Libertarians don’t even know when to gloat

The euro project is about as far removed from a “spontaneous order” as you can get.  It was dreamed up by unelected bureaucrats in countries like France, and rammed down the throats of the European public.  It artificially fixes the exchange rate between countries with vastly different economic structures and a high level of wage rigidity due to extremely interventionist labor laws.  Free market supporters like Milton Friedman and Margaret Thatcher correctly predicted that it would lead to massive problems.

And now we’ve reached the point where even publications that are generally sympathetic to the European project admit:

Any fair reckoning of the euro must therefore judge it to have been a failure.

So it must be time for libertarians everywhere to gloat, right?  Unfortunately, all I seem to see is libertarians claiming the euro is not the problem.  Both Daniel Mitchell of the Cato Institute and John Cochrane cite the following statement by Pascal Salin with approval:

Contrary to what is claimed daily in the media by politicians and many economists, there is no “euro crisis.” The single currency doesn’t have to be “saved” or else explode.

Mitchell says the real problem is big government.  I also favor smaller government, but that doesn’t make big government the cause of every economic problem.  If the Spanish and Greek governments shrank enough to balance their budgets, they’d still have 24% unemployment, if not more.  Their economies are hopelessly uncompetitive at the current exchange rate.  Milton Friedman understood that.  What in the world has happened to the modern libertarian movement?  If we can’t gloat over the failure of the euro-project, what can we gloat over?

PS.  I don’t even know whether Mitchell or Cochrane self-identify as libertarians.  I’m using the term loosely to designate people who clearly have pro-free market views.


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62 Responses to “Libertarians don’t even know when to gloat”

  1. Gravatar of mbk mbk
    20. July 2012 at 08:47

    Scott, we’ve been though this but I still do not understand your logic. Surely Spain and Greece’s economies were even more hopelessly uncompetitive at the even higher Euro exchange rates before the crisis. But then the Euro wasn’t an apparent problem. Convergence did occur for decades in the run up to the Euro and in its first decade. We had an exchange on this already and so did other commenters so I won’t pull out any new graphs. Now the Euro is lower against the dollar and is suddenly supposed to be the main problem. It makes no sense except if one is to assume that Europe and for that matter every large heterogeneous country (China!!) ought to be subdivided into tiny economically homogeneous entities, each with its own currency, each floating its exchange rate, each economy fine tuned by localized NGDP targeting. I am sorry but I believe you might be starting to throw the baby out with the bath water.

    The funny thing is that the Euro is considered mostly a problem by publications and bloggers who are not in the Eurozone but the Dollarzone, save for the odd German who wishes for an even stronger, even more austere Euro with even less inflation. What I see here is a cultural disconnect and a general gloating of people who don’t use the Euro in the first place.

  2. Gravatar of Greg Ransom Greg Ransom
    20. July 2012 at 08:51

    “I started remarking against the idea of a common European currency, saying why not simply admit all the other currencies competing with yours, and then you don’t need a standard currency. People will choose the one which is best. That, of course, led me to the extension: Why confine it to other government moneys and not let private enterprise supply the money?”

    – F. A. Hayek

    That little bit of gloating has been on the front page of Taking Hayek Seriously all month.

  3. Gravatar of mbk mbk
    20. July 2012 at 08:53

    And to the precise point of your post – for better or worse, many libertarians adhere to the idea of the gold standard. Basically a world with a fixed quantity of money. This is what many people really believe. In the pre Euro era, Europeans would always throw around the ideas of ‘soft’ currencies (frequent devaluations) vs ‘hard’ ones. From memory, almost everyone would wish for hard currencies. So now the Euro is here and it has a ‘hard currency’ reputation, and many many people want just that. The impression of certainty, of trust in a currency. Forget libertarians – even the countries you consider victims of the Euro wish to keep it.

  4. Gravatar of Gene Callahan Gene Callahan
    20. July 2012 at 09:05

    @mbk: “It makes no sense except if one is to assume that Europe and for that matter every large heterogeneous country (China!!) ought to be subdivided into tiny economically homogeneous entities, each with its own currency…”

    The comeback to this is so easy and has been so often stated that I am sorely puzzled as to how you could state the above without at least noting it: In China, the same entity directs monetary and fiscal policy, and other criteria for an optimal currency area are roughly satisfied. In Europe there is one monetary authority and 23 separate fiscal authorities. That this was a recipe for disaster was noted right from the start, as Scott points out.

  5. Gravatar of Aidan Aidan
    20. July 2012 at 09:18

    I can’t help but assume that Krugman/Soros derangement syndrome plays a significant role in defending the Euro. Krugman’s arguments against the Euro are usually intertwined with his arguments against austerity and there is probably a natural reaction against that for those who believe that the government should be smaller.

    Since the crisis began I have also seen a great resurgence in interest in the works of Hayek and Mises among libertarians and conservatives in a way that I haven’t really seen for Milton Friedman and Irving Fisher. Besides the Sumnerians, the people I see invoking Friedman and Fisher most often are people like DeLong and Krugman. I can’t think of any prominent voices on the right calling for more stimulus other than the market monetarists. Expansionary government policy of any kind is now seen as belonging exclusively to liberals (and I’m guessing a lot of them see the market monterarists as advocating liberal policies).

    Implicit in the argument that the Euro is the problem is that its current state is preventing necessary stimulus, and arguments against the Euro are almost inherently arguments against the current austerity regime. Better to have a deep depression with an opportunity to reform labor markets and pensions than an admission that a recovery is possible and that the roots of the crisis are in the currency union and not (with obvious exceptions) on running budget deficits and spending money on poor people.

  6. Gravatar of ssumner ssumner
    20. July 2012 at 09:42

    mbk, You said;

    “The funny thing is that the Euro is considered mostly a problem by publications and bloggers who are not in the Eurozone but the Dollarzone, save for the odd German who wishes for an even stronger, even more austere Euro with even less inflation. What I see here is a cultural disconnect and a general gloating of people who don’t use the Euro in the first place.”

    Countries are not suicidal. When they enact catastrophic policies, it’s by mistake. You correctly point out that the people in the eurozone don’t have a clue as to why they are suffering. I agree. The same is true in the US.

    The rest of your argument makes no sense at all. Of course the exchange rate was consistent with good times when capital was pouring in and real estate was booming. But things change! They now need a much lower exchange rate to be competitive. In the old days the drachma would have plunged, making Greece more competitive.

    I can’t believe you are claiming that because the idiots that created the euromess don’t understand the problem, there is no euro problem.

    Greg, That’s good to hear.

    Aidan, That is pretty sad.

  7. Gravatar of marcus nunes marcus nunes
    20. July 2012 at 10:06

    Scott
    Pascal Salin could be identified as “libertarian” also. As noted by David Glasner he contributed to the “free banking” movement!

  8. Gravatar of Pietro Poggi-Corradini Pietro Poggi-Corradini
    20. July 2012 at 10:34

    I was against the Euro and favored Hayek’s advice, but then I got used to the Euro, like anybody gets used to things that are beyond one’s control, the way you got used to dealing with a central bank, etc…The question is now what? As an Italian, I think that Italy is the last country that would want to go back to it’s own currency because they were devaluation prone to begin with. Now Finland could safely drop out and, some have suggested, Germany itself could drop out fairly safely.

    Of course, my sentiments have to be put into context: I’d like to see some real reforms happen. At first one thinks ‘maybe by voting some new people in, things might change’, nope; ‘maybe with new institutional set-ups, say federalism, maybe something will change’, nope; ‘maybe Europe could force change on us’, nope, etc…it gets to a point where all hope is lost and Euro or no Euro, the problems are much deeper, much more structural.

    At the same time, at least personally, I’ve also tried to find the positives. I saw a revolution occurring in Italy in the last decade, a truly transformed society that has been able to absorb and integrate great numbers of new immigrants, that has seen an influx of foreign firms and businesses etc… My hope is that there is indeed progress but it’s not seen, it’s hidden from the statistics.

  9. Gravatar of Major_Freedom Major_Freedom
    20. July 2012 at 10:45

    Gene:

    In Europe there is one monetary authority and 23 separate fiscal authorities. That this was a recipe for disaster was noted right from the start, as Scott points out.

    By that logic, free market economists note that one monetary authority and 300 million American individual “fiscal authorities” who have authority over their own spending, borrowing, investing, cash holding decisions, would also be “a recipe for disaster.”

    The logic is the same, only extended, which makes it easily apparent that the problem isn’t “one monetary authority and 23 fiscal authorities”, as if the solution is 23 monetary authorities to go along with the 23 fiscal authorities, or one fiscal authority to go along with one monetary authority, but rather the problem is a disconnect between number of individuals and the number of monetary and fiscal authorities.

    The optimal monetary order is as many monetary authorities as there are individuals, since individuals are centers of action, the building blocks of all economic phenomena. This of course does not imply that 300 million monetary authorities will result in 300 million different physical monies, because of the simple fact that individuals can, and they do, find agreement with each other to accept some particular commodities as a store of value. Some commodities perform this function better than other commodities. No individual needs to point their guns at others for this.

    It would be like people “agreeing” with each other to make automobiles a “popular” form of transportation. Each individual has authority over how they want to travel, and some forms of travel become more dominant than others. It’s not like 300 million individuals having authority over how they travel the Earth will result in 300 million different forms of travel, such that airspace and groundspace will be filled with 300 million different forms of transportation.

    ————–

    summner:

    The euro project is about as far removed from a “spontaneous order” as you can get. It was dreamed up by unelected bureaucrats in countries like France, and rammed down the throats of the European public.

    THE FEDERAL RESERVE WAS IMPOSED IN THE SAME WAY.

    The Fed was thought up by “unelected” bureaucrats (not that being “elected” even matters when it comes to coercion, as consistent libertarians are against individual to individual violence, and do not distinguish between coercion from petty thugs and governmental agents, as if the latter is justified). The Fed was also “rammed down the throats of the American public”, when it was voted into law by a predominantly absent on vacation and thinly populated Congress (not that the ramming down of throats would be absent with a full Congress either!).

    On November 22, 1910. Senator Aldrich, with a handful of banker and bureaucrat companions, set forth in a privately chartered railroad car from Hoboken, New Jersey, to the coast of Georgia, where they sailed to an exclusive retreat, the Jekyll Island Club on Jekyll Island, Georgia. Facilities for their meeting were arranged by club member and co-owner J.P. Morgan.

    The attendees worked for a solid week at Jekyll Island to hammer out the draft of the Federal Reserve bill. In addition to Aldrich, the conferees included Henry P. Davison, Morgan partner; Paul Warburg, whose address in the spring had greatly impressed Aldrich; Frank A. Vanderlip, VP of the National City Bank of New York; and A. Piatt Andrew, head of the NMC staff, who had recently been made assistant secretary of the Treasury by President Taft.

    After a week of meetings, the six men had forged a plan for a central bank, which eventually became the Aldrich Bill. The only substantial disagreement was strategic, with Aldrich wanting a straightforward central bank on the European model, while Warburg and the other bankers thought that the reality of central control should be cloaked in the politically palatable camouflage of “decentralization.”

    That Aldrich Bill was later amended, and the result was the Federal Reserve Act.

    What is so different with the Euro?

    It artificially fixes the exchange rate between countries with vastly different economic structures and a high level of wage rigidity due to extremely interventionist labor laws. Free market supporters like Milton Friedman and Margaret Thatcher correctly predicted that it would lead to massive problems.

    What do you think the Federal Reserve does? They artificially fix a key interest rate. They artificially determine (both directly and indirectly by backstopping inflating banks) how much medium of exchange exists.

    You turn into “Libertarian Superhero” when it comes to Europe, yet you turn into “Statist Supervillian” when it comes to America. Why?

    Unfortunately, all I seem to see is libertarians claiming the euro is not the problem. Both Daniel Mitchell of the Cato Institute and John Cochrane cite the following statement by Pascal Salin with approval

    I don’t believe you. You’re pretending that the Lew Rockell/Mises Institute libertarian crowd don’t exist. They have been saying since the get go that the Euro was a problem. The “libertarians” you’re citing are corporatist apologists in libertarian’s clothing, who want to retain the anti-libertarian Fed.

    Anyone who is in favor of initiations of force is simply not a libertarian. It’s not that difficult to understand. You support an anti-libertarian action, you cannot call yourself a libertarian. Communist central banks (communist because it is a means of production (of money) centralized by initiations of force, to result in a monopoly control over money) is simply not a libertarian institution. The Cato crowd jealously defends the Fed against libertarians who rightly call for its abolition, ergo the Cato crowd are not libertarians.

    —————-

    What in the world has happened to the modern libertarian movement? If we can’t gloat over the failure of the euro-project, what can we gloat over?

    Uh, I hate to let you in on the “breaking news”, but the modern libertarian movement is anti-violence.

    You are not a libertarian because you favor initiations of force. You favor not only central banking, but progressive taxation, welfare, state controlled tax payer financed education, and a whole host of other anti-libertarian actions. NGDP targeting is anti-libertarian. A libertarian does not devote his entire intellectual career to a non-libertarian goal.

  10. Gravatar of Major_Freedom Major_Freedom
    20. July 2012 at 10:56

    Greg:

    “I started remarking against the idea of a common European currency, saying why not simply admit all the other currencies competing with yours, and then you don’t need a standard currency. People will choose the one which is best. That, of course, led me to the extension: Why confine it to other government moneys and not let private enterprise supply the money?” – F. A. Hayek

    Obviously, private enterprise supplying money is incompatible with NGDP targeting. I hope people here who quote Hayek favorably will realize he was inconsistent on the question of money production, and that quoting Hayek as favoring NGDP targeting, without referring to his entire body of work, is misleading.

  11. Gravatar of Wonks Anonymous Wonks Anonymous
    20. July 2012 at 11:06

    Some Crooked Timber folks have a different take on Hayek & the E.U:
    http://crookedtimber.org/2012/07/16/hayek-v-polanyi-in-the-european-union/

  12. Gravatar of Andrew Andrew
    20. July 2012 at 12:30

    To Mr. Mitchell and Mr. Cochrane:

    Imposing a single currency on an unwilling populace IS big government. It appears to be even bigger government than all the safety nets of the common countries.

  13. Gravatar of Curious Bystander Curious Bystander
    20. July 2012 at 13:02

    So you claim to know better than the Libertarians when they have to gloat, and at the same time are puzzled that those are seeing in you a cenral planner? This is your brain on NGDP, I guess.

    @Andrew – «Imposing a single currency on an unwilling populace IS big government.»

    And imposing 2 dozen is not?

  14. Gravatar of John Thacker John Thacker
    20. July 2012 at 13:07

    Obviously, private enterprise supplying money is incompatible with NGDP targeting.

    I am (and Scott is, I believe) all for free banking, but given that we do have a Fed, why encourage them to meet one badly designed government fixed price instead of a better one? Mises and Hayek may have argued against the feasibility of socialist calculation, but they’d hardly argue that that meant that a government should adopt a particularly crazy arbitrary price scale for inputs and outputs. “Socialist calculation will never work, so don’t bother increasing production of shoes when you see shortages!”

    The arguments against the Euro had a very US vs. European flavor to it, rather than strictly along political lines. I’ll never forget this gem from European economists in Econ Journal Watch in January 2010, just before everything hit the fan:
    http://econjwatch.org/articles/it-can-t-happen-it-s-a-bad-idea-it-won-t-last-us-economists-on-the-emu-and-the-euro-1989-2002

    “It Can’t Happen, It’s a Bad Idea, It Won’t Last: U.S. Economists on the EMU and the Euro, 1989-2002

    On the whole, the euro has, thus far, gone much better than many U.S. economists had predicted….”

  15. Gravatar of James in London James in London
    20. July 2012 at 13:10

    MF: Obviously, private enterprise supplying money is incompatible with NGDP targeting.
    Not obvious at all. As you’ve argued many, many times, you can’t legislate now for the business strategies of future free market money providers. As George Selgin has shown, ‘sort of’ NGDP targetting has been a successful private enterprise strategy in the past.
    By the way, where is your own website that develops your ideas more fully?

  16. Gravatar of J.V. Dubois J.V. Dubois
    20. July 2012 at 13:17

    Scott: I really enjoy all your economic blogposts, I really do. That is why it pains me to say it, but I start to think that you should heed your own advice that you to Paul Krugman: “Krugman’s recently had great posts on everything from the Fed to the euro to noise in restaurants. But when it comes to politics he becomes completely unhinged.”

    Or how else could you explain to me that just before this very post you wrote this “In late 2008 the ECB inflicted an extremely tight monetary policy on the eurozone, which has been maintained ever since. This turned what would have been a modest debt crisis centered in Greece into the greatest debt crisis in world history”

    So what is it. Is it a crisis imposed upon Europians by totally clueless governing elites, a trait that Eurozone in less extent shares with USA, or is it somehow a failure of “Euro” that was “rammed down the throats of the European public” (just to remind you, every country joining the Eurozone had to have a referendum)?

    PS: Just a note, a short while ago there was an excellent post on WCI by Livio Di Matteo debating the role of debt crisis in creation of Canadian Confederation. Maybe next time there will be an article from you about how canadian elites rammed the idea of this country down the throat of unsuspecting Canadians?

    Go read it, it is excellent: http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/07/a-debt-interpretation-of-canadian-confederation.html

  17. Gravatar of Major_Freedom Major_Freedom
    20. July 2012 at 13:18

    James in London:

    Not obvious at all. As you’ve argued many, many times, you can’t legislate now for the business strategies of future free market money providers. As George Selgin has shown, ‘sort of’ NGDP targetting has been a successful private enterprise strategy in the past.

    Individual banks cannot control everyone’s spending, and so cannot control NGDP. Selgin’s “sort of” is a result of him partially/fully buying into the Keynesian “aggregate demand is the driver” story, so that he can defend free banking against “Monetary deflation!” attackers. He doesn’t need to pretend that free banking is NGDP targeting.

    By the way, where is your own website that develops your ideas more fully?

    It doesn’t exist. The internet is my “website.” I post everywhere.

  18. Gravatar of Lorenzo from Oz Lorenzo from Oz
    20. July 2012 at 13:37

    Surely the point is the ECB broke the first rule of central banking–make monetary policy for economies as they are, not as you think they ought to be.

  19. Gravatar of James in London James in London
    20. July 2012 at 13:37

    MF
    You do have an answer for everything, don’t you. Have you ever conceded you were wrong about anything, ever? Just interested to know.
    I don’t think Selgin or Sumner would say AD is “the driver” in the long run, productivity is. And both of them, and I, would probably agree with you about the type of economy in which it would grow fastest. So you shouldn’t be too hard on us, we’re all really your friends! However, in the short run AD can have issues, and can and has needed coaxing.

  20. Gravatar of Lorenzo from Oz Lorenzo from Oz
    20. July 2012 at 13:37

    (I mean structurally, not as in the nominal variables you should be targeting.)

  21. Gravatar of James in London James in London
    20. July 2012 at 13:43

    What’s sad about the demise of the Euro is that it threatens the very libertarian concept of the free movement of goods, services and people across national boundaries. It even renders those boundaries obsolete. And makes intra-European wars, of which there have been a few, less likely. Stuff not to gloat over, but worry about losing.

  22. Gravatar of johnleemk johnleemk
    20. July 2012 at 13:46

    James,

    I fully agree. That’s why I personally am not gloating about the demise of the Euro, folly as it was/is from a monetary standpoint.

    Having said that, as our host has pointed out many a time, policy-induced monetary contractions in the long run may actually lead to even less libertarian outcomes, such as fascism in 1930s Europe.

  23. Gravatar of Bababooey Bababooey
    20. July 2012 at 13:52

    You can find some first-class gloating by clicking on this hyperlink inter-net thing (it works on Mac, too) that transports you to Nigel Farage speeches.

  24. Gravatar of heinz heinz
    20. July 2012 at 14:14

    J.V. Dubois: So when did the Germans have their referendum on the Euro?

  25. Gravatar of Morgan Warstler Morgan Warstler
    20. July 2012 at 14:33

    This is categorically false:

    “If the Spanish and Greek governments shrank enough to balance their budgets, they’d still have 24% unemployment, if not more.”

    Less government = less regulation or less enforcement

    Which means that you will have more commerce without any changes in law.

    The POINT is that BIG GOVERNMENT can scare business away, SMALL GOVERNMENT is forced to give up on trying to stop what people do naturally – which is thrive.

    There might be more pollution, there might be more illicit activity, there might be all kinds of things liberals hate.

    But there will be more commerce.

    The TRICK is to push Greece and Spain to become South Carolina and Florida.

    they have to ACCEPT that they must do as the Estonians do.

    having a small government will FORCE them to accept it.

  26. Gravatar of Benny Lava Benny Lava
    20. July 2012 at 15:23

    I agree with the earlier comment that the lack of libertarians gloating is a combination of Krugman Derangement Syndrome and Godbuggery.

  27. Gravatar of Benny Lava Benny Lava
    20. July 2012 at 15:26

    Also I would say that libertarians should gloat that the big government liberals have shriveled away over the last 20 years or so. Remember what big government liberals were like in the 70s and reflect on today’s young liberals like Yglesias. We’ve reached a sort of post-Cold War consensus regarding the role of government that is fairly close to a Friedmanesque neo-liberal point of view. And yet?

  28. Gravatar of John Becker John Becker
    20. July 2012 at 17:10

    MF,

    People try to deny that Mises and his libertarian followers like us don’t exist the same way that the media tries to ignore Ron Paul. I think the ideas of Mises are too powerful and threatening to the current system. If more people were exposed to him and had the intellectual capacity to understand his writings, they would demand radical change.

    It’s best for those in power to steer people away from such ideas or to pretend that they simply don’t exist. Witness the misleading and absolutely off-base critiques that come from other conservatives like David Frum. The way people attack libertarian ideas is the most convincing argument for libertarianism out there. The fact that no one has been able to put a dent in it means really shows the validity of the ideas in my eyes. However, most people can be blinded by biased and ignorant attacks and the only contact they have with libertarian ideas is through those attacks.

    I can only hope ultimately that the truth will prevail. Free markets are a system of individual sovereignty and hopefully as society develops, people will continue to demand more choice to run their own lives. That has been the trend of history in the very long run and hopefully that process will continue and accelerate as the “free world” expands.

  29. Gravatar of Mike Sandifer Mike Sandifer
    20. July 2012 at 18:39

    There are some problems with libertarians gloating over the Euro failure, which I’ll enumerate:

    1. The Euro project hasn’t necessarily failed. Perhaps the Euro currency has failed, but even that is a questionable statement. With more political integration, better laws governing the ECB, better ECB policy, better EU-wide fiscal policy, etc., perhaps the Euro project could be saved. At the very least, perhaps the failure wouldn’t be so dramatic.

    2. Libertarians and freer market thinkers weren’t the only ones predicting the failure of the Euro project, nor especially the Euro currency.

    Of course, much of the discussion depends upon how you define “failure”, but the markets are not currently predicting an immediate, imminent collapse at the moment. If by “failure”, you mean “sub-optimal”, then I can certainly agree the Euro project has failed thus far, but there is at least some room for debate as to whether it must necessarily continue to do so.

    Personally, I suspect the Euro currency will soon be dead, but it is not clear yet that the Euro project is dead, despite some serious and growing stresses.

  30. Gravatar of Major_Freedom Major_Freedom
    20. July 2012 at 19:27

    James in London:

    You do have an answer for everything, don’t you. Have you ever conceded you were wrong about anything, ever? Just interested to know.

    Yes, many times, just rarely on this blog, because this blog happens to focus on money, and there is no agreements to be had when one side is dead set for central banking, and I am dead set against it.

    I don’t think Selgin or Sumner would say AD is “the driver” in the long run, productivity is.

    Now ask them how much they know about the negative effects of inflation on economic calculation.

    And both of them, and I, would probably agree with you about the type of economy in which it would grow fastest. So you shouldn’t be too hard on us, we’re all really your friends!

    Friendships notwithstanding, I cannot be an intellectual ally when it comes to money production.

    However, in the short run AD can have issues, and can and has needed coaxing.

    What if individuals WANT to spend less? Screw them, right? Take their purchasing power because “somebody”, i.e. bankers and the Treasury, “must” spend.

  31. Gravatar of mbk mbk
    20. July 2012 at 21:49

    Scott, I have to agree with JV Dubois, his comment is similar to my train of thought. Also, what Pietro Poggi-Corradini said, compare to my second comment above as well: curiously no one wants to go back to their old ‘soft’ currencies and many of the ‘victims’ of the Euro support the idea that the hard currency is finally enforcing hard political changes in their own countries. Criticism from within the Eurozone tends to come from countries with formerly ‘hard’ currencies. People blame their governments for debt, not the Euro. People demonstrate against government cutbacks, against bankers, against austerity, against the IMF, globalization, what have you. Not against the Euro. (unless I missed something). Just before the recent Greek elections a major Greek newspaper had a comment along the lines of “lets’s hope this will hold against the extremist parties because we’re only inches away from the Drachma, which would be death”. Now you could blame this on universal ignorance against which only a small elite of Dollarzone or UK bloggers and a few select academics are immune, or you could just say, well, maybe the situation is more complex and maybe this question is more than a purely technical monetary problem. Maybe this makes some kind of larger political sense. Maybe this is “sub-optimal” as someone said above, but better than the alternatives. etc.

    Gene (and I tried to post this thrice yesterday but my posts disappeared), Scott’s arguments against the Euro on these pages were mostly about exchange rate rigidity, the problem of internal adjustment through labor movements for instance, and the impossibility to adjust monetary policy equally well for heterogeneous economic areas. In his post above Scott says nothing about the additional issue that Eurozone fiscal policy isn’t centralized while monetary policy is. I know that many others do frame this as a monetary union vs fiscal union issue but AFAIK Scott rarely used this line of thought – probably because he champions monetary policy over fiscal policy.

  32. Gravatar of James in London James in London
    20. July 2012 at 22:50

    MF
    While I pine, like you, for a return to the deflationary economic miracle that was 19th Century Great Britain under the benign neglect of classical liberalism, we do have some recent counter-examples. The rapid economic development of China, Turkey, Brazil, India, Indonesia and many smaller countries is undeniable. It has enriched the lives of hundreds of millions of people.

    All these cases have been accompanied by more inflation than Great Britain. Sometimes a lot more. At 50% it seems sometimes to lead to military dictatorships, but at 10% it seems quite manageable. Economic calculation may have been messed up somewhat, I agree, but clearly, it wasn’t and isn’t a huge obstacle.

    These people’s are also freer than they were too. Once they are fully developed they may then move to worrying more about inflation than anything else, like Japan, say. But that is a luxury problem to have.

  33. Gravatar of libertaer libertaer
    20. July 2012 at 23:14

    The euro is not the problem. I think it’s all about demographics which causes an excess demand for safe assets (lack of animal spirits or testosterone?). Germany and Italy are among the oldest countries on earth. Even if Europe would have a strong fiscal union, we would still end up like Japan: exploding debt, zombie banks, inflation paranoia… Fiscal policy would be no solution at all.

    The ECB is the only one to save the euro. They have to do NGDPLT. And the target should better be 10%!

    The fact that Germany shares a currency with countries that are much younger with lots of youth unemployment is a good thing. This creates pressure which you don’t have in Japan. Germany or Italy on its own would end up just like the Japanese. 20 years and more of stagnation. The Germans don’t understand that they are their own worst enemies.

    What I don’t understand is why the USA with a much younger demographics is making the same mistakes? Maybe it’s not about population but voters?

  34. Gravatar of genauer genauer
    20. July 2012 at 23:26

    Euro

    I think two big parts of the problem are, that most folks dopnt look at the numbers, how large effects really are, and that most Anglos are not familiar with both the long term and recent European economic history, and then come up with hilarious “advice“. Typical example. US states have to balance their budget, are not bailed out by the Fed. Debt sharing occurred after the common independence war 179x, but not in the 1830ties, after infrastructure bubbles, so why on earth should now renting German tax payers pay the mortgage of their richer, house owning Italian neighbors?

    “vastly different economies” ?

    The differences (e.g. GDP per capita) within the old (pre 1990) EU countries are not larger than in the US. It is basically the same story as for the US (see e.g. http://ssrn.com/abstract=2081216): fast catch up, while GDP differences were at 4x (like Greece in the 80ties) and petering out to stalling, when the differences become smaller than ca 1.5x, just in compressed time, relative to the US. The same happens btw now in Eastern Germany, rising only very slowly beyon 75% of western Germany.

    The precursors for the Euro started in the 70ties, currency snake, ERM, etc, there was a 10 year convergence and trial period from 1992 to 2002. Even Sarrazin described the efforts of the PIGS at that time as “impressive”. How long do you need to wait and watch, why?

    Uncompetitive?

    http://www.voxeu.org/article/tradable-sectors-eurozone-periphery paints a pretty different picture.
    According to this the tradable sectors of the GIPSIs are in fact competitive. But there were gigantic bubbles in the non-tradable construction area, and ballooning public sector employment, salary and pension growth.
    And the cure for that not overall devaluation, but adjusting their social system to what is possible within their tax revenue and also towards what the Nordics and Germany found feasible. E.g. mandatory Spanish severance packages are still excessive (http://www.ccgspain.com/blog/ccg-spain/spanish-labour-reforms-2012-a-roundup-of-key-changes/) compare those 20 – 33 days /year to 5 – 10 in Germany, and you understand, why Spanish employers are still extremely hesitant to hire people permanently. The reforms have to go much further.
    What most Anglos simply don’t understand or neglect, as long as you have different national accounts, the ECB bnuying in large quantities debt of national governments would be an extrrme moral hazard. Even in NGDP targeting would be the tright policy for the US (with a small trade / GDP fraction), you can run the Euro area only by Odnungspolitik, du to that simple geometry / construction. The central bank with its monetary policy takes care of inflation only, and everything else is done by (national) fiscal policy.
    The southern periphery is late with the economic growth, and did around 2005, what Germany did 1973 (excessive pay /pension rasies by > 10 %). German opposition to all that stimulus and redistribution (Beschäftigungsprogramme, Länderfinanzausgleich, Wiedervereinigung) is not (primarily) ideology based but on (our) experience. After all, we tried all this stuff, in various versions : -)
    The real, long term robust and honest cure for runaway public wages and pensions is not devaluation, but honest, payable reforms and promises.

    Exit (costs) from currency union

    What comes up repeatedly with Anglos, is, why don’t Germany and the other well behaving countries like Finland, who all went through painful adjustment programs to their welfare states in the 90ties) leave the Euro and leave it to the GIPSIFs? Since when stay the rule violators and the compliant folks have to leave? Currencies are first as medium of exchange. The export volume of Germany is 1408 billion, Greece 27 billion. Whose exit causes less friction?

    And finally, Dubois has a point, not only with the Canadian example, that most new political forms started out somewhat murky in hindsight, like the bank of England acting as a modern centralbank. Soo, the European union and the Euro are new ways of configuring political order, and we will find out, how that works best. Greece might be leaving, they are still pretty delusional, but I now believe the Euro will survive, at least for a northern / central core. And for the rest of the southern fringe ,from my perspective, the adaption costs to the core are still much smaller than the costs of an exit and subsequent partial default.

  35. Gravatar of John Becker John Becker
    21. July 2012 at 00:23

    Libertaer,

    I think a government program of mandated testosterone injections would be a better solution than NGDPLT above 10%. Are people like you really so naive as to think that suddenly high inflation will make everything okay?

  36. Gravatar of "I also favor smaller government, but that doesn’t make big government the cause of every economic problem. If the Spanish and Greek governments shrank enough to balance their budgets, they’d still have 24% unemployment, if not more.&qu "I also favor smaller government, but that doesn’t make big government the cause of every economic problem. If the Spanish and Greek governments shrank enough to balance their budgets, they’d still have 24% unemployment, if not more.&qu
    21. July 2012 at 01:00

    [...] Source [...]

  37. Gravatar of Major_Freedom Major_Freedom
    21. July 2012 at 01:06

    James in London:

    While I pine, like you, for a return to the deflationary economic miracle that was 19th Century Great Britain under the benign neglect of classical liberalism, we do have some recent counter-examples. The rapid economic development of China, Turkey, Brazil, India, Indonesia and many smaller countries is undeniable. It has enriched the lives of hundreds of millions of people.

    I don’t see how these are “counter”-examples, since they would be examples I would cite to show how growth can occur despite inflation.

    Economic calculation may have been messed up somewhat, I agree, but clearly, it wasn’t and isn’t a huge obstacle.

    My standards are higher.

  38. Gravatar of Mike Sax Mike Sax
    21. July 2012 at 02:25

    Your standards are higher, whoopie. I mean if in the face of success you have higher standards If growth can occcur “depsite” inflation it’s logically possible that inflation is not the hobgoblin you like to believe it is. If it can grow “despite” it then why is it such an evil?

    Just like you don’t let the fact that all the guys who tried to short Treasurys in 2011 lost their shirt stop you from still beliieving the “Treasury bubble” illusion. Ask Bill Gross how this theory worked for him. Or Jim Rogers. No matter, now Donald Trump is worried about the dollar. You and him ought to out and drink tea together if you know what I mean.

    Your standars are not higher just asinine.

  39. Gravatar of ssumner ssumner
    21. July 2012 at 04:46

    Marcus, That’s interesting.

    Pietro, It’s interesting to get an Italian perspective. I think Italy’s biggest problems right now are structural, but the euro is also a major problem.

    Wonks, What do they say.

    Andrew, Good point.

    Curious, Yeah, NGDP proponents like Hayek and me aren’t real libertarians. Only you get to decide who counts.

    JV, Isn’t it obvious that both are related. The tight money policy was done by the ECB. The euro is controlled by the ECB. National governments have lost their ability to offset inappropriate eurozone policy by devaluing. I don’t know why you don’t see them as being related.

    I’m not claiming the euro was inevitably going to fail. With NGDP targeting it might have succeeded. But the fact is that it did fail, because the ECB policy was destructive.

    Lorenzo, Good point.

    James, Good point about gloating. But I don’t see the link with free trade. All the non-euro members (Britain, Sweden, Denmark, Norway, Switzerland, etc ) have pretty free trade. I suppose Iceland is a small exception, but I’d guess that’s temporary.

    Thanks for the link Bababooey.

    Benny, Good point.

    Mike, I meant failure in the same sense as The Economist. It would have been better if it had never been attempted. I agree it might well survive, with some reforms.

    mbk, It does no good to tell me that Europeans are just as moronic as Americans, that Europeans share the belief of Americans that high unemployment is caused by debt, not tight money. They are wrong.

    libertaur, It’s not voters, it’s economists who are to blame.

    Geneaur, You are attacking a lot of positions I don’t hold. I am calling for faster NGDP growth, I oppose bailouts. The data on GDP per person tells us nothing about whether the structures of the economy are similar.

    Whether a country has a deficit or surplus tells us NOTHING about whether it is competitive. It’s all about wage levels vs NGDP.

    I have no problem with the snake, ERM etc. It’s the euro I don’t like.

    I agree the northern euro might survive, and indeed be a success. I never said otherwise. Lots of possible euro systems might had worked, Just not this one.

  40. Gravatar of Bonnie Bonnie
    21. July 2012 at 10:54

    I don’t see the economic problems being strictly related to central banks or currency arrangements. I see them as being the result of overlapping errors by big government that include both public policy and the failure of central banks to serve their general intent of stabilizing economic effects of public policies, an example being the oil/energy shock that started in 2005 and subsequent tightening by central banks as a result. We do not have a free market in energy. We are locked into the use of selected energy commodities by public/tax policy; otherwise we would be able to freely flex which products we use based on price sensitivity. Instead we have a de facto regulatory ban on the use of a wide range of energy commodities such as natural gas for transportation, and miles of red tape in order for energy markets to change as needed. And it certainly doesn’t help that central banks tightened when we encountered supply issues related to government-selected energy commodities that government neglects to solve. The arrangement of the euro zone likely makes the management of such issues far more difficult than necessary, but it is only a contributing factor if the euro zone ultimately collapses. I think it is not only the euro that is in danger, but the entire EU governance structure will collapse as well if and when folks get on to a more plausible explanation for the fiasco than sovereign debt and labor policies. I don’t believe that either of those are the cause, but rather complications with energy policies started the snowball rolling down the hill into a mass of unworkable overall market micromanagement and central bank imbecility.

    As for whether one can be a libertarian if one supports NGDP targeting, I suppose I really can’t be a judge. I am not one, but rather a classical liberal which I do not relate as being synonymous with libertarian. I support practicality over dogma and I see having the central bank as being practical for the moment (if it would just follow the law) because it is already there and taking it away tomorrow would only complicate our problems. We, as a society, have not come so far as to reject entirely the notion of the need for government involvement in markets and while those things exist, we need to have currency management to keep overreaches and power grabs from killing us entirely. And that separates me from my counterparts on the right who believe that changes in public points of view need to come from self-inflicted economic pain instead of first winning the ideological debate and then the vote. The pain can happen naturally; government doesn’t really need any help, as demonstrated of late by the epic failure of the Fed, but I don’t see a need to overplay the hand by making up excuses to substitute it for another kind of monetary statism and even more pain, like imposition of hard money on top of the mass of market interventions that currently exist.

  41. Gravatar of John David Galt John David Galt
    21. July 2012 at 11:24

    The existence of the euro, or even the EU, is simply not the cause of the current fiscal troubles of its members. The major causes, from a libertarian standpoint, boil down to two: huge welfare states (along with the expectations/demands they foster on the part of the public); and nanny-statist labor laws which make it so potentially expensive to hire people that large segments of the population in affected countries are driven out of the legal labor market (either onto welfare or into the illegal economy).

    So gloating as you would like us to would be blaming the wrong cause, and not only dishonest but easily found out.

    In addition, gloating more or less requires the assertion that you yourself are better than the people gloated at — and the US is probably less than ten years away from collapsing from the very same causes. Let’s put our own glass house in order before throwing any stones.

  42. Gravatar of Curious Bystander Curious Bystander
    21. July 2012 at 13:03

    ssumner: «Curious, Yeah, NGDP proponents like Hayek and me aren’t real libertarians. Only you get to decide who counts.»

    Borges has in one of his stories a wonderfully ironic phrase. It is a about a theologian who started to look in the Bible for a confirmation of his theory and «had found two».

    That’s how you have read Hayek? I’m asking, because Hayek’ understanding and approach to economics is worlds apart from what you practice. To quote:

    «The statistical approach, unlike deductive inference, leaves the conditions under which established economic relations hold good fundamentally undetermined; [..] A priori we cannot expect from statistics anything more than the stimulus provided by the indication of new problems»

    «If, therefore, monetary theory still attempts to establish causal relations between aggregates or general averages, this means that monetary theory lags behind the development of economics in general. In fact, neither aggregates nor averages do act upon one another, and it will never be possible to establish necessary connections of cause and effect between them as we can between individual phenomena, individual prices, etc.»

    See? _Neither aggretates nor averages do act upon another_ And again: _Neither aggretates nor averages do act upon another_ That’s Hayek. Your ally? Yours, whose bread and butter are RGDP, NGDP, GDP and CPI?

    There’s also the curious circumstance that your EMH markets are higly un-hayekian. «Hayekian» markets works trough feedback and are a discovery processs. «Yours» mostly trough mystics are already always right.

    Except… one. The labor market were wages are never flexible enough to make a monetary stimulus unnecessary (And you an unsaviour, by implication). But at least, the TIPS markets tell you what the inflation will be 30 years from now. Now, that’s a good, good, market, maybe, Fed will let it have some cookies.

    Of course, you are not bound in any way to share the same POV on markets as Hayek did, but it makes you attempts to hide from libertarians behind Hayek’s back kind of silly.

    Just one more thing. I neither understand nor care why are so sensitive when some questions your libertarian creed, but I have a suggestion which may clear some confusions. Just call yourself a Big Fed Libertarian.

  43. Gravatar of Major_Freedom Major_Freedom
    21. July 2012 at 15:25

    ssumner:

    Curious, Yeah, NGDP proponents like Hayek and me aren’t real libertarians. Only you get to decide who counts

    It isn’t rocket science. Libertarianism is adherence to the NAP (non-aggression principle). If you support violations of the NAP, which is the case for both you and Hayek, and the entire Cato crowd, then you’re not libertarians.

    What is the complication here?

  44. Gravatar of Negation of Ideology Negation of Ideology
    21. July 2012 at 15:54

    http://dictionary.reference.com/browse/libertarian

    libertarian -
    1. a person who advocates liberty, especially with regard to thought or conduct.

    2. a person who maintains the doctrine of free will ( distinguished from necessitarian).

    Almost everyone I know fits the first, and most fit the second definition. The word provides almost no insight into anyone’s thinking. Don’t liberals believe spending on income redistribution, education and health care gives people more liberty? Don’t conservatives believe spending on police and military gives people more liberty?

    It seems that most people who call themselves libertarians these days either favor the government running a giant gold store or want to abolish government altogether. Neither of which would increase my freedom one bit. Milton Friedman called himself a libertarian and invented monetarism, argued against price controls (including the gold standard), favored school vouchers and a negative income tax.

    I know your ban on the word “inflation” didn’t take, but maybe you could try a ban on the word “libertarian”. People should just say what they are for and what they are against, give their reasons, and quit arguing about who belongs to the one true church of libertarianism and who should be excommunicated.

  45. Gravatar of ssumner ssumner
    21. July 2012 at 18:04

    Curious, I could care less whether people claim I’m a libertarian. A large percentage of libertarians are nuts (also true of other ideologies.) I have my own views, and people can call me what they wish.

    I don’t see you acknowledging that Hayek favored NGDP targeting.

    Negation, If there are 310,000,000 Americans, we’d need 310,000,000 labels to distinguish among all their political beliefs. It’s hopeless.

  46. Gravatar of Tim Tim
    21. July 2012 at 18:33

    Hi Scott
    Do you think the Euro helps Germany in the same way that it hurts countries like Greece, Portugal and Spain?

  47. Gravatar of Curious Bystander Curious Bystander
    22. July 2012 at 00:05

    ssumner: «I don’t see you acknowledging that Hayek favored NGDP targeting.»

    First, I do not exactly like engaging in Economic Patristics. What matters is not whether X, Y or BS favored such and such position, but for what reasons. And whether those reasons were good or lousy.

    Seconnd, where exactly did Hayek «favor» it? He, certainly, didn’t favor NGDP targeting neither in «Prices and Production» nor in «Monetary Theory and the Trade Cycles». His recomendation was «a circulating medium wich doesn’t vary in amount» and his hope was «the growing information of the public may make it easier for central banks both to follow a cautious policy during the upward swing of the cycle, and so to mitigate the following depression, and to resist the well-meaning but dangerous proposals to fight depression by “a little inflation.”»

    The only case of Hayek caming close to something like NGDPT is his opinion that Fed should have prevented the secondary deflation. But this doesn’t let you of the hook, because someone who did not want Fed to prevent the primary deflation is hardly engaging in NGDPT.

    And Hayek as a secondary deflation preventer had to abuse Hayek the «knowledge problem» theorist. Because how is a poor, good intentioned, CB head to tell the difference between the primary and secondary deflation? And, of course, Hayek, did in no way subscribe to the view that is the fall in AD which cause depressions, a belief which is essential to your views.

    So I do not acknowledge that Hayek favored NGDP targeting. I acknowledge an epizode which can be interpreted in such by an intelectually lazy/dishonest person. Your call?

  48. Gravatar of libertaer libertaer
    22. July 2012 at 01:37

    John Becker,

    I’m libertarian, so I can’t approve of forced testosterone injections, but I like the idea :-)

    Inflation targeting is the wrong mandate. I’m with Nick Rowe who sees recessions as a monetary phenomenon, an excess demand for the medium of exchange. Because of low testosterone, people want safe assets. Since short term interest rates for safe assets are already zero, they misuse the medium of exchange as a safe asset. This misuse has to be stopped.

    Take this analogy: Dollar bills have the non-essential property of carrying pictures of dead presidents. Let’s say people have an excess demand for these pictures and start hoarding dollars. What do you do? In this case you could just print dollars without the pictures. Because pictures of dead presidents are not what money is about.

    If people misuse money as a safe asset because money has the non-essential porperty of being a store of value (which is as non-essential to money as pictures of dead presidents)then you have to destroy or diminish the store of value property. Make money a hot potatoe by raising inflation expectations!

    That’s perfectly fine with libertarianism. Another analogy: think of a privately owned highway. If you want to use this highway, you have to accept a maximum and a minimum speed limit to prevent traffic jams. If you don’t like this kind of velocity control, don’t use the highway. You are not forced to do it. It’s your way or the highway!

    In Europe money users are in a traffic jam because the ECB messed up its velocity control! Sumners NGDLT proposal is good way to dissolve this jam.

  49. Gravatar of Robert Ve Robert Ve
    22. July 2012 at 08:39

    “PS. I don’t even know whether Mitchell or Cochrane self-identify as libertarians. I’m using the term loosely to designate people who clearly have pro-free market views.”

    So really you are misusing the term libertarian. No wonder they aren’t gloating.

  50. Gravatar of ssumner ssumner
    22. July 2012 at 09:58

    Tim, No.

    Curious, He explicitly endorsed NGDP targeting, and indeed all the more intelligent Austrians I know have acknowledged that fact. I don’t recall where, but it’s not a disputed issue.

  51. Gravatar of Pietro Poggi-Corradini Pietro Poggi-Corradini
    22. July 2012 at 09:59

    Scott, I find monetary theory very hard but i’m warming up to your critique. I hope you keep writing.

  52. Gravatar of Gene Callahan Gene Callahan
    22. July 2012 at 10:27

    “It isn’t rocket science. Libertarianism is adherence to the NAP (non-aggression principle). If you support violations of the NAP, which is the case for both you and Hayek, and the entire Cato crowd, then you’re not libertarians.

    “What is the complication here?”

    The complication is that neither you nor anyone else gets to define words to mean what you’d like them to mean. Words are defined by their usage. If 99% of people define a position like Hayek’s as libertarian, and you and Rothbard and Block call it “socialism,” sorry, you lose.

  53. Gravatar of Major_Freedom Major_Freedom
    22. July 2012 at 10:43

    Gene Callahan:

    The complication is that neither you nor anyone else gets to define words to mean what you’d like them to mean.

    Then you cannot argue against the definition I provided, lest you belie your own thesis.

    Words are defined by their usage.

    I and other libertarians define libertarians as adherence to the NAP.

    If 99% of people define a position like Hayek’s as libertarian, and you and Rothbard and Block call it “socialism,” sorry, you lose.

    Except 99% of the people don’t define libertarianism as “Violations of the NAP when Hayek believes it’s OK.”

    When you and other non-libertarians who support violations of the NAP claim to be libertarians, then sorry, you lose.

  54. Gravatar of Major_Freedom Major_Freedom
    22. July 2012 at 10:45

    Curious Bystander:

    The only case of Hayek caming close to something like NGDPT is his opinion that Fed should have prevented the secondary deflation. But this doesn’t let you of the hook, because someone who did not want Fed to prevent the primary deflation is hardly engaging in NGDPT.

    Good point. This is going over the heads of those advocates of NGDPLT who believe Hayek would have supported it.

  55. Gravatar of Curious Bystander Curious Bystander
    22. July 2012 at 15:13

    ssumner: «Curious, He explicitly endorsed NGDP targeting, and indeed all the more intelligent Austrians I know have acknowledged that fact. I don’t recall where, but it’s not a disputed issue.»

    Scott, you’re wrong. Deal with it. I blame Greg Ransom for the confusion. And you for not checking your sources better. Read this: http://hayekcenter.org/?p=5401 and weep. Despite Greg’s misleading title Hayek speaks for himself and the policy he is favoring is not NGPT targeting.

    P.S. Did Bob Murphy make it into your list of intelligent Austrians? Not only, did he not acknowlege it. He called you on it.

    Major, I’m not exactly sure, but it seems like Hayek was firmly against money creation (especially via credit expansion), but also against the desctruction of already created (via credit expansion) money. Irrespective, of the merits of such stance, this is obviously not NGDP targeting.

  56. Gravatar of Major_Freedom Major_Freedom
    23. July 2012 at 10:01

    Curious Bystander:

    Major, I’m not exactly sure, but it seems like Hayek was firmly against money creation (especially via credit expansion), but also against the desctruction of already created (via credit expansion) money. Irrespective, of the merits of such stance, this is obviously not NGDP targeting.

    I agree. Please note that Hayek was not consistent in the sphere of money and spending. He’ll write that he would be against nominal incomes from falling, but then he’ll write that a world of independent central banks should mimic a world central bank as closely as possible so as to avoid international instability, which of course would entail country level fluctuations in NGDP, not NGDPLT, and he’ll write a book on why central banks should be abolished and arguments for a free market in money.

    I don’t dishonestly use Hayek for my own agenda the way some people do, by cherry picking favorable quotes and ignoring unfavorable quotes. Adam Smith is used in the same way. My conviction is that the reason Hayek and Smith are more popular than the systematically more logical (“extreme”) intellectuals is precisely because they made contradictory quotes that seem to favor both socialism and capitalism, so they have found supporters from all along the ideological spectrum who believe Hayek and/or Smith are “on their side”, whereas the contradictory writings are really just nudge nudge wink wink “This is to shut up the other side” statements so as to make their writings more palatable.

    This idea derives from the intellectual figurehead of neoconservatism, Leo Strauss. He believed the authors of the Great Books of the world did not say what they really thought, for fear of intellectual persecution, and so they instead cryptically revealed their true thoughts in such a way that, of course, only Straussians can discern. There are ideas for only the philosophers’ minds, and a different set of ideas for the dull masses who cannot handle the dangerous thoughts of the philosophers.

  57. Gravatar of ssumner ssumner
    24. July 2012 at 03:27

    Curious, That quotation supports my argument.

  58. Gravatar of Curious Bystander Curious Bystander
    24. July 2012 at 11:55

    ssumner: «Curious, That quotation supports my argument.»

    It doesn’t. Trying to prevent «an absolute decrease in the stream of incomes» is not the same as NGDP targettng.

    Even more so, being against both inflation and deflation. Which are both embedded in your «5% NGDP growth no matter what» proposal.

  59. Gravatar of George Selgin George Selgin
    26. July 2012 at 18:55

    Curious Bystander:

    “The only case of Hayek caming close to something like NGDPT is his opinion that Fed should have prevented the secondary deflation. But this doesn’t let you of the hook, because someone who did not want Fed to prevent the primary deflation is hardly engaging in NGDPT.”

    Major Freedom:

    “Good point. This is going over the heads of those advocates of NGDPLT who believe Hayek would have supported it.”

    Either neither of you has actually read Hayek’s early monetary writings (see Prices and Production and the ESS essay “Saving,” for starters) or Hayek has himself gone over your heads. In any event Hayek explicitly treats constancy of MV as a monetary ideal, albeit one he considers best (if only very roughly) approximated in practice a the classical gold standard, in these works.

  60. Gravatar of Curious Bystander Curious Bystander
    27. July 2012 at 13:58

    George Selgin: «Hayek explicitly treats constancy of MV as a monetary ideal»

    Maybe, I’m missing something big here, but how is MV the same as NGDP? NGDP only includes money payments for final products as opposed to MV, and yes Hayek in PP looks at the case (and implications) of vertical intergration of firms. This will make some monetary transactions disappear. But while this will decrease MV it will most probably increase NGDP. So how this is the same?

    And how constancy is the same as a perpetual 5% growth?

    «…albeit one he considers best (if only very roughly) approximated in practice a the classical gold standard»

    - please, tell this to Scott Sumner. If not just now, then next time he tries to conscript Hayek as his intelectual ally.

  61. Gravatar of ssumner ssumner
    28. July 2012 at 13:11

    Curious, You said;

    “Maybe, I’m missing something big here, but how is MV the same as NGDP?”

    Oh my God! V is defined as NGDP/M. Do the math.

  62. Gravatar of Curious Bystander Curious Bystander
    28. July 2012 at 14:36

    Actually it is not me missing something here. It is Selgin. And you.

    Fisher quantity equation is MV = PT (price level times transactions). And that is, obviously, the MV Hayek had in mind, not it’s current version.

    So my point stands. Hayek was not Sumner.

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