A spectrum with only one end

Greg Ip has an excellent new post on Fed policy.  But I smiled when I read this paragraph:

This, however, will be fiddling at the edges. What critics say the Fed needs is a wholesale makeover of its goals and methods. Some want the Fed to raise its inflation target. Others would have it adopt a nominal GDP target. Both approaches are intended to induce easier monetary policy that would foster faster growth in employment.  At the opposite end of the spectrum, more conservative economists and Republican legislators want to take away the Fed’s responsibility for full employment and have it focus solely on inflation.

What do you notice?  The people who want NGDP targeting think the Fed needs an easier monetary policy.  But what about those who think the Fed should focus like a laser on hitting its 2% inflation target?  Well, inflation has averaged 1.1% over the past 46 months, and TIPS spreads suggest it will continue to average below 2% for the next few years.  So those on the “opposite end of the spectrum” should also favor easier money.  Of course Greg Ip’s right that they don’t, but the fact that even the most hawkish economists ought to be favoring more monetary stimulus tells you just how far off course the Fed has drifted.

The rest of Greg Ip’s essay makes many of the same points I made in a recent post outlining a pragmatic stimulus policy that might be acceptable to the Fed.

Here’s Ip again:

Lost in this blizzard of outside advice is the fact that the Fed actually has a new framework of its own. In January it declared that henceforth its long-run target for inflation was 2%. Previously Fed members only stated their long-run preference, which ranged from 1.5% to 2%. It also said it considered its two statutory goals, low inflation and full employment, equally important. Previously, employment was, de facto, subordinate to inflation.

I pointed out that this framework gives the Fed quite a bit of room to ease.  Until I read Ip’s post, however, I didn’t quite realize that the equal weight on inflation and unemployment was something new.  I wonder if Bernanke sort of snuck this in, knowing that it would give the Fed a lot more leeway to allow slightly higher than 2% inflation when unemployment is higher than the estimated natural rate.

If the Fed were conducting policy based on this new framework, inflation would be centered around 2%. Indeed, if the Fed treated employment and inflation equally, it would likely tolerate inflation above 2% given that it is missing its full employment mandate more than its low inflation mandate.

What would such a policy look like? Fortunately, we don’t have to speculate. Janet Yellen, the Fed’s vice-chairman, described one in detail in speeches in April and in June. Ms Yellen uses a fairly conventional monetary policy rule in which the Fed seeks to minimize variations in inflation around its 2% target and in unemployment around its natural rate of 5.5%. In her simulation the Fed, by putting equal weight on its employment and inflation objectives, eases monetary policy more aggressively, keeping the federal funds rate at zero through the end of 2015 (instead of 2014 as currently projected). The result is a much more rapid decline in unemployment. Inflation briefly tops 2%, before returning to 2% over the long term.

That’s basically what I suggested, although I relied on a combination of QE and forecast targeting, whereas Yellen relies on interest rate guidance.  Still, it’s nice to see the Fed’s vice-chair taking their mandate seriously.  The first step in a long journey is figuring out where the hell you want to go.

Off topic, but many commenters keep asking me what’s wrong with using fiscal policy.  A few days ago Evan Soltas provided a very clear exposition of why monetary policy is better:

Government doesn’t tax and spend solely so that it can run surpluses or deficits. Sometimes, when economists talk about the need for discretionary stimulus, it’s easy forget that fiscal policy is far and away not the primary function of either government expenditures or tax policy. It is fundamental that you can’t target two variables at once — and this fact urges us to look for the trade-offs between static functions of government and the cyclical nature of fiscal policy.

.   .   .

These trade-offs between structural and cyclical policy don’t quite exist in monetary policy as they do in fiscal policy. While I find it pretty easy to see how large changes in spending or tax rates could inhibit private economic calculation at the firm level, monetary policy does not appear subject to the same trade-offs. Everything but the most extreme and irresponsible of monetary policies — read: hyper-inflationary monetization of debt due to lack of central bank independence — seems to me unlikely to affect in the slightest money’s structural function as the medium of exchange. (Ok, some of my Austrian friends beg to differ here, but I think everyone else can see my point.) In other words, monetary policy is a primary and independent function of the tool — money — in a way that fiscal policy can never be. There are negligible, if any, trade-offs between monetary policy and money’s structural purposes. It follows, then, from Ricardo’s basic principle of relative comparative advantage that monetary policy should do the stabilizing, whereas fiscal policy should be managed for the longer-term ends.

Evan Soltas also has an excellent post on the Swiss franc.


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53 Responses to “A spectrum with only one end”

  1. Gravatar of David Wright David Wright
    18. June 2012 at 14:45

    Inflation (CPI) has been above 2%/year every month but one for the past year (http://www.data360.org/dsg.aspx?Data_Set_Group_Id=344, http://www.usinflationcalculator.com/inflation/historical-inflation-rates/). Quoting an average over the past 4 years is a bit of slight-of-hand. It’s fine to believe that inflation should be back, and should indeed even be higher, but don’t try to hide the fact that it is, in fact, back.

    Sure, averaged over the business cycle is indeed one way to understand an inflation target. But another way is as an actual target that you try to hit every month, regardless of past misses. If you are trying to drive down the center lane of a highway, and you drift into the right lane for a while, you don’t then try to spend some time drifting into the left lane to make up for it.

  2. Gravatar of Major_Freedom Major_Freedom
    18. June 2012 at 15:25

    ssumner:

    Well, inflation has averaged 1.1% over the past 46 months

    That’s probably because the rate of inflation was way above the 2% target for the years prior.

    The Fed has averaged a CPI growth rate of 2.5% per year since 2000, and averaged 2.3% per year since the beginning of 2007.

    Focusing on the last 46 months only, and failing to take into account the LONG TERM 2% inflation target, results in ignoring the pre-2008 ABOVE target annual inflation rates. I mean inflation got up to 5.5% annualized just before the late 2008 crash. If you combine these high inflation rates with the post-2008 low inflation rates, they’re still above the 2% long term inflation target.

  3. Gravatar of Mike Sax Mike Sax
    18. June 2012 at 15:32

    “If you combine these high inflation rates with the post-2008 low inflation rates, they’re still above the 2% long term inflation target.”

    Major why does the long term trend inflation rate matter but not the long term trend NGDP rate?

  4. Gravatar of marcus nunes marcus nunes
    18. June 2012 at 15:44

    Scott
    See what you get for forgetting your own motto: “Don´t mention inflation”!

  5. Gravatar of ssumner ssumner
    18. June 2012 at 15:47

    David, I’m afraid I don’t follow your logic. Inflation was negative last month, if you think only recent data counts.

    Mike, MF doesn’t understand that inflation is supposed to be above target in recessions and below target during booms–but the Fed does the opposite.

    Marcus, Yup.

  6. Gravatar of Benjamin Cole Benjamin Cole
    18. June 2012 at 15:56

    Nice post. At this point, I think the American right wing is cynically calling for tight money until they can get Obama out of office. The left-wing, led by Krugmanites, doesn’t know any better.

    And how do we get Evan Soltas to be Fed chairman?

  7. Gravatar of Mike Sax Mike Sax
    18. June 2012 at 16:01

    I think you’re basically right Bemnjamin-it’s the Warstler Premise in action

  8. Gravatar of ChargerCarl ChargerCarl
    18. June 2012 at 16:18

    Benjamin, that begs the question? Is the FED in on it? And if so, what should we do?

  9. Gravatar of Bill Woolsey Bill Woolsey
    18. June 2012 at 17:03

    I have never supported 2% inflation. I have always wanted a stable price level.

    I think many conservative economists are the same.

    From them (and me) 2% is better than a higher rate. But lower would be better.

    Of course, I favor a 3% nominal GDP growth path rather than a stable price level, but it is something to think about.

    Liquidity traps, much less any long run phillips curve, is a liberal thing, not something that appeals to “right wing” economists.

    Please keep in mind that the Bush administrations were manned by conservative Keynesians, which can be read as moderate Republicans.

  10. Gravatar of dwb dwb
    18. June 2012 at 17:16

    i have a dream:

    The Fed’s long term objective is 4.5% growth in nominal income, which consists of the sum of a 2% inflation target and 2.5% growth target, a rate the Fed believes is consistent with its mandate for long run price stability and maximum employment. Over the near term, given the level of resource slack in the economy, the Fed estimates that a faster rate of growth of 6% over each of the next two years is consistent with its mandate for price stability. The Fed pledges to continue low rates, or undertake additional balance sheet actions as necessary, in order to achieve these near term and medium term objectives.

  11. Gravatar of Major_Freedom Major_Freedom
    18. June 2012 at 17:32

    Mike Sax:

    “If you combine these high inflation rates with the post-2008 low inflation rates, they’re still above the 2% long term inflation target.”

    Major why does the long term trend inflation rate matter but not the long term trend NGDP rate?

    Mike, at some point you’re going to have to acquire the talent of being able to infer when someone is making a technical point, and when they are making an advocacy.

    I was not advocating price inflation targeting. I was only making the technical point that the Fed, in response to Sumner’s argument about the Fed “failing” to target 2% price inflation the last 46 months, is nevertheless succeeding in targeting 2% inflation over the long term, which is the Fed’s actual mandate. Focusing on the previous 46 months only is cherry picking.

    It would be like living in an 5% NGDPLT world, and one day NGDP rises above or falls below the 5% annualized target, and then in the interim, claim the Fed is “failing”, despite the fact that taking into account the long term, they’re succeeding.

    If you asked me, the Fed should target neither prices nor aggregate spending. If the Fed is to exist, then it should enforce 100% reserves on its member banks, and itself create money as closely as possible to a precious metals standard, which is what would almost certainly exist in a free market. Of course this would be practically equivalent to abolishing the central bank, so it’s not really accurate to say “given the Fed exists” on this.

  12. Gravatar of Major_Freedom Major_Freedom
    18. June 2012 at 17:35

    ssumner:

    Mike, MF doesn’t understand that inflation is supposed to be above target in recessions and below target during booms-but the Fed does the opposite.

    Whatever it is “supposed” to be and when, the Fed is succeeding in maintaining a long run price inflation target of 2%. In fact, since 2000, they’ve averaged slightly above 2%.

    I argue that they were never supposed to raise price inflation during recessions and decrease price inflation during recessions. The price inflation targeting dual mandate was supposed to get the fed out of micro-managing the economy, and just target long run price inflation.

    Where are you getting that the Fed is “supposed to” raise price inflation during recessions, and decrease price inflation during booms? From Keynesians? Don’t make me laugh.

  13. Gravatar of Philo Philo
    18. June 2012 at 17:45

    As Bill Woolsey implies, the most hawkish economists, while wanting the Fed to focus exclusively on inflation, also *want the inflation target to be much less than 2%*.

  14. Gravatar of Major-Freedom Major-Freedom
    18. June 2012 at 18:00

    ssumner:

    Mike, MF doesn’t understand that inflation is supposed to be above target in recessions and below target during booms-but the Fed does the opposite.

    Wait, I just thought of something. I cannot help but infer from this statement that you believe the Fed is “supposed to be” targeting NGDP. For isn’t that what follows from the claim that the Fed should run above target price inflation during recessions (when output falls) and below target price inflation during booms (when output rises)?

    Are you actually saying the Fed’s current mandate is that it is “supposed” to stabilize/target NGDP?

  15. Gravatar of Mike Sax Mike Sax
    18. June 2012 at 18:04

    “at some point you’re going to have to acquire the talent of being able to infer when someone is making a technical point, and when they are making an advocacy”

    Major I already have that talent. The trouble is you have the “talent” of being absurdly obscure.

  16. Gravatar of Aidan Aidan
    18. June 2012 at 18:26

    “At this point, I think the American right wing is cynically calling for tight money until they can get Obama out of office. The left-wing, led by Krugmanites, doesn’t know any better.”

    Can you point me to Krugman calling for tight money?

  17. Gravatar of Philip George Philip George
    18. June 2012 at 18:28

    Economists seem to be roughly divided into two groups.

    1. Those who think that low inflation is an indicator that there is leeway for a lot more loosening of monetary policy.
    2. Those who think that monetary policy has been loose for several years. The Austrians belong to this group and many have predicted hyperinflation of which there is absolutely n sign.

    There is a third group of which I am probably the only member right now. I predict that the next recession will follow exactly the same trajectory as the Great Depression, Japan’s Lost Decade and the Great Recession. It will begin with a collapse of one or more financial asset markets followed by a collapse of major banks followed by a general contraction of the economy.

    Look at this graph of inflation from 1920 to 1929. http://inflationdata.com/inflation/Inflation/DecadeInflation.asp It shows negative inflation.

    The same for Japan. Kindleberger points out that the consumer price index there rose only from 100 in 1983 to 103.9 in 1989, while wholesale prices actually fell over the same period from 100 to 93.6.

    Much the same can be said of inflation before the Great Recession.

    The assumption in both Groups 1 and 2 mentioned above is that monetary looseness will be reflected only in the inflation of real goods and services, not in the prices of financial assets. That is the primary error of macroeconomics.

  18. Gravatar of Major_Freedom Major_Freedom
    18. June 2012 at 18:56

    What’s rather amusing to note is that if the Fed did “succeed” in its alleged mandate of what it is “supposed” to do, according to Sumner, then we’d have to conclude that by mid-2008, price inflation was way above 2%, and so the Fed was “supposed” to lower NGDP even more than they were lowering it from its (local) peak in 2006.

    http://research.stlouisfed.org/fredgraph.png?g=86E

    In other words, the Fed “failed” to reduce NGDP enough! That’s funny.

  19. Gravatar of Major_Freedom Major_Freedom
    18. June 2012 at 19:12

    Mike Sax:

    Major I already have that talent. The trouble is you have the “talent” of being absurdly obscure.

    Yeah right. I’m as frank as an Oscar Mayer.

    When I say things, I do not play the rhetorical game of passive aggressiveness by making ideological arguments, hidden within in critical claims, that I won’t say outright.

    I really have no clue how you can infer from this:

    “If you combine these high inflation rates with the post-2008 low inflation rates, they’re still above the 2% long term inflation target.”

    that I am somehow DEFENDING price inflation targeting against NGDP targeting, as if the former is more important than the latter.

    I notice you do this quite often, especially against typical conservative arguments. You tend to infer a political motive to arguments the implications of which are contrary to your political convictions.

    You tend to consider technical arguments from your ideological interlocutors as advocating the opposite of what is being challenged.

    Over time, hopefully you’ll be able to easily separate the two.

  20. Gravatar of Russ Anderson Russ Anderson
    18. June 2012 at 20:14

    “the fact that even the most hawkish economists ought to be favoring more monetary stimulus tells you just how far off course the Fed has drifted.” As others have pointed out, the “conservative economists and Republican legislators” want a target inflation rate of 0%. In that context it is not just that the Fed has drifted off course, but they have been pulled off course.

  21. Gravatar of Jim Glass Jim Glass
    18. June 2012 at 20:57

    @ David Wright

    Inflation (CPI) has been above 2%/year every month but one for the past year (links). Quoting an average over the past 4 years is a bit of slight-of-hand. It’s fine to believe that inflation should be back, and should indeed even be higher, but don’t try to hide the fact that it is, in fact, back.

    In May CPI prices fell, deflation. During the last six months prices have risen 0.7%.

    Sure, averaged over the business cycle is indeed one way to understand an inflation target. But another way is as an actual target **that you try to hit every month**.

    In which case your surely cite the wrong numbers in your argument. Your source here gives August-December 2008 “monthly inflation rates” of 5.4%, 4.9%, 3.7%, 1.1%, and 0.1%, average +3%.

    But reality is that prices *fell* straight through those months, as the CPI dropped from 219.09 to 211.401 — deflation at an -8.3% annual rate. Quite a difference from +3% inflation. Month-to-month, you missed the fastest deflationary plunge since the Great Depression.

    If you want to go by what happens “every month”, you should look at the data for every month. Instead you cited year-over-year numbers, obscuring what is happening every month exactly as you protest against. And also inflating inflation in the process.

    Over the last 12 months the CPI has risen from 224.634 to 228.527, 1.7% total. So obviously it has not risen “above 2%/year every month but one”.

  22. Gravatar of Desolation Jones Desolation Jones
    18. June 2012 at 22:09

    Have you seen this Bernanke quote?

    “The chairman said, ‘We think it is transitory, we are sticking to our guns, we are going to focus on the drag on income,'” Crandall said. Bernanke explained in his testimony how under a strategy of flexible inflation targeting, “a temporary spike in the price indexes can be a reason for the central bank to be more generous rather than less,” Crandall said.

    http://www.bloomberg.com/news/2012-03-07/bernanke-seen-accepting-faster-inflation-as-fed-seeks-to-boost-employment.html

    Very interesting that he mentions income. (NGDP?)

  23. Gravatar of Saturos Saturos
    18. June 2012 at 23:04

    Ip was the guy who put me off reading the Economist’s economics section a while ago, he was too Keynesian for my test. But thanks to Scott’s recommendation I just followed him on Twitter. I respect a guy who can change his mind in the face of a good idea. Or for that matter, an idea whose time has come.

    Desolation Jones, that’s great to hear. Although of course the news article is overreacting, he means he’ll tolerate more headline inflation, not more core.

  24. Gravatar of Davod Wright Davod Wright
    18. June 2012 at 23:07

    Jim Glass: Thanks for pointing out my error. I had assumed the table and chart gave the month-to-month change in annualized form, but I see now that in fact they give the change over the trailing 12 months.

  25. Gravatar of Full Employment Hawk Full Employment Hawk
    18. June 2012 at 23:27

    “At the opposite end of the spectrum, more conservative economists and Republican legislators want to take away the Fed’s responsibility for full employment and have it focus solely on inflation.”

    This is an example of class warfare. Unemployment is a problem for ordinary working people, but it is not a problem for the rich. On the other hand, inflation is a problem for the rich. So the objective here is to force monetary policy to be conducted for the benefit of the rich, and not working people.

  26. Gravatar of Saturos Saturos
    18. June 2012 at 23:38

    That’s a really wonderful post by Evan.

  27. Gravatar of Jacob AG Jacob AG
    19. June 2012 at 00:15

    Scott,

    I thought this might interest you: “Hence followed a scarcity of money, a great shock being given to all credit… till at last the emperor interposed his aid by distributing throughout the banks a hundred million sesterces, and allowing freedom to borrow without interest for three years…” – Cornelius Tacitus, “The Annals,” AD 32-37

    Source: http://www.jstor.org/discover/10.1086/667225?uid=2&uid=4&sid=56265786913 (gated, sorry)

  28. Gravatar of Joel Fish Joel Fish
    19. June 2012 at 00:29

    Regarding the off-topic “what’s wrong with using fiscal policy” comment, it doesn’t bother me that there are fierce arguments about whether monetary or fiscal policy is *better*. But as a scientist, I am very troubled by different camps saying the other camps’ ideas are wrong/incorrect/inapplicable or whatever. I would think that by now, economists would be pretty damn certain about what what works and what does not; and if there isn’t broad consensus among the economists then how can I possibly hold my government representatives accountable?

  29. Gravatar of Mike Sax Mike Sax
    19. June 2012 at 01:51

    ” notice you do this quite often, especially against typical conservative arguments. You tend to infer a political motive to arguments the implications of which are contrary to your political convictions”.

    “You tend to consider technical arguments from your ideological interlocutors as advocating the opposite of what is being challenged”

    In broad outlines my inference of your political motives have been proved true. I figured you like Hoppe incluiding his anti-democratic ideology that you take the idea of property rights to their logical extreme that Denny’s-or anyone else-can refuse to serve black customers-thereby legitmating Jim Crow.

    On your argument the South could still practice segregation.

    You also have indicated that you take the idea of private proerty so far as to even prohibit the government to step in if a man is abusing his children or wife.

    About the only limit you admit is slavery-that evidently I may not do even if it’s my own proerpty and those I’m enslaving are nonproperty owerns. So you have one limit.

    Still I wonder how you can enforce this limit-is the government allowed send in police and shut down my plantation or can all anyone do is “disapprove” and try to change my mind by “rational persausion?”

    I had presumed these things about you prior to asking. I guess you deserve credit for admitting them but I was not wrong about what I inferred about you politically.

    It’s true that on social issues you and I might have considerable more approachment. I mean if you oppose the war on drugs-then I’m with you on that whether or not I agree with how you get there philosophically.

  30. Gravatar of Mike Sax Mike Sax
    19. June 2012 at 01:52

    Major obviously the above is addressed to you.

  31. Gravatar of Mike Sax Mike Sax
    19. June 2012 at 02:00

    Scott, I’m glad to hear a little bit about the difference between fiscal and monetary policy-as quite honestly I’ve never realy understood the reason for your opposition to fiscal policy.

    Reading Evan though I find this very interesting:

    “I worry that cutting tax rates to effect stimulus generates uncertainty which has non-negligible effects on firm activity and private investment. (In this respect, there could very well be a conservative argument for government expenditures, and not tax cuts, as stimulus”

    Would you agree with this?

  32. Gravatar of Mike Sax Mike Sax
    19. June 2012 at 02:02

    Major I also think you’re wrong if you’re claiming that all “technical” arguments are merely “passive agggressive”

    I’ve been impressed by reading some Austrains like Horowitz that can argue technically and not just wholly viscerally all the time.

    I assume everyone has political motives but the reasoning behind it is important.

  33. Gravatar of prakash prakash
    19. June 2012 at 05:35

    Benjamin and mike, the only action that will contradict warstlerism will be coin seignorage. But, I doubt obama has the stones to pull that off. If he does, no one can tell what will happen. It will be a real black swan.

  34. Gravatar of Mike Sax Mike Sax
    19. June 2012 at 07:06

    Fed: monetary policy having no effect

    http://diaryofarepublicanhater.blogspot.com/2012/06/monetary-policy-having-no-effect-on.html

    I don’t write the news I just report it

  35. Gravatar of Bill Ellis Bill Ellis
    19. June 2012 at 07:38

    Evan Soltas says….”
    It is fundamental that you can’t target two variables at once “” and this fact urges us to look for the trade-offs between static functions of government and the cyclical nature of fiscal policy.

    These trade-offs between structural and cyclical policy don’t quite exist in monetary policy as they do in fiscal policy. While I find it pretty easy to see how large changes in spending or tax rates could inhibit private economic calculation at the firm level, monetary policy does not appear subject to the same trade-offs. (…)… monetary policy is a primary and independent function of the tool “” money “” in a way that fiscal policy can never be. There are negligible, if any, trade-offs between monetary policy and money’s structural purposes. It follows, then, from Ricardo’s basic principle of relative comparative advantage that monetary policy should do the stabilizing, whereas fiscal policy should be managed for the longer-term ends.”

    First… if this can be taken as an argument against using fiscal policy, then is it not just as applicable toward negative fiscal policy, austerity, as it is regarding stim ? It is an argument for fiscal stability if anything.

    But then Evan conflicts his call for Fiscal stability with the acknowledgment that fiscal policy should and will be actively managed, with the recommendation that it be only for long term ends. So he acknowledges that we will always be trying to target two variables at once.
    I can understand that trying to target two variables at once will mess up the precision of the policies. But even if we are less sure of the outcome when trying target two variables at once, we can be confident in the direction. And we can be confident that Fiscal stim along with easing will get us where we want to be faster.
    And in the sate we are in…faster is more important than precision. Precision we can get later.

  36. Gravatar of Major_Freedom Major_Freedom
    19. June 2012 at 09:02

    Mike Sax:

    In broad outlines my inference of your political motives have been proved true.

    No, they have not. You didn’t expect me to be in favor of ending the drug war, allowing women the choice to abort, nor did you expect me to be against homophobes. You had me all figured out as a right wing fascist corporatist GOP pig. It’s why you said “your GOP” to me once.

    And the only time you did get it right, was when I was direct and explicit.

    I figured you like Hoppe incluiding his anti-democratic ideology that you take the idea of property rights to their logical extreme that Denny’s-or anyone else-can refuse to serve black customers-thereby legitmating Jim Crow.

    No, Jim Crow laws were state interventions that forced segregation on private property owners who did not want to segregate. The reason the Jim Crow laws had to be ENFORCED was because enough people were desegregating, and that enraged Jim Crow and his racist supporters.

    Jim Crow laws took place because of democracy, not private property and private law society. The majority supported him, and that’s why he was able to impose his rule on the minority of enlightened folks who thought desegregation was ancient and destructive.

    Yes, there were many racists, but racist conflict is minimized when individuals have the final authority over who they deal with and who they don’t deal with. Mandatory integration increases social conflict. It has to be done one person at a time, the way the west is currently integrating with asia one person at a time, and there is far less racial conflict because of it.

    The same reason why it would create tension to use violent threats to coerce you into not discriminating among races and genders when choosing a marriage partner, is the same reason it creates tension to force those engaged in business activity not to discriminate. There is no difference to me. Just because in one there is exchanges of time spent and love, while in the other money and goods are exchanged, I see no reason to introduce violent threats against people for peacefully refusing to deal with people they don’t want to deal with.

    I only consider it justified to use violence, when violence is first introduced, or credibly threatened to be introduced. In every other activity, violence is not justified.

    You obviously disagree, but that is why I consider you immoral and a danger to others. You seem to be OK with state violence against innocent people, to accomplish “social” objectives. Your ideology when taken to its logical conclusion is fascism, or communism, i.e. totalitarianism.

    My ideology, when taken to its logical conclusion, is individual private property anarchism.

    I’d rather be on that path, than the path you’re on.

    On your argument the South could still practice segregation.

    Yes, just like you practice segregation vis a vis the KKK, and “repugs”, and others you don’t want to deal with.

    Let the individual decide for himself who he spends his only life dealing with. Life is too precious a thing to sacrifice for the sake of you being able to see forced integration in business activity, but not civil activity.

    If you were logically consistent, you’d have to support laws against buyers who discriminate against sellers on the basis of race, as well as laws against people discriminating among race and gender when it comes to choosing friends, and spouses.

    Why is it OK to use force against sellers who discriminate among buyers, but not buyers who discriminate among sellers, or friend and spousal searchers who discriminate among friends and spouses?

    But you’re not logically consistent. I am. That’s why I know you are wrong. You’re only USING racism as a means to practice your anti-capitalist Marxism. That is the ONLY explanation for why you are OK with state violence being used against capitalists who discriminate among race, but you’re not OK with state violence being used against anyone else who discriminates in any other context. You’re only using racism as a means to further your anti-capitalist ends. You don’t actually care so much about racism that you’ll call for state violence everywhere there is racism. No, only when capitalists are racist.

    You also have indicated that you take the idea of private proerty so far as to even prohibit the government to step in if a man is abusing his children or wife.

    I don’t prohibit individuals from stepping in. Those who call themselves statesmen I would support stepping in, but I don’t support the state stepping in. Can you grasp the difference here?

    It would be like me supporting a mafia hitman stepping in to stop a rape, but I won’t support the mafia, or mafia hitmen. I look at people’s actions, not their names. I support an individual acting to stop violence, but I do not support that same person initiating violence.

    I am against the situation of A helping victim B, by hurting third party C. For example, I am in favor of helping a rape victim B, but I am not in favor of stealing from C in order to finance the purchase of a gun to stop A from hurting B.

    To me it is not justified to hurt you, in order to help someone else. It won’t be justified for me to steal your money, so that I can help starving children, or a rape victim.

    In other words, if you are truly against violence, then you cannot possibly be pro-state. If you are truly against a man aggressing against his wife and children, then you cannot possibly be in favor of a man who calls himself state aggressing against me or any other man so that they have the money to stop the initial man in question.

    When you say you’re against a man aggressing against his wife and children, I don’t see someone telling me he is against violence. I see someone who is only against one form of violence, but in favor of another. So I find you, like I said before, a hypocrite. I don’t believe your fake crocodile tears when you plead compassion. I see you only USING it to advance your own personal political agenda that itself introduces aggression of man against man, which is especially heinous.

    About the only limit you admit is slavery-that evidently I may not do even if it’s my own proerpty and those I’m enslaving are nonproperty owerns. So you have one limit.

    You mean that’s your limit. You’re in favor of the majority imposing its will on the minority to the maximum extent, with the limit being slavery. Anything less, such as partial slavery, of the minority only working for the benefit of the master majority 35% of the time, is permitted.

    You are in favor of the majority imposing partial slavery on the minority. As long as the slavery is not total, as long as the minority can have some freedom, some take home pay, some ability to choose for themselves, then you are OK with it. Full slavery is YOUR limit.

    For me, ANY slavery, full or partial, is my limit. So I am more moral than you are. I have the moral high ground over you. I am against 0.00000001% slavery, which means I am against even pickpocketing. You’re OK with 35% slavery, of me working 35% of the year for someone else’s benefit by law.

    Still I wonder how you can enforce this limit-is the government allowed send in police and shut down my plantation or can all anyone do is “disapprove” and try to change my mind by “rational persausion?”

    I am against the state. Asking me what the state can and cannot do, is superfluous. You can ask me what individuals in the state can and cannot do, and I’ll say the same thing: I am against them initiating violence against innocent people. I am in favor of them using force to stop violence.

    You can’t ask me to support the state doing something, because that would require me to support violence. I do not support violence.

    Now, if you are now unclear how violence is to be minimized/eliminated, how spousal and child abuse can be minimized/eliminated, then I can teach you about private law society theory, but that is for another day.

    Question: What if the state’s police are racist? How can I as someone who is by law forced to obey the state, stop racist cops? If you say “vote in better politicians” I’ll say you’re being ridiculous, because my single vote among millions of other racist voters in the majority can’t stop it by voting. So what do I do? Use my power of rational persuasion, right? Yeah, that’s when you tell me rational persuasion is called upon. Right after mocking me for not even mentioning rational persuasion.

    I had presumed these things about you prior to asking.

    And that is why you will forever remain ignorant of the world, and other people.

    You should instead look at people as individuals, not as members of one group or another.

    I guess you deserve credit for admitting them but I was not wrong about what I inferred about you politically.

    You were partially right, and partially wrong. At any rate, I see no relevance to you guessing right or wrong about my convictions. Why are you making it seem like your guesses are more important than my actual beliefs? I don’t care about your guesses about me. They’re irrelevant.

    It’s true that on social issues you and I might have considerable more approachment. I mean if you oppose the war on drugs-then I’m with you on that whether or not I agree with how you get there philosophically.

    That’s a problem. You ought to care about how convictions are arrived at philosophically. If we agree on social issues, but not on economic issues, then there is a philosophical reason for that. What is it? When you think of business activity, is your first thought, or one of your first thoughts, an artificially created system of exploitation?

    When you think of humans, is your first thought, or one of your first thoughts, a group or groups of people? Or is your first thought the unique individual?

    How well do you know yourself? How well do you know how your mind works? How much have you studied in terms of philosophy of science, or epistemology, of philosophy in general?

    I can tell you that I arrived at what I think after years of study. I used to think almost exactly like you. In fact, at one point way back I was a full-fledged raging Marxist. But then I discovered economics. Then philosophy, and now I have a completely new outlook on my life and on physical reality.

    I am very convinced that you are wrong, because I went through the same thoughts, and I realized they were almost all wrong. How can that be? How can anyone live a relatively normal life, the way I am sure you do, and yet be so wrong about so many things? Is that even possible? Oh hell yes. The human condition is so complex, so incredibly deep, and yet at the same time so integrated with physical reality that there are many things we do that keeps us alive, but there are many things holding us back. We have only tapped into the tip of the iceberg of what we’re capable of, and what is holding us back is lack of knowledge and incorrect convictions that require fixing.

    Major I also think you’re wrong if you’re claiming that all “technical” arguments are merely “passive agggressive”

    I didn’t claim that. I said you perceive my technical arguments as passive aggressive political agenda.

    I’ve been impressed by reading some Austrains like Horowitz that can argue technically and not just wholly viscerally all the time.

    We all go about it our own way. I know my methods are working because it was almost certainly me who got you interested in reading more Austrianism. As far as that goes, I’ve been successful. It has to be done by individual choice. If you don’t like it that I didn’t play nice with you, if you don’t like it that I didn’t hand things over to you on a silver platter, if you don’t like that I didn’t act the part of a parent who talks gently to their baby, then I will like it that I got you to open your eyes about a world you probably had no idea even existed before I put a splinter in your mind.

    I assume everyone has political motives but the reasoning behind it is important.

    My only political motive is to minimize/eliminate initiations of force against person or legitimately acquired property. I am otherwise in favor of people doing whatever they please, with whomever they please, whenever they please, using whatever means they please.

  37. Gravatar of Negation of Ideology Negation of Ideology
    19. June 2012 at 09:21

    “It is fundamental that you can’t target two variables at once …”

    I agree you can’t permanently guarantee hitting a target of two variables at once, but you can for a time target two variables like we did with bimetallism. You can also combine two variables into one, as in symetallism (e.g. a fixed quantity of gold mixed with a fixed quantity of silver into one unit of account).

    Of course, targeting the price of metal is a terrible idea – the free market does a much better job at allocating goods and services than arbitrary government meddling – but targeting two is slightly better than one because it’s broader. My point is we could apply the bimetallism and symetallism to anything we want.

    If we wanted to we could target CPI and NGDP futures (bifuturism?), or combine them into one security and target that (syfuturism?). I suspect targeting NGDP alone would work better, as it includes price increases already. The only reason I could see targeting both is if people’s fear of inflation is so great that it becomes politically necessary to essentially double count consumer price inflation. That at least seems to be the case now – we seem to put more weight on the inflation side of the dual mandate. If we want to weight one side more, that’s fine, as long as we do it openly though the law.

  38. Gravatar of To To
    19. June 2012 at 10:50

    What’s the problem with having two targets if you have two instruments ? CPI and employment, monetary and fiscal policy.

    Of course you can argue that they both act on AD, which determines both CPI and NGDP, and the latter determines employment. But that depends on what you call “fiscal policy”. For example waiving all payroll taxes on new hires of a long-term unemployed worker would affect both AD and AS.

  39. Gravatar of Adam Adam
    19. June 2012 at 11:42

    Bill Woolsey – Why only 3% NGDP growth? Isn’t that significantly below the long term trend? Is there some reason to want to grow slower?

    Also, what’s the advantage to a lower than 2% inflation target? Shouldn’t consistency matter vastly more than what the target is (i.e., why does it matter if it 0% or 2% or 4% as long as it’s consistent)?

  40. Gravatar of Bill Ellis Bill Ellis
    19. June 2012 at 15:44

    Major freedom, says…

    “Jim Crow laws were state interventions that forced segregation on private property owners who did not want to segregate.

    Is the grass red where you live too ?

  41. Gravatar of Major_Freedom Major_Freedom
    19. June 2012 at 15:56

    Bill Ellis:

    Is the grass red where you live too?

    I don’t understand what that means.

  42. Gravatar of Mike Sax Mike Sax
    19. June 2012 at 16:54

    Major (Un)Freedom

    “If you were logically consistent, you’d have to support laws against buyers who discriminate against sellers on the basis of race, as well as laws against people discriminating among race and gender when it comes to choosing friends, and spouses”

    The fact that I don’t shows what your saying is a fallacy. The trouble with this argument is it’s a reductio absurdem.

    “I am very convinced that you are wrong, because I went through the same thoughts, and I realized they were almost all wrong. How can that be? How can anyone live a relatively normal life, the way I am sure you do, and yet be so wrong about so many things? Is that even possible? Oh hell yes. The human condition is so complex, so incredibly deep, and yet at the same time so integrated with physical reality that there are many things we do that keeps us alive, but there are many things holding us back. We have only tapped into the tip of the iceberg of what we’re capable of, and what is holding us back is lack of knowledge and incorrect convictions that require fixing.”

    So you’re very convinced I’m wrong. Goodie for you-that makes one of us.

    “I know my methods are working because it was almost certainly me who got you interested in reading more Austrianism.”

    Just like Sumner’s methods are working as he got me interested in reading more Market Monetarism.

    In neither case does that necessarily mean that I’ve been convinced. I also believe keep your friends close and your enemies closer.

    I have read some Austrianism before-a few things by Hayek-actually I found his “Errors of Socialism” to be much better than I assumed.

    Again though I’m someone who always wants to know as much as I can about where the other guy is coming from. I had meant to read more Austrianism anyway just like I plan to read more Marxism. Anyone making the logical leap that this means I’m a Marxist or Austrian just shows their own crudity.

    In reality I’m neither though you have again taken the license of calling me a Marxist. I believe in the free market but do think government intevertion is sometimes neessary and don’t see the government as any more evil than the market-both have their spheres that they’re best at.

    “ow well do you know yourself? How well do you know how your mind works? How much have you studied in terms of philosophy of science, or epistemology, of philosophy in general?”

    I’ve studied more than my share of these things and still do. Philosophy in general is my first love. Economics is only one thing that interests me.

    “an tell you that I arrived at what I think after years of study. I used to think almost exactly like you. In fact, at one point way back I was a full-fledged raging Marxist. But then I discovered economics. Then philosophy, and now I have a completely new outlook on my life and on physical reality.”

    I am not a full fledged raging Marist or even a sedate Marixst who’s not so raging. Interesting if you mean you were literally a Marxist-I don’t mean in the sense that you once voted for a Democrat or something or once thought private proerpty wasn’t absolute but a real Marxist who dreamed of the overthrow of the capitalist system.

    If you were a real Marxist it does not surprise me.

    ” That’s a problem. You ought to care about how convictions are arrived at philosophically. If we agree on social issues, but not on economic issues, then there is a philosophical reason for that. What is it? When you think of business activity, is your first thought, or one of your first thoughts, an artificially created system of exploitation?”

    Nope. See there’s two ways of reasoniong-from the premises to the positions or from the positions to the premises. Think of the latter like someone giving you a brilliant proof for why 2+2=5.

    That’s like your proof for why police can’t stop a man from beating his wife or prevent Denny’s from discriminating against black people. Because your answer is wrong I already know your reasoning is flawed.

  43. Gravatar of ssumner ssumner
    19. June 2012 at 17:07

    Ben, I agree about Soltas.

    Bill. I also oppose a 2% inflation target. But right now it so happens that shooting for 2% inflation would move the Fed closer to the sort of NGDP path you and I prefer.

    dwb, I’m worried it’s more fastasy than dream.

    MF, You said;

    “Where are you getting that the Fed is “supposed to” raise price inflation during recessions, and decrease price inflation during booms? From Keynesians? Don’t make me laugh.”

    From Hayek.

    Philo, Yes, but they lost that battle. Therefore the only question for them today is the Fed hitting their target or not. Conservatives want a stable inflation rate, whether it be 1.7% as the hawks prefered, or 2% as the Fed actually decided.

    Russ, That’s false, the hawks at the Fed called for a 1.7% inflation target. There’s no point in even talking about what Congressmen think, it would be as silly as polling a bunch of monkeys on the issue of Fed policy.

    Desolation, Interesting quotation.

    Jacob, Put Tacitus on the Fed.

    Joel, Average people have no way of resolving these disputes, which is why they sensibly focus on outcumes, they judge governments by how the economy is doing. This puts pressure on governments to hire the top economists, and hope for the best. Both Obama and Romney have good advisers, it just so happens that monetary policy is a weak spot for Larry Summers.

    Mike Sax, No, I think tax cuts are preferable to spending increases.

    Bill, The argument against fiscal stimulus absolutely applies to contractionary policy as well. But governments rarely have optimal debts, so the benefits of reducing the debt are more than increasing it, except in rare cases like Australia or Singapore.

    To, I agree about payroll taxes and AS, and have made that argument in other posts.

  44. Gravatar of Jim Glass Jim Glass
    19. June 2012 at 18:46

    “It is fundamental that you can’t target two variables at once …”

    True enough in principle, but diminished in importance in practice when the fact is you can’t hit either one of the two targets at once.

  45. Gravatar of Full Employment Hawk Full Employment Hawk
    19. June 2012 at 21:12

    “Both Obama and Romney have good advisers, it just so happens that monetary policy is a weak spot for Larry Summers.”

    If I were President and following my advisors’ policies and the economy continued to do poorly I would begin to suspect that my advisors were giving me bad advice and start consulting with outside people and try to see if any of them were making sense. I would especially talk to people who were criticising my administration’s economic policies. The time for Obama to start doing that would have been when the “Recovery Summer” did not materialize in the Summer of 2010.

  46. Gravatar of Saturos Saturos
    19. June 2012 at 22:07

    Jacob, Scott, interesting that the paper compares it with TARP rather than targeted QE…

  47. Gravatar of Mike Sax Mike Sax
    20. June 2012 at 05:56

    Yes I figured you did Scott. So you disagree with Evan on that point-that right now a spending increase would be less distortionary than a tax cut? Is this because you think spending incrases are always more distortionary than tax cuts?

  48. Gravatar of ssumner ssumner
    20. June 2012 at 07:57

    FEH, Good point, but since Obama rejected the Summers/Romer argument for a bigger stimulus, perhaps he blamed himself.

    Mike, Obviously it depends on the type of spending increase and the type of tax cut. On average tax cuts are more efficient.

  49. Gravatar of Major_Freedom Major_Freedom
    20. June 2012 at 08:13

    ssumner:

    “Where are you getting that the Fed is “supposed to” raise price inflation during recessions, and decrease price inflation during booms? From Keynesians? Don’t make me laugh.”

    From Hayek.

    The same Hayek who said in his pseudo-Nobel speech that it would be “very harmful” to “maintain total money expenditure at an appropriate level“?

    If so, then you’re getting it from an inconsistent writer, which is interesting, because the Fed isn’t even in the business of maintaining total money expenditures. They’re in the business of price stability, which is separate from NGDP stability. So they’re not actually “supposed” to tinker with price inflation to micromanage the economy.

  50. Gravatar of Major_Freedom Major_Freedom
    20. June 2012 at 08:42

    Mike (I don’t get any)Sax:

    “If you were logically consistent, you’d have to support laws against buyers who discriminate against sellers on the basis of race, as well as laws against people discriminating among race and gender when it comes to choosing friends, and spouses”

    The fact that I don’t shows what your saying is a fallacy. The trouble with this argument is it’s a reductio absurdem.

    No, the fact that you don’t shows that your beliefs are not consistent.

    What I said is a reductio yes, but it’s not a reductio ad absurdum. The logic is consistent. There is no unjustified leap there. If you are in favor of laws against a person discriminating against another in the specific interaction of “selling goods and services” or “buying labor”, then you’d have to be in favor of laws against a person discriminating against another in every other type of voluntary interaction. There is no logical basis for cherry picking “selling goods and services” and “buying labor” out of the entire complex web of voluntary interactions that people have, and saying force is justified against people who refuse to interact in these particular ways based on discrimination.

    So you’re very convinced I’m wrong. Goodie for you-that makes one of us.

    You mean two. You’re very convinced that it is wrong to be very convinced. That makes one of us a believer in a self-contradiction.

    “I know my methods are working because it was almost certainly me who got you interested in reading more Austrianism.”

    Just like Sumner’s methods are working as he got me interested in reading more Market Monetarism.

    His methods are working on me too.

    In neither case does that necessarily mean that I’ve been convinced. I also believe keep your friends close and your enemies closer.

    You consider yourself a gangster?

    I have read some Austrianism before-a few things by Hayek-actually I found his “Errors of Socialism” to be much better than I assumed.

    I think most people interested in economics have read Hayek. He’s even taught in statist economics programs (probably because he was an apologist of social democracy forced wealth transfer).

    Again though I’m someone who always wants to know as much as I can about where the other guy is coming from. I had meant to read more Austrianism anyway just like I plan to read more Marxism. Anyone making the logical leap that this means I’m a Marxist or Austrian just shows their own crudity.

    I agree. It took me a while to garner up the cojones to read “The Rise and Fall of the Third Reich” in public a while back, what with that big swastika on the cover and all. I remember getting a few sneers, but I was reading it for academic purposes. Same thing with “Main Currents of Marxism”. I am sure I’ve been identified as a fascist or a communist at some point by random people.

    By the way, if you want the best book on Marxism, I recommend the referenced book above. Kolakowski goes all the way back to the neoPlatonist philosophical origins of Marxism.

    In reality I’m neither though you have again taken the license of calling me a Marxist.

    I never called you a Marxist. I’ve told you this before, and yet you don’t seem to be able to remember. I said that what you are saying is Marxist. That isn’t calling you a Marxist.

    Many people who aren’t Marxists say Marxist things all the time. He’s had a big influence. What did you expect?

    I believe in the free market but do think government intevertion is sometimes neessary and don’t see the government as any more evil than the market-both have their spheres that they’re best at.

    What is evil about free trade and respect for property rights?

    What is good about violence against people who voluntarily trade?

    “ow well do you know yourself? How well do you know how your mind works? How much have you studied in terms of philosophy of science, or epistemology, of philosophy in general?”

    I’ve studied more than my share of these things and still do. Philosophy in general is my first love. Economics is only one thing that interests me.

    What’s your share? If it’s total philosophy divided by total population, it’s miniscule.

    Interesting if you mean you were literally a Marxist-I don’t mean in the sense that you once voted for a Democrat or something or once thought private proerpty wasn’t absolute but a real Marxist who dreamed of the overthrow of the capitalist system.

    The latter.

    If you were a real Marxist it does not surprise me.

    I don’t think anyone in favor of private property, of economic freedom, and rails against Marxism, can be a Marxist.

    “ That’s a problem. You ought to care about how convictions are arrived at philosophically. If we agree on social issues, but not on economic issues, then there is a philosophical reason for that. What is it? When you think of business activity, is your first thought, or one of your first thoughts, an artificially created system of exploitation?”

    Nope.

    Then what?

    See there’s two ways of reasoniong-from the premises to the positions or from the positions to the premises. Think of the latter like someone giving you a brilliant proof for why 2+2=5.

    There is an epistemological foundation that must be presupposed in either method.

    That’s like your proof for why police can’t stop a man from beating his wife or prevent Denny’s from discriminating against black people. Because your answer is wrong I already know your reasoning is flawed.

    I didn’t say a policeman can’t stop a man from beating his wife. I said the individual who is a policeman can stop an act of violence. That is not me saying I support the state or the government in stopping violence, any more than me saying I think it is OK for a mafia hitman to help old ladies cross the street, isn’t me saying I support the mafia or mafia hitmen.

    I did however say that an owner of Denny’s should be able discriminate without being initiated with violence, the same way I say you as owner of your home should be able discriminate without being initiated with violence.

    I reject your claim my answer is wrong unless you can show how my reasoning is indeed flawed.

    No, I don’t accept any “gut feeling” you may have of my answers. If I wanted gut feelings, I’d ask George Bush what he believes.

  51. Gravatar of Major_Freedom Major_Freedom
    20. June 2012 at 08:53

    I said: “I don’t think anyone in favor of private property, of economic freedom, and rails against Marxism, can be a Marxist.”

    At this point in my life that is.

  52. Gravatar of Mike Sax Mike Sax
    20. June 2012 at 10:53

    “if you want the best book on Marxism, I recommend the referenced book above. Kolakowski goes all the way back to the neoPlatonist philosophical origins of Marxism.”

    I’ve read Kolawski as well and I agree he’s excellent.

    “If you were a real Marxist it does not surprise me.”

    “I don’t think anyone in favor of private property, of economic freedom, and rails against Marxism, can be a Marxist.”

    I meant “were” in the sense of past tense.

    I got to go to lunch but that I’ve not resoneded to other stuff you said is not agreement or as you may want to assume that I have no answwer-just got to go for now. We’ll take up some of these questions later.

    I will say on the other topic from before I think the reason why Austrians don’t believe in a general glut is that they treat money as just another commodity. IF they didn’t it would be clear that a general glut can happen.

    I’ll give you the Sax thing it’s a good one though my name is easily conducive. Most people I know will tell “All Sax is good Sax”

  53. Gravatar of Major_Freedom Major_Freedom
    20. June 2012 at 11:07

    Mike Sax:

    I will say on the other topic from before I think the reason why Austrians don’t believe in a general glut is that they treat money as just another commodity. IF they didn’t it would be clear that a general glut can happen.

    The problem is treating money as something other than a commodity. Commodities are scarce objects of economic action. Economic science applies to money. It is when people start to deviate and treat money as something it is not, that results in errors, such as the myriad on this blog, and other Monetarist/Keynesian blogs.

    If you don’t integrate money into economic science, then you’ll end up believing money is a tool of the state, rather than of individual, entrepreneurial economic calculation.

    If people did treat money as a commodity, if they did integrate money into economic science, instead of divorcing it from economics and believing it is a “public good” – a tool of the state – then they wouldn’t be misled into believing general gluts are possible, because they would be able to discern relative overproduction and relative underproduction is taking place even in the presence of a general decline in sales and general lack of profitability.

    A general glut of goods and services implies that there is a limit to how much goods and services people desire. But there is no such limit. Not in the sphere of human action. Action presupposes no final state of full satisfaction.

    If people produce goods and services that cannot find sales, then it is because they produced too many of THAT good, and not enough OTHER goods. It goes back to how much particular real wealth people are willing to sacrifice to acquire other particular wealth. It’s about real marginal utility.

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