not a valid epistemology. It refutes itself.

    I agree that an accepted pardigm can be incorrect but just the same you under what basis can the Major Freedom version of Austrianism be called correct?

    Human action. Go ahead and try to refute this without presupposing it. I’ll give you a million dollars if you can.

    If you’ve ever justified it I missed that post.

    I have already suggested to you various resources that do go into this in detail. Shall I presume you did not read them?

    How do you expect me to take you seriously when you refuse to even read that which you are criticizing?

    All you do is assert things without proof.

    No, that’s all you do.

    So you claim that simply sitting back and letting the market magically cures it works but there’s no evidence of this whatsover.

    It’s not sitting back. It’s millions of people ACTING to fix economic problems. What’s your problem? Why do you continue to conflate the market process with a do nothing solution? How can you observe millions of people acting to solve their problems, and claim that is “doing nothing”?

    Furthermore, the market process is not “magic.” So nice stupid straw man there.

    Finally, there is a cornucopia of evidence that the market process works. You just can’t see it because your a priori theory blinds you to it. Your a priori theory is that the state is responsible for everything, so you cannot even see that the market is actually responsible.

    The days before the Fed, the New Deal, FDIC were the age of regular bank panics and recessions one out of very two years.

    The four worst panics in US history came after the creation of the Fed.

    There have been regular panics since 1913, so the empirical data refutes your claim.

    The evidence also shows that the New Deal prolonged the Depression. See Cole and O’Hanian.

    You’re peddling a myth, not reality.

    This is what I mean by empiricism. You never ground any claim of yours on any empirical basis.

    That’s because empiricism presupposes constancy in relations, which does not apply to human action.

    You never ground your theories on any human foundation, even though you are a human.

    You claim you don’t care about persausion-then why do you write so much?

    Why do you care?

    I do it for my own enjoyment, if you want to know.

    Is it simply to hear yourself speak, a form of mental you know what as dr suggested?

    It’s also to hear others speak.

    “Then stop rejecting the science of human action. You’re rejecting the scientific fact that human action does not operate according to constant causal factors, that the very learning of any alleged constancy, will change the learner’s mind, and hence change their actions.”

    Why should anyone do this MF?

    Why should anyone do what? You’re asking me to speak on behalf of others?

    Praxeology is just a bunch of arbitrary claims about human nature.

    No, it’s not “arbitrary.” What is arbitrary is hermeneutics. What is arbitrary is claiming that the foundation of human knowledge is merely persuasiveness.

    “The notion that empirical data can only be interpreted by a prior theories, actually predates Marx. It goes back to Kant. Kant wrote about the idea that synthetic a priori propositions are possible. Kant predates Marx”

    I like that, so Kant is who we have to thank for praxelogy and Major Freedom’s Austrianism.

    Partly. Kant only hinted at human action being an a priori synthetic proposition. Mises is the one who fleshed it out.

    Kant said they are possible not that all questions are a priori propositions.

    Of course. I would never say that the quantity of beef consumers last year, or next year, are a priori propositions. Those are empirical propositions that require observations.

    Economic propositions on the other hand are a priori. They are not empirical propositions. Economic propositions are like the Pythagorean theorem in geometry. They are not immediately known, they need to be thought out and learned, but they are not empirical propositions.

  68. Gravatar of flow5 flow5
    29. May 2012 at 21:43

    Major_Freedom

    au contraire

    (1) Oughts are based on facts.

    (2) Roc’s aren’t coincident, roc’s are ex-ante.

    (3) I discovered human action. You’ve rejected it.

    (4) Einstein would have embraced it & declared “it is very revolutionary”.

    GO FISH

  69. Gravatar of Major_Freedom Major_Freedom
    29. May 2012 at 21:49

    flow5:

    (1) See David Hume

    (2) Roc’s presume the theory that inflation generates prosperity is true.

    (3) That makes no sense. You’re rejecting human action because your theory violates what human action implies.

    (4) Einstein was a socialist. His economics were wrong. His physics was brilliant. Good physics doesn’t mean good economics.

    Thanks for having the 4 of spades. I win.

  70. Gravatar of flow5 flow5
    29. May 2012 at 22:47

    Major_Freedom

    Your diatribe is incomprehensible

  71. Gravatar of Major_Freedom Major_Freedom
    29. May 2012 at 23:57

    flow5:

    Sounds like a personal problem.

  72. Gravatar of Mike Sax Mike Sax
    30. May 2012 at 02:11

    “Finally, there is a cornucopia of evidence that the market process works. You just can’t see it because your a priori theory blinds you to it. Your a priori theory is that the state is responsible for everything, so you cannot even see that the market is actually responsible”

    Cornocupia of evidence… What a pretty phrase. Your a priori theory is that the market does all by itself. I never said the state is responsible for everything but it does have a part to play. Not the same thing. Your the one who thinks the market is responsbile for everything. So your the Monist not me.

    “How do you expect me to take you seriously when you refuse to even read that which you are criticizing”

    Oh Major who flatters himself now? As if hold you in such a position that I care whether or not you “take me seriously?”

    I talk to you mostly for the fantastic comic relief not that I take you at all serioulsy.

    It’s just fascinating to hear what a human being sounds like after being hit by lightening repeatedly. What’s your a priori theory of human action say about how a human acts after being hit by lightening.

    You have no idea what I have read and what I haven’t. Not that this is the point but I probably have read far more than you.

    “You claim you don’t care about persausion-then why do you write so much?

    “Why do you care?”

    “I do it for my own enjoyment, if you want to know.”

    “Is it simply to hear yourself speak, a form of mental you know what as dr suggested?

    “It’s also to hear others speak”

    You seem to gain very little by hearing others speak not just me either. Again I enjoy hearing you speak as its a fascinating “praxelogical” question: how does someone get like this? Is it ligtening? A bad industrial accident? Of course I know that if its an industrial accident you didn’t sue as it was the owner’s right to do with his property as he will.

  73. Gravatar of Major_Freedom Major_Freedom
    30. May 2012 at 02:47

    Mike Sax:

    “Finally, there is a cornucopia of evidence that the market process works. You just can’t see it because your a priori theory blinds you to it. Your a priori theory is that the state is responsible for everything, so you cannot even see that the market is actually responsible”

    Cornocupia of evidence… What a pretty phrase. Your a priori theory is that the market does all by itself.

    No, INDIVIDUALS, millions of INDIVIDUALS, do it, alone or in teams.

    I never said the state is responsible for everything but it does have a part to play.

    Yes, and the part to you is the a priori claim that without state intervention, the market process of voluntary exchange will turn the Earth into a flaming ball of terror, with fire and brimstone.

    The state’s inflating and spending is necessary, primary, needed, required, for economic progress. Without an external entity that prints and spends unearned money, producers in general will inevitably produce without being able to find buyers with enough money.

    Not the same thing. Your the one who thinks the market is responsbile for everything.

    I said the market is responsible for all employment, production, and output. Not the same thing.

    So your the Monist not me.

    I wasn’t criticizing you for being a monist. I was criticizing you for holding the wrong monism.

    “How do you expect me to take you seriously when you refuse to even read that which you are criticizing”

    Oh Major who flatters himself now?

    You didn’t answer the question.

    As if hold you in such a position that I care whether or not you “take me seriously?”

    Yes, as if.

    I talk to you mostly for the fantastic comic relief not that I take you at all serioulsy.

    Right back at you. I find it downright hilarious that you actually believe the mere act of spending money on people’s products benefits them.

    It’s just fascinating to hear what a human being sounds like after being hit by lightening repeatedly.

    Chicks love the lightning scars.

    What’s your a priori theory of human action say about how a human acts after being hit by lightening.

    Pretty much what I am saying now: You lack the intellectual wherewithal to have an intelligent discussion, so you devolve this into childish, unfunny verbiage.

    You have no idea what I have read and what I haven’t.

    Oh yes I do. I know what you have not read, by reading what you are writing. Well, either that or you read but you don’t READ.

    Not that this is the point but I probably have read far more than you.

    I am almost certain that I have read more than you. I can tell by what you write, your vocabulary, your sentence structure, and your ability, or rather inability, to form well structured arguments. You make baseless claims.

    “You claim you don’t care about persausion-then why do you write so much?

    “Why do you care?”

    “I do it for my own enjoyment, if you want to know.”

    “Is it simply to hear yourself speak, a form of mental you know what as dr suggested?

    “It’s also to hear others speak”

    You seem to gain very little by hearing others speak not just me either.

    How in the world do you know what I gain and don’t gain?

    Again I enjoy hearing you speak as its a fascinating “praxelogical” question: how does someone get like this?

    They read.

    Is it ligtening? A bad industrial accident? Of course I know that if its an industrial accident you didn’t sue as it was the owner’s right to do with his property as he will.

    Oh I get it. Your mother probably didn’t breast feed you. You were a pablum/formula baby weren’t you? Pediatricians and doctors have found that babies were weren’t breast-fed as infants tend to acquire an under-developed pre-frontal cortex, which impairs their cognitive functions.

    What’s it like to live as a mental degenerate? You must find the world a terror, and so you desperately seek the government’s guns to take care of you.

  74. Gravatar of Mike Sax Mike Sax
    30. May 2012 at 06:52

    MF no one is a bigger mental degenerate than you. Talk about calling the kettle black! You can play the usual childish tit for tat game of coming back and saying “no you’re the mental degenerate” but it doesn’t work.

    Again, I don’t claim everyone agrees with me here-I’m probably a minority opinion on many things. But I think a lot of people at Money Illusion would follow me in saying you’re a mental degenerate. Far more than would follow you saying the same about me.

    “How in the world do you know what I gain and don’t gain?”

    Well you make the empty claim that you “know” you’ve read more than me which is BS I’m sure. I make the much more obvious point that you don’t get anything from what ohter people say to you. You clearly don’t get anything from reading me or you wouldn’t try to say such silly things as

    “I am almost certain that I have read more than you. I can tell by what you write, your vocabulary, your sentence structure, and your ability, or rather inability, to form well structured arguments. You make baseless claims.”

    See, this just shows you play a childish game of tit for tat. You simply try to answer people as you think they’re talking to you. But you aren’t understading their point your just aping or childishlly mimicking them.

    You can sit here and say I’m a mental degenerate. But this doesn’t ring true. On the other hand when I say you’re a mental degenerate I’m sure many other commentators here agree with me.

    But for you to try to claim that I’m ignorant or on some low intelletual level is meaningless as you’re just playing a tit for tat game with no basis.

    I don’t claim to know everything by any stretch of the imgagination all I am is an interested layperson in Macro. But most I come into contact would at least say that I’m a fairly intelligent person who while not an expert is pretty well informed for a layperson.

    You on the other hand sound like a mental degenerate. You can say popularity isn’t proof of truth and that’s true. But it makes you wonder why so many thing you a mental degenerate whereas they see me as just another commentator desptie all you’re overheated rehtoric.

    Ironically you mentioned Kuhn yesterday with regard to incoomunesurablity. Yet you are the commentator more than anyone else who make arguments that don’t have any commensurablity or relation to what anyone else is saying. It’s not even a question of agreement or disagreement. I’d say I’m more liberal than the median commentator here at Money Illusion. But other comentators can still follow my arguments and we can have a meeting of the minds.

    Few would say the same for you.

    Major I’ll say this though. Here you are almost entirely right if you relate these comments to yourself:

    “You lack the intellectual wherewithal to have an intelligent discussion, so you devolve this into childish, unfunny verbiage.”

    You engage in ceaseless verbiage-so I can’t even say you “devolve” it’s you’re median level.

    However I would not be so uncharitable to you as you are in your baseless attacks on me: you’re ceasless childish verbiage is very funny actually. Again a court needs its jester and you earn your keep.

  75. Gravatar of RJ RJ
    30. May 2012 at 07:40

    “Then stop rejecting the science of human action. You’re rejecting the scientific fact that human action does not operate according to constant causal factors, that the very learning of any alleged constancy, will change the learner’s mind, and hence change their actions.”

    Yet again…this isn’t science, this is hokum. Baloney. Guano. It’s actually easy to demonstrate.

    1) human action does not operate according to constant causal factors

    Really? What are the factors then?

    2) that the very learning of any alleged constancy, will change the learner’s mind

    How do you know this? This is an assertion out of thin air.

    3) hence change their actions

    Even if someone’s mind is changed, there’s no guarantee their actions will be changed too. This whole thing is made up out of whole cloth.

    To be honest, I like people like you MF. You seem to share a quality with religious nuts of fervently believing you share some special truth, and that if others don’t accept your story, they’re either stupid or hostile. And you proselytize like a MF. So, in the sense that you remind me of a dog chasing after its own tail for the amusement of the party guests, I enjoy your work. Keep doing what you’re doing.

  76. Gravatar of Major_Freedom Major_Freedom
    30. May 2012 at 07:54

    RJ:

    “Then stop rejecting the science of human action. You’re rejecting the scientific fact that human action does not operate according to constant causal factors, that the very learning of any alleged constancy, will change the learner’s mind, and hence change their actions.”

    Yet again…this isn’t science, this is hokum. Baloney. Guano. It’s actually easy to demonstrate.

    This should be entertaining…

    1) human action does not operate according to constant causal factors

    Really? What are the factors then?

    The factors deduced and induced from human action itself. Means. Ends. Costs. Etc.

    2) that the very learning of any alleged constancy, will change the learner’s mind

    How do you know this? This is an assertion out of thin air.

    It is implied in the very nature of learning. Learning IS the process of our minds changing in such a way that they become closer in fidelity to reality. Denying that our minds change in the process of learning, contradicts the very meaning of learning. How do I know this? I use logic.

    3) hence change their actions

    Even if someone’s mind is changed, there’s no guarantee their actions will be changed too. This whole thing is made up out of whole cloth.

    Give me an example of you knowing a person’s mind has changed, without their actions changing, and give me an example of a person’s actions changing, without their minds changing.

    I’ll give you a million dollars if you can do it.

    To be honest, I like people like you MF. You seem to share a quality with religious nuts of fervently believing you share some special truth, and that if others don’t accept your story, they’re either stupid or hostile. And you proselytize like a MF. So, in the sense that you remind me of a dog chasing after its own tail for the amusement of the party guests, I enjoy your work. Keep doing what you’re doing.

    To be honest, I like people like you RJ. You seem to share a quality with religious nuts of fervently believing you share some special truth, and that if others don’t accept your story, they’re either stupid or hostile. And you proselytize like a RJ. So, in the sense that you remind me of a dog chasing after its own tail for the amusement of the party guests, I enjoy your work. Keep doing what you’re doing.

    Hey this is fun. All you do is yammer, without showing any substance to your assertions. You amuse me. You’re like a ReligiousNutRightWingFoxNewsRushLimbaughSeanHannityNeoConFascistHerpDerpAmIDoneYet.

  77. Gravatar of Don Geddis Don Geddis
    30. May 2012 at 07:56

    James asks: “I can’t even figure out what exactly you think NGDPLT is supposed to accomplish. Is there some other variable that you believe would increase if NGDPLT were implemented? Or is NGDPLT an end in itself?”

    Sumner has hundreds (thousands?) of blogs posts, going back years. No single post is going to make a good summary, if you don’t understand the basic idea. For that, you’ll want to read something more comprehensive like Sumner’s National Affairs article, “Re-Targeting the Fed“.

    The direct answer to your question is: monetary policy can’t help with many economic problems, e.g. supply-side shocks, or the long-term growth rate in the economy. But bad monetary policy can CAUSE demand-side shocks, like the Great Depression in the 1930′s, and the Great Recession of the last few years. NGDPLT would enable an economy to avoid demand-side recessions, and hence avoid the resulting high spike in unemployment and multi-year loss of economic growth.

  78. Gravatar of RJ RJ
    30. May 2012 at 08:18

    “Hey this is fun. All you do is yammer, without showing any substance to your assertions. You amuse me. You’re like a ReligiousNutRightWingFoxNewsRushLimbaughSeanHannityNeoConFascistHerpDerpAmIDoneYet.”

    I know you are, but what am I?

  79. Gravatar of RJ RJ
    30. May 2012 at 08:19

    Wow that was refreshing, haven’t whipped that one out since my schoolyard days.

  80. Gravatar of Mike Sax Mike Sax
    30. May 2012 at 08:23

    This post about models-and Noahpinion’s-inspired me to write a post as well.

    http://diaryofarepublicanhater.blogspot.com/2012/05/whats-in-macro-model-sumner-vs.html

    You have my word that Major Freedom is not mentioned in it and the point has nothing to do with him-LOL

  81. Gravatar of Jason Jason
    30. May 2012 at 08:27

    I think it would be good to remind the mathematically minded that economics is currently in the Boyle’s law/Galilean free fall era:

    “At a fixed temperature, the volume of a gas is inversely proportional to the pressure exerted by the gas.” (Boyle)

    “Having performed this operation and having assured ourselves of its reliability, we now rolled the ball only one-quarter of the length of the channel; and having measured the time of its descent, we found it precisely one-half of the former.” (Galileo)

    … still a long way from PV = P’V’ derived from a microcanonical ensemble and s = 0.5 a t^2 derived from general relativity.

  82. Gravatar of Major_Freedom Major_Freedom
    30. May 2012 at 08:43

    RJ:

    I know you are, but what am I?

    And RJ has set a new low.

    Wow that was refreshing, haven’t whipped that one out since my schoolyard days.

    Psychological reversions back to one’s childhood are actually quite common for those whose worldviews have been exposed as built on a house of cards. All the crap you’ve layered upon your mind in your years is being rattled, and you can only see the little boy inside that’s left.

  83. Gravatar of Major_Freedom Major_Freedom
    30. May 2012 at 08:49

    Mike Sax:

    You have my word that Major Freedom is not mentioned in it and the point has nothing to do with him-LOL

    If that isn’t proof that I have yet another new fan, I don’t know what is.

    So is Sumner charging you a fee for hocking your website on his blog? Or are you one of them “I got mine” people who don’t have the decency to ask for such things?

  84. Gravatar of Mike Sax Mike Sax
    30. May 2012 at 09:00

    Thanks Paul Andrews, your comments are very helpful-you say well what I was trying to get in the post I linked above.

    Mathematical models then elucidate some things that we can’t get at with just plain English.

  85. Gravatar of James James
    30. May 2012 at 10:52

    Don Geddis,

    I appreciate your response.

    For what it’s worth, I don’t believe in such a thing as demand side recessions. If people reject the goods and services offered to them at the current asking prices, I take that as evidence that the seller invested in the wrong inventory or chose the wrong price point. If I’m right, then there are no demand side recessions to avoid.

    But put that aside. How do you know that NGDP targeting really would avoid any type of recessions?

  86. Gravatar of Major_Freedom Major_Freedom
    30. May 2012 at 11:07

    For what it’s worth, I don’t believe in such a thing as demand side recessions. If people reject the goods and services offered to them at the current asking prices, I take that as evidence that the seller invested in the wrong inventory or chose the wrong price point.

    Ahhh, music to my ears, James. You are a pearl in a pen of swine.

    Get ready to have your head bitten off for daring to claim that consumers should have final say in production (Egads! You mean we should produce only what people want to consume?), and not the Fed (Oh noes! But the fed exists! Accept it. Given that they exist, they should do as market monetarists say, not as Hayek said).

  87. Gravatar of Bernhard Bernhard
    30. May 2012 at 11:11

    Scott,

    you suspect that a nominal wage target would be superior. Does that imply that you believe that the main source of price rigidity lies with wages? From reading your blog that’s the impression i got.

  88. Gravatar of Mike Sax Mike Sax
    30. May 2012 at 11:27

    “Get ready to have your head bitten off for daring to claim that consumers should have final say in production (Egads! You mean we should produce only what people want to consume?), and not the Fed (Oh noes! But the fed exists! Accept it. Given that they exist, they should do as market monetarists say, not as Hayek said).”

    See MF you construe the point wrong. If someone suddenly suffers a major drop in income-maybe their laid off, or a pay cut, whatever-and can suddenly only purchase X-Y where they could previoulsy purchase X, this is not some sainted “choice” they’ve made that they don’t want undone.

    They are suffering privation just as the seller is. So no one needs protection from demand side stimulus like you think they need from you. To the contrary we need help from delusiional souls like yourself who insist on keeping demand weak-as it’s people’s “choice” not to be able to afford their old standard of living.

    To hear you tell it people just want to be poor and not able to purchase their basic necesaries. In this I guess you Austrians aren’t so different from the newer view of people like Lucas-there’s no unemployment problem! People are all just dedicating more time to leisure!

  89. Gravatar of Major_Freedom Major_Freedom
    30. May 2012 at 11:50

    Mike Sax:

    See MF you construe the point wrong.

    It was my own point Mike. I am not misconstruing the point you believe I am making.

    If someone suddenly suffers a major drop in income-maybe their laid off, or a pay cut, whatever-and can suddenly only purchase X-Y where they could previoulsy purchase X, this is not some sainted “choice” they’ve made that they don’t want undone.

    Oh noes! Pay cuts! Only entrepreneurs and investors are allowed to experience income cuts. But laborers? They’re HOLY. No income cuts allowed! People should become unemployed if need be, and milk those who are working for less.

    Lower business costs that lead to lower prices for manufactured goods. All else equal, unchanged purchasing power. Coming out of a depression, it means more people in the work force, which means higher overall productivity, which means lower output prices. That means the net upshot of a fall in wages is a rise in standards of living.

    Oh the horror of making less nominal income but being able to buy more goods! That is so painful. It’s better to earn a higher nominal income, or zero nominal income and get free money from the taxpayers, and then buy fewer goods. That is better for everyone, obviously

    They are suffering privation just as the seller is. So no one needs protection from demand side stimulus like you think they need from you.

    Then why are you calling for demand side protection in the form of inflation, hmm? What, are you saying it is evil for me to print my own money to consume what others produce, but it’s good for the Fed do enable bankers and statesmen to do it?

    To the contrary we need help from delusiional souls like yourself who insist on keeping demand weak-as it’s people’s “choice” not to be able to afford their old standard of living.

    What you call “weak demand” is just another word for a stronger dollar.

    You’re wanting to put double the pain on the victims of monetary intervention. People are out of work because the wrong projects were started as a result of artificially low interest rates and credit expansion. And your solution…is to call for more inflation and credit expansion, thus hoping that people suffer even more so in the future. Instead of a recession in 2001, we get only a blip downward, but in exchange we got tens of millions of unemployed from the latest bust cycle. Excellent trade. At this rate, you’ll bring everyone the Utopia of not working anywhere. Of course they’ll starve, but we can expect you to be there promising cooked dollar bill steaks and steamed dollar veggies.

    To hear you tell it people just want to be poor and not able to purchase their basic necesaries.

    They can’t purchase the basic necessities when monetary interference makes it impossible for investors to coordinate their actions with consumers, such that there are employment opportunities. They can’t purchase the basic necessities when the state says their competitive wage rate is illegal, and when they are legally banned from working. They can’t purchase the basic necessities when people like you make it impossible for the economy to function sustainably.

    But you’re right, there is a need for certain types of people. Compassionate people need people like you to show just how destructive and wasteful central economic planning really is.

    I guess you’re no different than a crack addict parent. You believe you’re doing the right thing, but you’re not even a parent, and your actions are causing people tremendous problems.

    I guess unemployment to you means people aren’t willing to consume, totally ignoring that the desire to consume is practically infinite, but that consumer products have to be produced in the right proportions, which inflation and manipulating interest rates hampers.

    Ah, if only you had to experience real life instead of your bubble life, if only you ran a business and know what it is like, then you’d be able to think in terms other than an open mouth that is yammering for the state to fill it with bread from who knows.

  90. Gravatar of Negation of Ideology Negation of Ideology
    30. May 2012 at 12:30

    James -

    “For what it’s worth, I don’t believe in such a thing as demand side recessions. If people reject the goods and services offered to them at the current asking prices, I take that as evidence that the seller invested in the wrong inventory or chose the wrong price point. If I’m right, then there are no demand side recessions to avoid.

    But put that aside. How do you know that NGDP targeting really would avoid any type of recessions?”

    Good question. First, your point about demand side recessions. Imagine if today the Fed stopped all bond purchases, waited for all of its existing bonds to come due, and sold off its gold hoard until the money supply dropped by 99%. Do you agree that would cause a demand side recession? Do you believe that people would be reducing their spending because they no longer liked to eat and wear clothing, etc., or because of a shortage of money?

    And when businesses revenue dropped dramatically and employers had to cut wages and lay off workers, and those workers could not meet their mortgage payments (on mortgages that were made when there were 100 times more dollars in circulation), do you think it would be because those workers were all lazy, or because of a shortage of money?

    And when those businesses filed for bankruptcy, would it be because they all invested in the wrong things, or because of a shortage of money?

    This is the key point – individuals and corporations go bankrupt all the time because they invested in the wrong things, and others invested in the right things which sold better to consumers. But how can everyone invest in the wrong things? Some business must at least be the least wrong at guessing consumer needs and wants. If everyone is going bankrupt all at once, does it seem more likely that no one is producing things people want or need, or that it is a monetary phenomenon?

    I don’t think anyone argues that NGDP targeting would avoid any type of recession. But those recessions would be less frequent, less severe, and would be supply shocks rather than monetary shocks.

  91. Gravatar of Major_Freedom Major_Freedom
    30. May 2012 at 12:45

    Propagation of Ideology:

    Good question. First, your point about demand side recessions. Imagine if today the Fed stopped all bond purchases, waited for all of its existing bonds to come due, and sold off its gold hoard until the money supply dropped by 99%. Do you agree that would cause a demand side recession?

    If the market process results in a 99% reduction of the money supply, then that should signal to you that the prior money supply was roughly 99% too much.

    There would almost certainly be a correction that takes place, as labor and resources FINALLY get reshuffled and allocated to where consumers ACTUALLY desire them, in accordance with their true saving and consumption patterns.

    Do you believe that people would be reducing their spending because they no longer liked to eat and wear clothing, etc., or because of a shortage of money?

    Do you believe that if people said no to X, Y, and Z, that they prefer to consume nothing at all, or that they prefer to consume A, B, and C, which couldn’t be produced before because consumption/saving price signals could not be effectively communicated to investors, because of the Fed?

    More importantly, in a free market monetary standard that does not have a central bank, or better yet, does not have banks issuing more claims to money than what exists, the chances of the money supply falling is virtually nil. Once precious metals come into existence, they tend to stay in existence.

    And when businesses revenue dropped dramatically and employers had to cut wages and lay off workers, and those workers could not meet their mortgage payments (on mortgages that were made when there were 100 times more dollars in circulation), do you think it would be because those workers were all lazy, or because of a shortage of money?

    False dichotomy. It doesn’t have to be either of those two things. It could be that they are not lazy, but their employers made investment errors due to past easy money that was not in line with real consumer preferences.

    You keep focusing unduly on aggregate money spending, and you’re completely ignoring economic calculation and what it entails.

    And when those businesses filed for bankruptcy, would it be because they all invested in the wrong things, or because of a shortage of money?

    The wrong things. Investments made on a foundation of M3 composed of 99% credit expansion, are almost certainly not in line with real consumer temporal preferences. Yes, they did make the wrong decisions. But it’s not because they are stupid. It’s because they had no way of knowing the true state of saving and consumption temporal patterns because they were unobservable, what with the Fed interfering.

    This is the key point – individuals and corporations go bankrupt all the time because they invested in the wrong things, and others invested in the right things which sold better to consumers. But how can everyone invest in the wrong things? Some business must at least be the least wrong at guessing consumer needs and wants. If everyone is going bankrupt all at once, does it seem more likely that no one is producing things people want or need, or that it is a monetary phenomenon?

    You’re right, it is a monetary phenomenon, but it’s not a monetary phenomenon in the sense that the Fed should have printed more money. It is a monetary phenomenon that something was seriously wrong with the previous money supply that a cessation of state interference finally laid bare.

    I don’t think anyone argues that NGDP targeting would avoid any type of recession. But those recessions would be less frequent, less severe, and would be supply shocks rather than monetary shocks.

    On what basis do you conclude that NGDP targeting and sustainable economic growth are capable of co-existing?

  92. Gravatar of Don Geddis Don Geddis
    30. May 2012 at 12:51

    James: “I don’t believe in such a thing as demand side recessions.”

    That’s a much bigger question, and you probably need to back up to the Great Depression, and read Milton Friedman’s Monetary History. Suffice it to say that the vast majority of professional economists disagree with you (aside, perhaps, from the fringe Austrians). There is an enormous amount of data to support the theory that nominal volatility has real effects.

    Just to help you with a thought experiment: consider a homeowner trying to get a 30-year mortgage from a bank. Both sides know the current value of the dollars, in terms of goods that can be purchased with those current dollars. Both sides are trying to make an estimate for the value of the repaid dollars, a few decades from now. If they are able to make a reliable estimate for that future value, then they can agree on a mortgage today. They might be able to do this if, for example, dollars were pegged to a gold standard, and thus had relatively constant value throughout the years. Or, if dollars were fiat currency (as today), but changed value slowly and predictably (e.g. averaged 2% annual inflation, like 1980-2005).

    What do you think happens, if both sides agree to a reasonable mortgage transaction, but then the value of the dollar suddenly becomes dramatically different than they predicted? Worth half as much, or twice as much, as they thought it was going to be? Suddenly one side or the other is in a crisis. Perhaps the homeowner suddenly owes twice as much real value as he anticipated, and can no longer afford the mortgage payments. Note that it isn’t that there was something wrong with the original mortgage agreement. What changed was the real value associated with the nominal terms of the mortgage.

    That’s really all that it’s about. That many economic contracts (wages, debts) are in nominal terms, but it is possible for the real value of those nominal terms to change quickly, in unanticipated ways. And that’s what makes a nominal crisis have real effects.

    NGDPLT is an attempt to make the future value of dollars be very predictable, so at least the economy won’t be rocked by additional unnecessary nominal (demand) shocks. There are still other economic effects, like an oil crisis or a hurricane hitting New Orleans. Monetary policy doesn’t undo supply shocks. But good monetary policy can avoid adding additional disruption to the economy (like the Great Depression or the Great Recession).

  93. Gravatar of Don Geddis Don Geddis
    30. May 2012 at 13:01

    MF: “On what basis do you conclude that NGDP targeting and sustainable economic growth are capable of co-existing?”

    1980-2005 in the US saw both steady real GDP growth, and steady growth in the money supply and the price level (inflation). A quarter century is about as sustainable as things ever get in the whole history of economics. The US (already by far the largest economy in the world) basically doubled its real production during that time.

    That’s pretty much slam-dunk evidence that, unlike the claims of the Austrians, low, stable (monetary and headline) inflation is not, in fact, unsustainable, and the resulting growth is real, not an illusion.

  94. Gravatar of Major_Freedom Major_Freedom
    30. May 2012 at 13:20

    Don Geddis:

    What do you think happens, if both sides agree to a reasonable mortgage transaction, but then the value of the dollar suddenly becomes dramatically different than they predicted?

    Then they reprice the loan. One side paid too much, the other paid too little. One side makes out like bandits, the other losses huge.

    How is this a course for GENERAL impoverishment?

    NGDPLT is an attempt to make the future value of dollars be very predictable, so at least the economy won’t be rocked by additional unnecessary nominal (demand) shocks.

    They are necessary. A nominal shock derived from voluntary exchange is always necessary. That’s why people behave in such a way that results in that very phenomenon!

    You’re thinking like a central planner, and so that’s why you have ad hoc notions of spending stability via credit expansion as somehow capable of generating economic stability. Quite the opposite.

    Don Geddis:

    “On what basis do you conclude that NGDP targeting and sustainable economic growth are capable of co-existing?”

    1980-2005 in the US saw both steady real GDP growth, and steady growth in the money supply and the price level (inflation).

    How do you know that the theory that economic growth occurred DESPITE steady NGDP growth, and not because of it, is wrong, when it is entirely consistent with the data as well?

    What is making you reject one theory out of two theories, even though both are consistent with the data?

    A quarter century is about as sustainable as things ever get in the whole history of economics.

    And look at the problems we have now, despite the Fed’s efforts to reinflate the credit economy post-2008.

    The US (already by far the largest economy in the world) basically doubled its real production during that time.

    How do you know the theory that output doubled DESPITE “stable” NGDP growth, is wrong?

    That’s pretty much slam-dunk evidence that, unlike the claims of the Austrians, low, stable (monetary and headline) inflation is not, in fact, unsustainable, and the resulting growth is real, not an illusion.

    I just showed you slam dunk evidence for my theory that economic growth occurred despite, not because of, the Fed.

    Low inflation is not sustainable? Neither is high inflation. Neither is NGDP targeting.

    So it looks like your foundation is completely empty. You believe the empirical data proves your theory true, and yet my theory is just as consistent with the data, even though my theory contradicts yours.

    Since the empirical evidence cannot settle this dispute, you are way off base to claim monopoly over the data, and you are way off base to claim that Austrian theory is not consistent with the empirical evidence. It is. I just don’t make the mistake you are making, which is claiming that empirical consistency of a theory somehow serves as a basis of its truth that makes all other theories impossible.

    You’re making a crucial error in judgment.

  95. Gravatar of Don Geddis Don Geddis
    30. May 2012 at 13:37

    MF: You are the one who apparently misread your own claim. I made no comment at all on whether the real growth happened because of the nominal growth, or in spite of it. I was only responding to YOUR question, which asked (essentially) whether sustainable real growth and nominal growth could “co-exist”. So I provided (extremely strong) evidence that yes, they could co-exist. Unlike typical Austrian claims, long-term growth in the money supply clearly does not NECESSARILY result in “malinvestment” and later economic “correction” (aka recession). That Austrian claim is false.

    This new theory of yours, that the real growth happened _despite_ the nominal growth, is just as laughable as everything else you write. But I’ve wasted enough time on you (and you deliberately misread whatever response I would give anyway), so I’m not going to bother to address it.

  96. Gravatar of Major_Freedom Major_Freedom
    30. May 2012 at 14:06

    Don Geddis:

    I was only responding to YOUR question, which asked (essentially) whether sustainable real growth and nominal growth could “co-exist”. So I provided (extremely strong) evidence that yes, they could co-exist.

    I thought I asked for a sustainable case. The 40 year government debt bubble that has been building up since the early 1970s, which required the inflation that aggregate spending growth required, which has set the economy up for what’s going to be inevitable fiscal and monetary armaggeddon, is “sustainable” in your view?

    I guess we have different conceptions of sustainable. When I say sustainable, I don’t mean temporary, I mean capable of being a permanent solution.

    Unlike typical Austrian claims, long-term growth in the money supply clearly does not NECESSARILY result in “malinvestment” and later economic “correction” (aka recession). That Austrian claim is false.

    You know it would help if you actually understood the theory you’re criticizing.

    The Austrian theory doesn’t at all claim that mere money printing brings about malinvestment. It’s when money printing enters the loan market, and increases credit beyond what is made available by real saving, such that interest rates become lower than they otherwise would have, that generates inter-temporal malinvestment.

    This new theory of yours, that the real growth happened _despite_ the nominal growth, is just as laughable as everything else you write.

    But it’s 100% consistent with the empirical data. Why are you denying empirical evidence? What are you, unscientific?

    Why is it “laughable”? How can a theory completely consistent with the empirical data be laughable to you, if you weren’t tacitly subjecting my theory to a standard OTHER than the empirical data?

    You can try to escape by hand waving and bloviating and pretending you’re above all this, but that’s just you saving face. It’s a front to hide the problems of what it is you are using to judge various theories. You aren’t sure of yourself.

    But I’ve wasted enough time on you (and you deliberately misread whatever response I would give anyway), so I’m not going to bother to address it.

    What did I deliberately misread? I asked for an example of sustainable growth, and you show me a temporary period that has left us with certainly unsustainable loads of garbage.

    You know, nervously and uncomfortably laughing at what I am saying only tells me your view of your own beliefs.

  97. Gravatar of gdelassu gdelassu
    30. May 2012 at 14:18

    Ah, if only you had to experience real life instead of your bubble life, if only you ran a business and know what it is like…

    I call BS here, until and unless someone adduces evidence that people who run businesses disfavor NGDP level-targetting (has the Mises Inst. commissioned a survey?) and/or favor a return to the gold-standard.

  98. Gravatar of ssumner ssumner
    30. May 2012 at 15:59

    ARGGGG! I answered many of these, and now I can’t find my comment.

    Starting over, more brief this time:

    Morgan, We’ll always have price stickiness.

    Brito, I have “formal” models of the transmission mechanism, it’s just that others don’t like the model.

    Martin, Good point.

    dwb. Yes, the bottom line is to be pragmatic–use what you need to make the point. I have one set of models for why M affects NGDP, and another set for why NGDP affects RGDP.

    Negation, I often feel that way.

    Thanks B.

    Jeff, I agree.

    Mike Sax, I mostly agree, although I don’t think IS-LM is useful.

    Saturos, Not that there’s anything wrong . . .

    CThorm, I agree.

    Don Geddis, I agree.

    Matt Waters, Yes, supply-side matters, but as you say AD tends to drive the business cycle.

    Saturos, Yes, that guy’s views on taxes are almost identical to mine.

    Mike Sax, It’s not the first time it’s been in the NR. I did an article a while back, and so did Ponnuru (and I think Beckworth.)

    flow5, I’d suggest policymakers pay no attention to RGDP.

    James, You said;

    “If you could say something like “NGDLPT will increase X. I believe this because Y. I believe NGDPLT will do this better than any feasible alternative because Z,” that would be a huge help. Otherwise, the key takeaway seems to be that one of the most vocal advocates for NGDPLT cannot even state the case for NGDPLT in a compact way. That’s hardly a favorable sign.”

    Obviously you haven’t spent much time reading my blog. I’ve explained numerous times why I think NGDPLT is a good idea. If you haven’t read those posts, perhaps you should do so before assuming I have no explanation. In a nutshell, if NGDP is more stable, employment will also be more stable, because nominal hourly wages are sticky.

    Bernhard, Yes.

  99. Gravatar of Paul Andrews Paul Andrews
    30. May 2012 at 17:03

    Scott,

    “Brito, I have “formal” models of the transmission mechanism, it’s just that others don’t like the model.”

    Are these formal models available on-line?

  100. Gravatar of Saturos Saturos
    31. May 2012 at 01:21

    MF – see this on the difference betwen private and social benefits http://invisibleheart.com/Iheart/PolicySirloin.html

    “Market interest rates are a function of people’s saving. They are not “given” quantities that then influence people’s rate of saving.”

    Don’t you understand that prices are both a function of supply as well as quantity supplied being a function of price? Did you not take Econ 101?

    “What about when the size of government increases, reducing private income and thus demand for money?

    What about it?”

    Well, y’see, when people get poorer, they hold less money. And what do they do with the money they aren’t holding anymore? That’s right, they put it into bonds.
    Or just imagine the tax collector coming to your house and demanding a 1000 dollars. To pay the bill, you consume a little less, save a little less, and hold a little less money. It’s the latter that isn’t being diverted from other spending.

    The rest of your comments are hilarious as usual.

    Scott, you should edit your comments on Notepad first, that’s what I do.

    Did you like the Gif, though?

  101. Gravatar of Saturos Saturos
    31. May 2012 at 01:58

    Scott, but do you know any more good papers on long run elasticity of labor supply?

    One thing that’s always puzzled me about tax incentives: Suppose your marginal tax rate is 10%. Now suppose a productivity shock doubles your hourly wage without changing your effort. Shouldn’t it be possible to raise the marginal tax rate to 55% without any added disincentive?

    Shouldn’t it be possible to have much higher tax rates in richer countries, as long as the real dollar return to an extra hour’s effort is the same? Or does our work effort depend on marginal income as a fraction of existing income? But suppose the shock doubled everyones income at all levels, and all tax brackets had marginal rates raised from 10 to 55%. Shouldn’t work effort be unchanged? What if the taxes go to a dictator who spends it all on himself?

  102. Gravatar of Saturos Saturos
    31. May 2012 at 02:13

    Yeah, just worked it out with indifference curves – a wage hike coupled with taxes that don’t fund welfare takes you right back where you started, doesn’t it?

  103. Gravatar of Saturos Saturos
    31. May 2012 at 02:15

    So if a country gets richer and elects a govt which raises taxes on everyone and then simply wastes the money, people shouldn’t work any less, yeah?

  104. Gravatar of Saturos Saturos
    31. May 2012 at 02:18

    What am I missing here?

  105. Gravatar of Saturos Saturos
    31. May 2012 at 07:57

    And what about this response to Kimball from Karl Smith: http://www.forbes.com/sites/modeledbehavior/2012/05/30/welcome-miles-kimball-now-lets-set-the-record-straight-on-taxation-2/

    I think it’s disingenuous to seperate the income effect from the substitution effects of tax-and-transfer. And the last point is definitely wrong.

  106. Gravatar of ssumner ssumner
    31. May 2012 at 14:22

    Paul, I assume wages and prices are flexible in the long run, hence an increase in the monetary base that is expected to be permanent has a proportional effect on long run expected NGDP. And changes in expected future NGDP have a positive impact on current NGDP, for all the usual NK reasons.

    saturos, What’s a Gif?

    You asked:

    “One thing that’s always puzzled me about tax incentives: Suppose your marginal tax rate is 10%. Now suppose a productivity shock doubles your hourly wage without changing your effort. Shouldn’t it be possible to raise the marginal tax rate to 55% without any added disincentive?”

    If all the money is wasted you might be right. I haven’t done this sort of thing for a while. Of course in the real world there’d be greater incentive to evade taxes, etc.

    I haven’t kept up with the tax literature, but it seems to me that Prescott has done some interesting work.

    I have a new post on that article.

  107. Gravatar of Major_Freedom Major_Freedom
    31. May 2012 at 15:02

    Saturos:

    MF – see this on the difference betwen private and social benefits

    http://invisibleheart.com/Iheart/PolicySirloin.html

    That’s all private benefits and losses, because the costs are voluntarily accepted by all the property owners.

    “Market interest rates are a function of people’s saving. They are not “given” quantities that then influence people’s rate of saving.”

    Don’t you understand that prices are both a function of supply as well as quantity supplied being a function of price? Did you not take Econ 101?

    Econ 101 brainwashes people’s minds. What, do you mean the country is in excellent shape and that our schools are producing excellent economists? Don’t be naive.

    To address your statement, you’re using circular logic. You’re saying price is a function of supply and supply is a function of price. This doesn’t answer why supply and price would be where they are based on factor(s) outside that circle of dependency.

    And you didn’t actually address what I said: Interest rates are a function of people’s rate of saving.

    “What about when the size of government increases, reducing private income and thus demand for money?

    What about it?”

    Well, y’see, when people get poorer, they hold less money.

    And what do they do with the money they aren’t holding anymore? That’s right, they put it into bonds.

    You’re presuming real gains can be made in this way. It is entirely possible that holding more cash with price deflation can create higher gains than holding less cash with price inflation.

    Plus there is the uncertainty factor that makes holding money more valued.

    Or just imagine the tax collector coming to your house and demanding a 1000 dollars. To pay the bill, you consume a little less, save a little less, and hold a little less money. It’s the latter that isn’t being diverted from other spending.

    That’s not how taxes are collected. Taxes are collected on transactions (including land property taxes, which are taxes on purchased land, spread out over a period of ownership).

    The taxman doesn’t tax your cash balances. Your hypothetical scenario is inaccurate.

    The rest of your comments are hilarious as usual.

    You mean superior than your comments as usual, and you can only deal with that discomfort by laughing. OK, whatever helps the pain.

  108. Gravatar of Saturos Saturos
    31. May 2012 at 17:46

    “That’s all private benefits and losses, because the costs are voluntarily accepted by all the property owners.”

    Taxes are not voluntary. Read the article again.

    “To address your statement, you’re using circular logic. You’re saying price is a function of supply and supply is a function of price. This doesn’t answer why supply and price would be where they are based on factor(s) outside that circle of dependency.”

    This is why you should take Econ 101. There is a difference between supply and quantity supplied. Go find out what it is.

    Interest rates are a function of real saving, not hoarding. Yet hoarding still responds to its opportunity cost (do you know what an opportunity cost is?), the nominal interest rate. Especially if you’re a big company like Apple.

    “price deflation can create higher gains than holding less cash with price inflation.”

    Is there deflation or inflation? Pick one. The nominal interest rate adjusts to inflation/deflation (that’s called the Fisher effect, look it up), so the difference between returns on bonds and money is the nominal interest rate. That’s a real (private) gain.

    MF, who do you think has more money in their wallets, rich people or poor people?

    Scott, this is a GIF!!!
    http://postimage.org/image/4y7st7kbl/

    (I’m gonna keep posting this until someone responds. I’m trying to make a meme here. If there’s one thing to get your cause more publicity, it’s MemeScott.)

    And here are some previous classics.
    http://icanhas.cheezburger.com/lolcats/
    http://www.google.com.au/search?q=I+can+haz+cheezburger&hl=en&prmd=imvns&tbm=isch&tbo=u&source=univ&sa=X&ei=0hrIT8jUG4aaiQfqm9EZ&ved=0CIQBELAE&biw=1366&bih=705

    Oh boy, you need to get out and see the internets some more…

  109. Gravatar of Paul Andrews Paul Andrews
    31. May 2012 at 23:27

    Scott,

    “Brito, I have “formal” models of the transmission mechanism, it’s just that others don’t like the model.”

    Paul: “Are these formal models available on-line?”

    Scott: “Paul, I assume wages and prices are flexible in the long run, hence an increase in the monetary base that is expected to be permanent has a proportional effect on long run expected NGDP. And changes in expected future NGDP have a positive impact on current NGDP, for all the usual NK reasons. ”

    I was interested in the formal models you mentioned to Brito, I presume your comment is meant to summarize them?

    Is it possible to see the actual models? Is there a transmission mechanism to real output?

  110. Gravatar of ssumner ssumner
    1. June 2012 at 19:23

    Saturos, I hate looking at myself. (Remember what Borges said about mirrors being an abomination.)

    Paul, My transmission mechanism is sticky nominal hourly wages. When the Fed increases NGDP, the ratio (W/NGDP) falls, and firms hire more workers. That’s the only transmission mechanism you need.

    And M affects NGDP in the long run via the hot potato effect. And future expected NGDP affects current NGDP for all the standard reasons of ratex models.

    Any model I write up will just be mathematical symbols for what I just said in words.

  111. Gravatar of Major_Freedom Major_Freedom
    1. June 2012 at 19:44

    Saturos:

    MF, who do you think has more money in their wallets, rich people or poor people?

    Everyone has different quantities of money in their wallets.

    Who do you think has money in their wallets?

  112. Gravatar of Paul Andrews Paul Andrews
    1. June 2012 at 22:53

    Scott,

    “Brito, I have “formal” models of the transmission mechanism, it’s just that others don’t like the model.”

    Paul: “Are these formal models available on-line?”

    Scott: “Paul, I assume wages and prices are flexible in the long run, hence an increase in the monetary base that is expected to be permanent has a proportional effect on long run expected NGDP. And changes in expected future NGDP have a positive impact on current NGDP, for all the usual NK reasons. ”

    Paul: “I was interested in the formal models you mentioned to Brito, I presume your comment is meant to summarize them? Is it possible to see the actual models? Is there a transmission mechanism to real output?”

    Scott: “My transmission mechanism is sticky nominal hourly wages. When the Fed increases NGDP, the ratio (W/NGDP) falls, and firms hire more workers. That’s the only transmission mechanism you need. And M affects NGDP in the long run via the hot potato effect. And future expected NGDP affects current NGDP for all the standard reasons of ratex models. Any model I write up will just be mathematical symbols for what I just said in words.”

    OK, so you have a formal model in mind, and you agree that it could be codified mathematically, but it is yet to be codified.

    If and when it is codified, won’t it necessarily have more content than your natural language summary? Won’t the effect of the Fed increasing NGDP on employment, amongst the other effects you mention, need to be specified as a function, indicating your estimate of the degree of the effect and the longevity of the effect?

  113. Gravatar of Saturos Saturos
    2. June 2012 at 00:07

    Paul, I think Scott is just using certain NK models of aggregate supply, though I haven’t gotten him to point me to the exact one…

  114. Gravatar of Saturos Saturos
    2. June 2012 at 00:14

    Scott, I think we could use a few replicas of you.

    (Dreamtigers was the first Borges I read.)

  115. Gravatar of Saturos Saturos
    2. June 2012 at 02:18

    Update: Here you go, Paul: http://marketmonetarist.com/2012/06/01/the-sumnerian-phillips-curve/

  116. Gravatar of Paul Andrews Paul Andrews
    2. June 2012 at 03:15

    Saturos,

    Scott mentioned above that the model he has in mind has not been mathematically codified, so I presume the model presented at your link is not a codification of Scott’s model?

  117. Gravatar of Saturos Saturos
    2. June 2012 at 10:15

    Not exactly, but does it answer your questions?

  118. Gravatar of ssumner ssumner
    2. June 2012 at 11:40

    Paul, Sure, you could do an empirical test of the impact of NGDP shocks on employment, but I thought you were asking for a pure mathematical model, not an economic test of causal relationships. I don’t do econometric tests anymore, as the results are usually not very reliable. It’s generally true that more NGDP instability leads to more employment instability, but it’s hard to go much further than that.

  119. Gravatar of Paul Andrews Paul Andrews
    2. June 2012 at 15:16

    Saturos,

    A model is always someone’s story. I’m interested in Scott’s story, and I don’t have the time for, or interest, in studying models put forward by others at present. If Scott says he thinks it adds something to the debate I will take a closer look.

  120. Gravatar of Paul Andrews Paul Andrews
    2. June 2012 at 15:25

    Scott,

    “Brito, I have “formal” models of the transmission mechanism, it’s just that others don’t like the model.”

    Paul: “Are these formal models available on-line?”

    Scott: “Paul, I assume wages and prices are flexible in the long run, hence an increase in the monetary base that is expected to be permanent has a proportional effect on long run expected NGDP. And changes in expected future NGDP have a positive impact on current NGDP, for all the usual NK reasons. ”

    Paul: “I was interested in the formal models you mentioned to Brito, I presume your comment is meant to summarize them? Is it possible to see the actual models? Is there a transmission mechanism to real output?”

    Scott: “My transmission mechanism is sticky nominal hourly wages. When the Fed increases NGDP, the ratio (W/NGDP) falls, and firms hire more workers. That’s the only transmission mechanism you need. And M affects NGDP in the long run via the hot potato effect. And future expected NGDP affects current NGDP for all the standard reasons of ratex models. Any model I write up will just be mathematical symbols for what I just said in words.”

    Paul: “OK, so you have a formal model in mind, and you agree that it could be codified mathematically, but it is yet to be codified. If and when it is codified, won’t it necessarily have more content than your natural language summary? Won’t the effect of the Fed increasing NGDP on employment, amongst the other effects you mention, need to be specified as a function, indicating your estimate of the degree of the effect and the longevity of the effect?”

    Scott: “Sure, you could do an empirical test of the impact of NGDP shocks on employment, but I thought you were asking for a pure mathematical model, not an economic test of causal relationships. I don’t do econometric tests anymore, as the results are usually not very reliable. It’s generally true that more NGDP instability leads to more employment instability, but it’s hard to go much further than that.”

    Models contain estimated causal relationships, in the form of functions and parameters. They don’t have to be empirically based, but it adds weight to the story if they are.

    I had presumed that since you seem highly convinced of the efficacy of NGDPLT that you must have an internal feeling for the strength of, the duration of, and the shape of, the transmission mechanisms (causal relationships). And if you have that feeling don’t you think it would be beneficial for you to write it down in the form of mathematical functions, so that your readers can see exactly what you mean?

  121. Gravatar of James James
    2. June 2012 at 15:39

    Scott,

    I never “assumed you had no explanation” for why NGDP targeting would be a good idea. You just haven’t done a very good job stating the case compactly in a way that exposes all of your assumptions.

    Think about the standard textbook models dealing with comparative advantage, minimum wages, rent control, CAPM, real business cycles, etc. You could cover any one of these in a post that starts with a bulleted list of assumptions and ends with a demonstration that one and only one valid conclusion follows from those assumptions. Are you not able to do the same with NGDP targeting?

    Truth is, I’ve already explained why you should produce a “The case for NGDP targeting in a nutshell” post. My explanation just happens to be distributed throughout the comment section of your blog so you just need to do the requisite reading. At least you are no longer attacking the ages or motives of people who ask for models. That’s a step.

    Don,

    I don’t know if the majority of economists believe in demand side recessions. If they do, I wonder how they empirically distinguish between cases where sellers just had lousy business ideas vs demand side problems.

    Serously, what does a demand side problem even mean? Sometimes I choose not to buy something because it would put me on a lower indifference curve than I could get to by delaying my spending. If a large number of people do the same and GDP declines, is this a “demand side” recession? If you want to call it that, fine, but any attempt to get people to buy stuff now even if it puts them on a lower indifference curve seems like a policy to avoid.

    Here’s a though experiment for you: Suppose that after considering their current wage level and the prices of available goods, people only want to buy 90% of what is available today at today’s prices. GDP declines. One ill advised remedy is direct regulatory action; pass a law that requires people to buy all of today’s goods at today’s prices even if they don’t want to. GDP would go up but this is still a lousy policy because it just boosts GDP by increasing producer surplus a little at the cost of reducing consumer surplus even more. If NGDP targeting somehow causes the same behavior, it’s just as bad. If it doesn’t cause the same behavior, it doesn’t stabilize the real macroeconomy.

    To your example: If the value of mortgage collateral changes relative to the value of a loan, one side benefits and the other loses. Of course the borrower and the bank can always organize the rest of their portfolio to hedge against price level changes. But your comment seems like an argument for inflation targeting, not this wierd NGDP stuff Sumner talks about.

    By the way, are you the same person who writes for Salon.com?

    Negation,

    I would expect an end to open market activity or any other major regime shift to be accompanied by high transition costs, especially if implemented as a surprise. If you like to call that a “demand side recession” that’s fine. But potential sellers always bring their goods to market first and then potential buyers choose to buy or not, so I guess every time people choose en masse not to buy things, that it’s a demand side problem.

  122. Gravatar of ssumner ssumner
    3. June 2012 at 08:06

    James and Paul, There are several ways to answer your questions. One would be to say “why re-invent the wheel?” The sorts of models you are probably looking for have been done numerous times by others, in a far more sophisticated fashion than I could ever hope to accomplish. I regard Bennett McCallum as one of the 5 best macroeconomists in the world, and he has lots of very technical papers showing why NGDP targeting is best. It would make much more sense for me to simply suggest readers read McCallum models, than try to develop a far inferior version myself.

    My second argument is that no mathematical model played any role in convincing me to go with NGDP targeting. I actually published that sort of model once in the 1990s, and it showed NGDP targeting was not best, nominal wage targeting was optimal. I decided to opt for NGDP instead because I saw all sorts of political and practical problem with wage targeting, exactly the sort of thing that models overlook.

    I could write down a very simple model:

    1)Optimal NGDP forecast = price of NGDP futures
    2)employment = C + a(Wage/NGPD), where a is negative.
    3)Wage = b(previous year’s NGDP forecast of current year) where b is positive.

    etc, etc, but who in their right mind would be convinced by that sort of thing? the optimality of NGDP targeting is built right into the model. As is true of all macro models.

    James, I don’t need a NGDP post, the National Affairs article that people like David and Christy Romer found persuasive is what I direct people to. There’s a link in the right column of this blog.

  123. Gravatar of Saturos Saturos
    3. June 2012 at 08:37

    Scott, I don’t think the point of such models is to demonstrate the optimality of NGDP targeting, that’s what empirical evidence is for. Instead the point is to demonstrate *all* the implications of NGDP targeting being optimal, the exact nature of a world in which NGDP has the powers you say it does. Mathematics makes your thinking more precise. (Or as I’ve always thought, mathematics *is* precise thinking.)

  124. Gravatar of Paul Andrews Paul Andrews
    3. June 2012 at 16:22

    Scott,

    Is there a paper of Bennett McCallum’s that particularly aligns with your view? If so, then I agree it would be reinventing the wheel for you to write the same thing.

    Would it be possible for you to provide a link to that paper?

  125. Gravatar of James James
    3. June 2012 at 19:10

    Scott,

    Are you trying to defend not having a model by making the argument that because it is possible to produce bad models, it is better to have no model at all? That doesn’t follow.

    Anyway, the biggest problem with the model you give at 8:06 isn’t that you assume your conclusion. It’s that you fail to say what objective function is maximized by the policy you advocate. You also fail to state the objective function of the humans running the central bank. But it’s still not a bad start.

    If you could state explictly what NGDP targing is supposed to maximize, you could then say that if behavioral assumptions 2 and 3 are true, then NGDP targing dominates any alternative policy for whatever the intended goal is. Establishing sufficient conditions for NGDP targeting to be optimal policy gets you out of the position of the guy selling magnetic bracelets at the flea markets, essentially claiming that a magnetic bracelet is always the right treatment for everyone, just trust him cause he’s thought about it a long time.

    Another benefit to having a model is that you could clarify how much better you expect the world would actually be with NGDP targeting vs the policies that real central banks have tried in the past. Central banks throughout the world today have various policies and mandates but it would be hard to argue for the superiority of any one central bank on the basis of economic performance. I could almost be convinced that so long as the central bank avoids really dumb stuff like hyperinflationary practices, the exact mandate of the central bank doesn’t make that much difference. And yet you want people to believe that NGDP targeting would be an improvement on what the central banks of world are currently doing.

    And then there is the more mundane benefit: most of the economics profession will not buy into any policy prescription without a model. It’s not sufficient, but I don’t think you can get far without a model.

    I wonder what you think is the benefit of not having a model.

  126. Gravatar of Mike Sax Mike Sax
    3. June 2012 at 19:15

    ‘I could almost be convinced that so long as the central bank avoids really dumb stuff like hyperinflationary practices, the exact mandate of the central bank doesn’t make that much difference.”

    Right now though James we have some real problems in the world if you haven’t noticed and not one of those problems is hyperinflation

  127. Gravatar of ssumner ssumner
    4. June 2012 at 08:29

    Saturos, I’d rather be approximately right than precisely wrong. You said:

    “Instead the point is to demonstrate *all* the implications of NGDP targeting being optimal, the exact nature of a world in which NGDP has the powers you say it does.”

    That’s fine, but mathematical models can’t even come close to describing the exact nature of the real world. So models show “if the world was like this, then policy X would be optimal.” That can be interesting when you are just starting out, but we’ve long since passed the point where any important macro insights will come from these little toy models.

    I love how some of the other commenters keep insisting that my simple approach will never be taken seriously by the profession, even as several world famous macroeconomists with different political views from me praise my National Affairs defense of NGDPLT. With failure like that who needs success?

    Paul, This link lists lots of articles. The second and third items might work

    https://www.google.com/#hl=en&gs_nf=1&gs_mss=mccallum%20no&tok=5L29wkYuaXN0JhkjDV19Fg&cp=33&gs_id=nh&xhr=t&q=mccallum+nominal+income+targeting&pf=p&sclient=psy-ab&oq=mccallum+nominal+income+targeting&aq=f&aqi=&aql=&gs_l=&pbx=1&bav=on.2,or.r_gc.r_pw.r_qf.,cf.osb&fp=4a229ed755d01f0a&biw=1440&bih=719

    James, You said;

    “Anyway, the biggest problem with the model you give at 8:06 isn’t that you assume your conclusion. It’s that you fail to say what objective function is maximized by the policy you advocate. You also fail to state the objective function of the humans running the central bank. But it’s still not a bad start.”

    Fine, so my objective function is:

    1) Keep average NGDP growth close to 5%, as higher rates lead to large welfare costs of higher taxes on capital, and lower rates lead to welfare costs associated with money illusion at below zero wage changes.

    2) Reduce NGDP volatility–leads to fewer debt crises.

    3) And most importantly, reduce employment volatility that is due to nominal wages being sticky in the presence of NGDP shocks. (Some employment volatility is optimal.)

    The Fed’s objective function is assumed to be maximizing social welfare. I realize that’s not exactly true, which is why I want to take implementation of monetary policy out of the hands of the Fed, and let markets determine M and i.

    You said;

    “And yet you want people to believe that NGDP targeting would be an improvement on what the central banks of world are currently doing.”

    Yes, I claim we could have avoided the Great Recession, and had a small one instead. And I claim our national debt would now be much smaller. And hence our fiscal problems would be much less. And I claim the 2008 financial crisis would have been much smaller.

    You said;

    “And then there is the more mundane benefit: most of the economics profession will not buy into any policy prescription without a model. It’s not sufficient, but I don’t think you can get far without a model.”

    See my answer to Saturos, I’ve already had success beyond my wildest dreams convincing world famous macroeconomists with my National Affairs article. When they read that article they know all the background assumptions from other research, and can fill in the gaps. I don’t have to tell elite macroeconomists why nominal shocks have real effects, they already know. I just make pragmatic arguments.

    I have never in my life seen a mathematical macro model that was persuasive about some important policy question. Instead it’s ultra-low tech research like Friedman and Schwartz’s Monetary History of the US that has the greatest impact in persuading other macroeconomists.

  128. Gravatar of Paul Andrews Paul Andrews
    4. June 2012 at 18:14

    Scott,

    Many eminent economists have been convinced of many falsehoods since the field came into existence. The fact that some find your narrative attractive does not create evidence for its veracity.

    What I’m interested in is why you have such a strong belief in your own narrative. It seems you did some modeling that indicated that nominal wage targeting was an optimal strategy, but you felt that this would not be politically feasible, and so you became an advocate of NGDPLT which you see as being close enough.

    Mathematical modeling is unconvincing, I agree. However, natural language is even less convincing, when discussing numerical relationships. I mean this both in the sense of communicating ideas to others, and thinking them through for one’s self in order to formulate or modify beliefs. It is easier to fool one’s self and others if the posited numerical relationships are not rigrously set out and analyzed.

    To me, the fact that you formed your ideas without formalizing the numerical parts mathematically and rigorously, means they stand even less chance of informing good policy than those which have been formalized (and I think the vast majority of those create poor policy in any case). Yes, your proposal (or some version of it) may very well be implemented, but at what cost? A lot of work has been invested in pushing the idea, but hardly any in evaluating what could go wrong. As we are discussing something which could lower the welfare of many millions, I think that’s a highly significant omission, and something that a rigorous model would help to address.

  129. Gravatar of ssumner ssumner
    5. June 2012 at 12:57

    Paul, You said;

    “Many eminent economists have been convinced of many falsehoods since the field came into existence. The fact that some find your narrative attractive does not create evidence for its veracity.”

    And when did I claim it did? I never even implied such a thing. Please don’t twist my words.

    You keep talking about “rigorous models,” but I see no evidence that you know that that means. Suppose we write down the equations. What does that tells us? Math is really very simple, any halfway intelligent economist knows exactly what the math will say based on the assumptions you put into the model. To me it almost comical the way economists talk about these “rigorous models.” In the late 1970s some economists “proved” that if you added sticky wages to a ratex model you could get NK policy implications. I just laughed when I read that. You need to write down the math to know that?!?!? It’s obvious. The math just makes the point formally. Believe me, those millions of lives you worry about aren’t going to be helped if policymakers base their decisions off of little toy models that are 100% set up to get a predetermined conclusion. You want a RBC policy conclusion? Then write an RBC model. You want a NK policy conclusion? Then write a NK model. My mathematical model that “proved” wage targeting was best got that result by simply assuming that employment fluctuations are caused by wage stickiness. I wouldn’t expect anyone to be convinced by that model, unless they already thought sticky wages were the problem. I’ve also done empirical work trying to show sticky wages are the key problem, and I consider that work to have some value to society, but my little toy models were just for show.

  130. Gravatar of Paul Andrews Paul Andrews
    5. June 2012 at 15:27

    Scott,

    I said: “Many eminent economists have been convinced of many falsehoods since the field came into existence. The fact that some find your narrative attractive does not create evidence for its veracity.”

    You replied: “And when did I claim it did? I never even implied such a thing. Please don’t twist my words.”

    I think it’s a reasonable interpretation of your comment: “I’ve already had success beyond my wildest dreams convincing world famous macroeconomists with my National Affairs article.”

    Scott: “You keep talking about “rigorous models,” but I see no evidence that you know that that means. Suppose we write down the equations. What does that tells us?”

    Writing down the equations translates the numerical parts of your verbal narrative into an unambiguous form, makes your assumptions explicit, and allows mathematical tools to be used to draw conclusions from those assumptions. If the math is really very simple as you claim, why not write it out for your readers so that they can see what your exact assumptions are?

  131. Gravatar of ssumner ssumner
    5. June 2012 at 15:39

    Paul, James said I’ll never convince any serious economists with my arguments, and I showed him that he was wrong, that I have convinced serious economists with my argument.

    If you think that means I was claiming that convincing a few people proves, ipso facto, that my claims are true, then you must have taken a different course in logic from the one I took. I must admit, I am completely mystified by your claims, and I think most people would be. You talk of “rigor” how about some logic? The quote of mine you provide does not have the logical implication you claim, that’s beyond dispute. Or should I have agreed with James, and said “you are right, I’ve never persuaded anyone important, and never will” despite the fact I knew that was wrong. Is that what you wanted me to do?

    What math fanatics don’t seem to understand is that there is no difference in saying employment is negative related to unexpected NGDP shocks, and writing down the equation:

    Empl. = C + a*(NGDP – Exp(NGDP)

    They think converting a verbal argument into math creates a more “rigorous argument” through some sort of magic.

  132. Gravatar of dtoh dtoh
    5. June 2012 at 18:03

    Scott,
    Equations, pictures, and words are all basically the same thing. Depending on the person, it’s easier to think about or explain a problem or relationship using one rather than the other. Equations in some instances do have the benefit of being more precise definitionally.

    If you want rigor, you need to analyze enough data so you can replace symbolic constants with numerical constants. For some reason though a lot of economists seem loathe to do this.

  133. Gravatar of Paul Andrews Paul Andrews
    5. June 2012 at 22:30

    Scott,

    James: “And then there is the more mundane benefit: most of the economics profession will not buy into any policy prescription without a model. It’s not sufficient, but I don’t think you can get far without a model.”

    Scott: “See my answer to Saturos, I’ve already had success beyond my wildest dreams convincing world famous macroeconomists with my National Affairs article.”

    Paul: “Many eminent economists have been convinced of many falsehoods since the field came into existence. The fact that some find your narrative attractive does not create evidence for its veracity”

    Scott: “And when did I claim it did? I never even implied such a thing. Please don’t twist my words.”

    Paul: “I think it’s a reasonable interpretation of your comment”

    Scott: “James said I’ll never convince any serious economists with my arguments, and I showed him that he was wrong, that I have convinced serious economists with my argument. If you think that means I was claiming that convincing a few people proves, ipso facto, that my claims are true, then you must have taken a different course in logic from the one I took. I must admit, I am completely mystified by your claims, and I think most people would be. You talk of “rigor” how about some logic? The quote of mine you provide does not have the logical implication you claim, that’s beyond dispute. Or should I have agreed with James, and said “you are right, I’ve never persuaded anyone important, and never will” despite the fact I knew that was wrong. Is that what you wanted me to do?”

    James did not say that you would never convince any serious economists. He said most of them, not all, will not buy into it without modelling. So showing him that you convinced some is not showing him that he is wrong.

    I take you at your word that you don’t see the support of world famous macroeconomists as being evidence of the veracity of your proposals. I admit that this was not a logical deduction, more an impression from this and various other posts. I apologize if I misrepresented you and I withdraw the implication that you do see it that way.

    Scott: “What math fanatics don’t seem to understand is that there is no difference in saying employment is negative related to unexpected NGDP shocks, and writing down the equation: Empl. = C + a*(NGDP – Exp(NGDP). They think converting a verbal argument into math creates a more “rigorous argument” through some sort of magic.”

    Converting it to an equation does make certain things explicit, that aren’t clear in your narrative. It makes it clear that you consider this in a static way (no time dimension), that you consider C and a to be constants, that expected NGDP can be quantified and is not dependent on time horizon, or on future changes in employment. It shows that you consider there to be a direct transmission mechanism from nominal consumption to real employment. etc. I know you don’t mean us to take this equation literally or independently, but nevertheless I think it’s clear that if you did specify a complete model it would contain more information than your narrative and the information would be free of ambiguity. Also, readers could also use mathematical tools and software to check ramifications of your proposals.

  134. Gravatar of ssumner ssumner
    6. June 2012 at 07:23

    dtoh, Your first comment should be addressed to Paul, not me (you are correct.)

    actually economists love to analyze data, so I don’t follow your second comment at all.

    Paul. I certainly don’t look at macro without the time dimension, indeed I always use ratex models.

    Both of you, I no longer keep up with very old threads, so this will be my last comment here. Paul I suggest you ask me specific questions about my model in future posts, if I say things where it’s not clear what model I’m using. My basic model is that the Fed steers NGDP via control of the supply of the MOA (and signals about future supply of cash), and NGDP shocks cause business cycles because of sticky nominal wages. There are a million ways to formalize that basic model mathematically, and I have no idea which of them is best (and I assume the best in one decade is not best in another.) I prefer the AS/AD model.

    dtoh, I’m going to have to drop some of the other threads as I’m not even sure what you are asking, and I don’t have enough time to go back to first principles and work through each assumption.

  135. Gravatar of Saturos Saturos
    6. June 2012 at 08:28

    dtoh, but imagine doing physics using only pictures and words, or even biology for that matter. Perhaps econ is easier, but I think we need mathematical economists as well as Sumner-style economists.

    Scott, you really are pushing it, trying to respond to every single challenge on every single page. I still remember when you kept that utilitarianism argument going with me for like two weeks after it was initially posted. Relax, you won’t be judged harshly for not keeping up with every single thing that happens on your blog. Take a leaf out of Tyler’s book, he just drops crumbs and leaves his commenters to fight over them. I’m not saying you should be that detached (we love you!) but you could scale back to say, one reply to each commenter per page.

  136. Gravatar of James James
    7. June 2012 at 18:50

    Scott,

    Your attempt at an objective function is a mess. Is the ultimate goal to minimize the difference between NGDP and a target of your own choosing, or is the ultimate goal to maximize a social welfare function which you have yet to specify? Or is it really like the magnetic bracelet at the flea market, good for everything, all the time.

    I must concede that you did a great job refuting the claim which you have attributed to me about persuading other economists. Too bad you ignored the claims I’ve actually made.

  137. Gravatar of James James
    7. June 2012 at 19:20

    Mike Sax,

    I never said we are facing hyperinflation now. Did you fail to read even the sentence of mine that you quoted?

  138. Gravatar of ssumner ssumner
    8. June 2012 at 12:56

    James, When someone challenges me on a point, and I prove them wrong, then they pretend they never made the challenge, I lose all respect for them. I have no intention of playing whack a mole with people like you.

    BTW, my objective function is low and stable NGDP growth and employment close to the natural rate, which is pretty standard in macro (except most use inflation rather than NGDP.)

  139. Gravatar of Mike Sax Mike Sax
    8. June 2012 at 13:05

    James if you had read the sentence of mine that you’re on about you’d see that I never claimed you said we are facing hyperinlfation now just that you think that this is all that matters-avoiding inflation is all you care about.

    We have and still have deep problems.

  140. Gravatar of The ECB has the model to understand the Great Recession – now use it! « The Market Monetarist The ECB has the model to understand the Great Recession – now use it! « The Market Monetarist
    18. June 2012 at 07:29

    [...] Scott Sumner has been looking for a model for some time. Maybe the Christiano-Motto-Rostagno model would be something for [...]

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