Will Krugman ban the term ‘inflation?’ Let’s hope so.

Three years ago I did a post suggesting that we stop using the term ‘inflation,’ as it just causes confusion.  People wonder how higher inflation could help us.  ”How are Americans better off if we have to pay $4.50 for gas?”  The problem is that there is both AS and AD driven inflation, and most people instinctively think of the supply-side inflation, which reduces the real incomes of Americans, not the demand side inflation (that Paul Krugman and I want) which raises the real income of Americans (when there is slack in the economy.)

So I prefer to talk about NGDP as my nominal/AD indicator.  Indeed if I had my way I would ban the term “aggregate demand,” and just talk about nominal and real shocks.  What we call the “AD curve” would be a rectangular hyperbola relabeled the “nominal spending curve” or NS curve.  This isn’t just more understandable, it’s also more accurate.  Krugman and I don’t want more inflation, we want more NGDP, and for any given increase in NGDP that the Fed or ECB is able to engineer, we’d actually prefer to see more real growth and less inflation.

Maybe I’m reading too much into this, but it seems to me that Paul Krugman is accepting the logic of my “ban inflation” argument, at least as a pedagogical device.  (BTW, I don’t claim that Krugman now views his inflation-centered models as theoretically unsound, just confusing to average readers.)  See what you think:

I’ve been writing for a long time about how the euro area needs more inflation. But I suspect that many readers don’t quite see how this ties into the macro story.

.   .   .

So, imagine a currency area with just two countries, Spain and Germany, which I’m going to represent in an aggregate supply-aggregate demand framework.

On demand, I’ll make two assumptions I don’t believe. The first is that the ECB can determine nominal GDP for the euro area. Under liquidity-trap conditions, this is a very problematic assumption, and I don’t mean to drop my skepticism for other purposes. For right now, however, it’s useful, I think, to use nominal GDP as a proxy for the whole range of possible expansionary policies the ECB might follow.

By assuming that the ECB chooses nominal GDP, we get an aggregate demand curve for the euro area as a whole: Py = Y, where P is the price level, y is real GDP, and Y is the target nominal GDP.

At least we’ve nudged him to start talking in terms of models he “doesn’t believe.”  Now if only we can get him to believe those models.

HT:  Mark Sadowski, who provides some other comments that are quite persuasive.


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105 Responses to “Will Krugman ban the term ‘inflation?’ Let’s hope so.”

  1. Gravatar of RonT RonT
    30. July 2012 at 06:56

    Neither you nor Krugman know how can we get the demand-side inflation without the demand coming first. It is like saying “if we had ham we could have ham and eggs. If we had eggs”. Typical for economists: assume we have a can opener. How to close an output gap? I have an idea! Let’s start with closing the output gap! Brilliant.

    Before you deal with the private debt overhang the demand is not coming. And neither is inflation.

  2. Gravatar of david david
    30. July 2012 at 07:42

    I don’t get it. If you believe in debt overhang, you would also believe that inflation would help: it reduces the real value of said debt.

    It sounds like someone has been reading heterodox economists without really understanding what their theory is. Hint: their theory isn’t that inflation doesn’t help, it’s that the central bank has no traction on inflation.

  3. Gravatar of dwb dwb
    30. July 2012 at 08:01

    and here we go. 37234 posts by Austrians about inflation. 4587 posts by MMTrs like Ron T who dont understand inflation or monetary policy and cant be bothered to read an econ text. 4 or 5 posts on Krugman bashing and models.

    excellent blogging, btw. I hope all those eyeballs brings tons of ad revenue.

    Krugman’s post and mention of nominal income made me feel like we have turned a corner, because the ECB *can* determine inflation for the euro area, it just has to page Chuck Norris.

  4. Gravatar of Wadolowski Wadolowski
    30. July 2012 at 08:13

    Professor Sumner do you think that the economic category of debt is in any sense relevant to the general model???

    Is there any link between debt and NGDP Targeting?

    Some say that we’re in delevaraging process so the amount of resources which could be channelled to investment are use to deleverage.

    How do you find that stance???

    Is there any useful essence in Minsky-Keen theory???

    http://www.debtdeflation.com/blogs/2012/01/03/the-debtwatch-manifesto/

    Or do you think like Barro about public deficits, that Ricardian Equivalence proves that public deficits don’t matter.

    Do private debt don’t matter either?

    http://www.economist.com/node/21543139

  5. Gravatar of Major_Freedom Major_Freedom
    30. July 2012 at 08:41

    ssumner:

    Three years ago I did a post suggesting that we stop using the term ‘inflation,’ as it just causes confusion. People wonder how higher inflation could help us. ”How are Americans better off if we have to pay $4.50 for gas?” The problem is that there is both AS and AD driven inflation, and most people instinctively think of the supply-side inflation, which reduces the real incomes of Americans, not the demand side inflation (that Paul Krugman and I want) which raises the real income of Americans (when there is slack in the economy.)

    There is only one inflation: Increase in the money supply. This has the effect, provided demand for money is unchanged, of making prices higher than they otherwise would have been. The latter is what Keynesian and Monetarist economists define inflation to be.

    The latter definition often leads to confusion, because it tends to lead people to equivocate healthy price deflation (prices falling due to increased productivity) and unhealthy price deflation (prices falling due to decreased money supply).

    “Bad” price deflation charges end up being leveled against periods of high real growth, despite the fact that the falling prices is healthy (think the electronics industry).

    Thus, I propose that we not become Orwellians and do not ban English words from the dictionary because they lead to political agitation contrary to one’s own desired political agitation. Those who want to ban words from the dictionary for political purposes are those who intend to pull the wool over people’s eyes because they know their politics are exploitative.

    ———————-

    As expected, the pro-inflationist argument ignores the Cantillon Effect, and equivocates “Americans”.

    It is ignored that Americans last in line to the printing press actually do experience a reduction in real income, due to a reduction in the purchasing power of their nominal incomes. We’re supposed to temporarily ignore these Americans. We’re supposed temporarily fade them out of memory for the moment. With inflation, we’re supposed to focus only on those Americans who receive the new money first, who do experience an increase in real income due to them gaining purchasing power at the expense of those last in line. These people then become the “Americans” who gain from inflation.

    Someone whose income rises at a slower pace than the rise in prices of the goods he buys, which actually characterizes a substantial number of wage earners by the way, these people will in fact lose purchasing power and hence will in fact experience a reduction in real income no matter what the “slope” of the AS curve happens to be, which by the way is unobservable and so must be inferred a priori, and in typical inflationist fashion, it is always conveniently inferred as upwards sloping during a recession, as if inflation helps every American equally.

    ————-

    Inflation of the money supply does not and never has affected idle resources and idle labor first before it affects used resources and labor. This is a myth that results from a failure to understand the mechanics of inflation. Inflation almost always primarily affects used resources and employed persons. The effects on idle resources and idle labor are secondary. This is because owners of used resources and owners of used labor tend to outcompete owners of idle resources and of idle labor for new credit that is expanded by banks, and it is new credit which characterizes most of the new money created during an inflation. Credit actually takes up the overwhelming majority of the aggregate money supply.

    So I prefer to talk about NGDP as my nominal/AD indicator. Indeed if I had my way I would ban the term “aggregate demand,” and just talk about nominal and real shocks.

    This is how central planning intellectuals think. They want to ban words because they cause too much political agitation from “the enemy”, which is individuals making their own choices contrary to the central planner’s plans.

    What we call the “AD curve” would be a rectangular hyperbola relabeled the “nominal spending curve” or NS curve. This isn’t just more understandable, it’s also more accurate. Krugman and I don’t want more inflation, we want more NGDP, and for any given increase in NGDP that the Fed or ECB is able to engineer, we’d actually prefer to see more real growth and less inflation.

    Not Krugman. He would question the given NGDP and call for it to be increased if prices for goods were falling. Market monetarists want 5% NGDP come hell or high water. Krugman believes falling prices are always bad, because he is one of those confused in the way I described above, of conflating “good” deflation with “bad” deflation.

    ————————-

    N.B. I do not find NGDPLT theory “persuasive”. Hence, according to the (self-contradictory) Rortian philosophy, there is no obligation on my part to accept the theory.

  6. Gravatar of Mark_H Mark_H
    30. July 2012 at 08:42

    “Under liquidity-trap conditions, this is a very problematic assumption”

    Has Krugman ever responded in his blog or columns to people like Sumner who say that monetizing the debt is a sure-fire way to increase NGDP (or else, if it does not cause inflation to rise, then the entire debt can be repaid with printed money)?

  7. Gravatar of Floccina Floccina
    30. July 2012 at 09:03

    BTW why use “NGDP” trather than “total spending” or “aggregate spending”.

  8. Gravatar of Saturos Saturos
    30. July 2012 at 09:27

    Arrgh swallowed my comment!

  9. Gravatar of Saturos Saturos
    30. July 2012 at 09:28

    Ok then, let me repeat some:

    dwb, yes MMT is remarkably popular amongst folks that have never read an Econ 1 textbook, isn’t it?

    Floccina, because NGDP is the observed statistic.

  10. Gravatar of Saturos Saturos
    30. July 2012 at 09:37

    Scott, is this you? http://io9.com/5929667/why-do-we-hate-seeing-photos-of-ourselves

  11. Gravatar of Floccina Floccina
    30. July 2012 at 09:41

    So Major_Freedom if you have your preferred gold standard and prices fall and so bunches of people go into gold mining and inflation starts up, is that bad or good?

  12. Gravatar of Nick Rowe Nick Rowe
    30. July 2012 at 09:41

    As I was reading PK I thought: “Scott is going to really like those AD curves!”

  13. Gravatar of Doug M Doug M
    30. July 2012 at 10:13

    By the theroy of AD and AS as it was tought to me in school, an increase in AD cannot create iflation if the economy is opperating below capacity. Not that that theory is correct.
    I have a lot of problems with AD / AS — and AD inflation vs. AS inflation is bullshit.

    Demand is essentially infinate. If we have a surplus of labor (i.e. unemployment) it is because the price level (real wages) has not found its market clearing level. A small increase in inflation, may help the real wage to adjust. However, as wages are a function of the present value of future output, high inflation would not help to find a market clearing real wage.

  14. Gravatar of Mike Sax Mike Sax
    30. July 2012 at 13:38

    There seems to be a certain groundswell among some economists lately to question the GDP guage as such:

    Last August, Graeme Maxton published a book arguing that “modern economics has failed us,” and this April, the New York Times hosted a roundtable “about how the teaching of economics should change in light of the financial crisis.”

    “This soul-searching has led to the establishment of organizations such as the Institute for New Economic Thinking and invigorated discussions about alternative metrics for gauging countries’ welfare (last July, in fact, the UN General Assembly adopted a resolution asserting that “the gross domestic product indicator by nature was not designed to and does not adequately reflect the happiness and well-being of people in a country”).”

    http://bigthink.com/power-games/empirics-and-psychology-eight-of-the-worlds-top-young-economists-discuss-where-their-field-is-going?page=all

  15. Gravatar of Bill Ellis Bill Ellis
    30. July 2012 at 14:20

    Great post, and so was the one from three years ago. For me… eye opening.

    I don’t think I ever thought about how lazily the word inflation is employed.

    Banishing “inflation” would require policy makers to look our large range of problems in a more targeted ways. A good thing. Economists use it as a crutch. A bad thing.

    Funny, “banning words” sounds so Orwellian. And of course the reason to control and reduce language is to control and limit thought. But in this case it would actually have the opposite effect, it would impose the need for more detailed thought and a greater variety of language.

    (I know you don’t literally want to ban the word…Did I need to say that ? )

  16. Gravatar of Major_Freedom Major_Freedom
    30. July 2012 at 14:22

    Mike Sax:

    There seems to be a certain groundswell among some economists lately to question the GDP guage

    That is not a recent phenomenon. Your characterization of economic history is flawed.

  17. Gravatar of Major_Freedom Major_Freedom
    30. July 2012 at 14:35

    Floccina:

    So Major_Freedom if you have your preferred gold standard

    I don’t prefer a gold standard. I prefer a free market in money production. Let the best money win peacefully in accordance with respect for private property and economic freedom.

    Being against fiat money doesn’t mean that one prefers gold. I prefer a process to decide what money people use, not what money they must use by law.

    and prices fall and so bunches of people go into gold mining and inflation starts up, is that bad or good?

    Typically inflation does heat up in a gold standard, unless there is an abnormal discovery of gold, and then it’s only a one shot inflation with temporary effects. In general, falling prices on the basis of productivity doesn’t lead to more gold mining. What does lead to more gold mining is if the relative profitability of gold mining rises as compared to the profitability of non-gold commodities, that capital is redirected away from non-gold production, to gold production.

    This change in relative profitability will occur when the relative demands between owning gold and owning commodities changes in favor of gold. When people prefer to own relatively more gold, then the relative profitability of gold production will rise, signalling to investors that they can earn more profits by investing less in other commodities and more in gold.

    This process cannot be mimicked by central banks, because central bankers do not know the relative profitability of producing fiat money as compared to other goods, because their operations are external to the market process itself. This is why arbitrary rules are introduced as a replacement, such as “whenever aggregate spending is expected to fall, then print however much money is necessary that will result in total spending rising by 5%.” This is counter-productive because in a free market of money production, declines in spending and rise in money preference does not result in an increase in the production of money that will result in 5% total spending growth. The increase in money production will be a function of profitability, not spending.

    People wanting to hold more money can result in total spending falling, if the profitability of additional money production isn’t as high as what would result in so much additional money production so as to result in 5% higher spending. This is especially the case during correction periods after a prolonged period of inflation. During these periods, there is a collapse in the value of accumulated savings and capital. This is the proximate cause for subsequent declines in spending, as entrepreneurs work to reallocate resources and labor to more highly valued uses which means not continuing the previous spending patterns.

    Non-market monetary inflation, even inflation that targets total spending, only hampers this process of recovery because it distorts price signals that are a consequence of real market preferences given resource scarcity.

  18. Gravatar of RonT RonT
    30. July 2012 at 14:36

    David,
    Not sure what u have problems with. Exacly what I said: CB cannot start demand inflation as hetero econ says. Yes inflation might help (demand one) but it is not coming.

  19. Gravatar of RonT RonT
    30. July 2012 at 14:39

    David,
    Not sure what u have problems with. Exacly what I said: CB cannot start demand inflation as hetero econ says. Yes inflation might help (demand one) but it is not coming.

  20. Gravatar of RonT RonT
    30. July 2012 at 14:39

    David,
    Not sure what u have problems with. Exacly what I said: CB cannot start demand inflation as hetero econ says. Yes inflation might help (demand one) but it is not coming.

  21. Gravatar of Mike Sax Mike Sax
    30. July 2012 at 14:45

    “That is not a recent phenomenon. Your characterization of economic history is flawed.”

    Major, so you’re qubbling around the edges as usual? what else is new? I didn’t say that no one prior to now has been questioning GDP, I’m familiar with many who have in the past.

    However in certain insitutional circles it has picked up a new intensity. This is as much of a red herring on your part as when you claimed that I said success is based solely on luck.

  22. Gravatar of Major_Freedom Major_Freedom
    30. July 2012 at 14:50

    Mike Sax:

    That is not a recent phenomenon. Your characterization of economic history is flawed.”

    Major, so you’re qubbling around the edges as usual?

    Actually it was a simple correction.

    I didn’t say that no one prior to now has been questioning GDP

    I didn’t say you did say “no one prior to now” has questioned it.

    I’m familiar with many who have in the past.

    It’s always been around.

    However in certain insitutional circles it has picked up a new intensity.

    Which institutional circles?

    This is as much of a red herring on your part as when you claimed that I said success is based solely on luck.

    I never said you claimed success is solely a product of luck. You keep accusing me of saying that, when I never did. Stop lying.

  23. Gravatar of Bill Ellis Bill Ellis
    30. July 2012 at 15:00

    Mike,
    Good link. Of course the problem is how do we quantify “happiness and well-being ” ?

    Gauging happiness is impossible, but well-being has some measurable indicators…Like access heath care, food and shelter.
    I would like to see some gauge of “public wealth” that would include things, the value of healthcare, and retirement…so that when tax and budget policy are being debated the public would have a clear figure, a single metric to see how much well-being-wealth they were going to lose or gain.

  24. Gravatar of Bill Ellis Bill Ellis
    30. July 2012 at 15:02

    Mike,
    why bother ?

  25. Gravatar of Mark A. Sadowski Mark A. Sadowski
    30. July 2012 at 15:07

    Nick Rowe,
    “As I was reading PK I thought: “Scott is going to really like those AD curves!””

    I did a methodical check of Krugman’s archives. Remarkably, although he has used IS-LM diagrams several times, which I think are far more cumbersome to explain to laypeople, this was the very first time he ever put AD-AS diagrams into a blog entry.

    I’m glad he did it if only for the fact I can actually point Keynesians to it and say “See, even Krugman uses them.”

    I have to confess the sight of them actually gave me goosepimples, but then most people consider me exceptionally odd.

  26. Gravatar of Morgan Warstler Morgan Warstler
    30. July 2012 at 15:10

    Bill Ellis,

    The public has broadband, and 150 TV channels, and essentially free global calling, and UNLIMITED free knowledge for ANYTHING they would want to do.

    1. How do you quantify that?

    2. If anyone spends 10 hours a day for the next 3 months, no matter what, at Code Academy forcing themselves to learn to code – they will get a job, be able to earn income past where they are now – in almost any other field. How do we “ding” all those people who don’t take the initiative?

    3. I can’t help but sense that whatever you mean by “public good” is something that is provided to people NO MATTER what kind of loser they are, no matter what kind of lazy slug they may be.

    The public doesn’t “lose” things they don’t pay for – the govt. can’t actually GUARANTEE anything unless someone actually pays for it.

    So the Guarantee is only as great as the total amount that the folks who put in more than they take out, put in and take out.

    Imagine a govt. that had to:

    1. serve only the bottom half.
    2. run on money they only got from the bottom half.

    What kind of public goods do you think they’d be getting?

  27. Gravatar of Morgan Warstler Morgan Warstler
    30. July 2012 at 15:13

    “Nearly every day someone expresses surprise that our base case is for the equity market to be down by 10-15 percent. Why is this so hard to believe? The market has had eight 10 percent down moves in the last 12 years,” Parker said. “We think a better question is why more people don’t forecast that the next 10-15 percent move is down than up?”

    Parker cites weak earnings and the likelihood that central bankers won’t be able to continue to save the day as bolstering the case against equities. The near-zero interest rate policies from the Federal Reserve and now the European Central Bank, in fact, are weakening the outlook for stock multiples, he said.

    The conclusion Parker draws is that investors are betting that Romney will unseat President Obama and bring a more business-friendly environment to the White House.

    “At the end of the day, we are not really worried that Europe is going to be ‘solved’ or that its economy will strongly grow. We also don’t think strong corporate profitability relative to expectations will save the day,” he said.

    “To us, the biggest bull case for US equities is based on the huge cash balances and the potential belief that they will be more actively and productively deployed. The biggest possibility here would be Romney winning the presidential election.”

    http://www.cnbc.com/id/48400076

  28. Gravatar of Benny Lava Benny Lava
    30. July 2012 at 15:18

    I somewhat agree. I prefer to think of it as purchasing power. Sometimes during inflation purchasing power increases. Sometimes it decrease. Sometimes it stays the same. The inflation itself is not as important as the purchasing power.

    This year there is a terrible drought that will cut food production; a price increase will follow. This is inflation that is bad because it reduces purchasing power. Funny though some people will deny that this sort of inflation ever happens. Anyways I think on this we mostly agree, since it is a reduction in aggregate supply.

    If we live in a world where commodities can no longer keep pace with demand, what does that mean for AD, AS, and purchasing power (and the I word of course). I suspect it means that we are in for deflation.

  29. Gravatar of Mark A. Sadowski Mark A. Sadowski
    30. July 2012 at 15:22

    @dwb and Saturos,
    You may or may not realize it but Nick did a recent post asking armchair economists to please read a principles textbook:

    http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/07/can-you-please-read-a-first-year-textbook.html

    I actually left a comment there begging them to please read the section on the AD-AS model so I don’t have to explain it for the gazillionth time to people who’ve read virtually everything under the sun ever written by Marx, Sraffa, Kalecki, Lerner, Kaldor, Robinson, Minsky etc. but somehow have never found the time to open up a plain old Econ 101 textbook.

  30. Gravatar of Edward Edward
    30. July 2012 at 15:28

    To those of you who are new to this blog, I’ll give a short summary as to why you shouldn’t listen to our resident troll, Major (Un)Freedom

    1. Cantillon Effects.

    Major keeps yammering, on and on, and on and ON about Cantillon Effects. While I agree that Cantillon Effects, (first in line to new money steals purchasing power from the last). represent a problem, its a minor one. First Cantillon effects could exist anywhere, even in a private market economy. Second, those last in line are hardly powerless against monetary inflation. I like to think of Cantillon Effects as a similar situation to when a corporation issues new stock. What happens to the previous or older stockholders, they get diluted, all things being equal. IF THEY DONT LIKE THIS THEY CAN DUMP THE FRIGGIN STOCK!. If cash savers want to protect their purchasing power they can buy gold, (Capital gains taxes are no big deal) silver, platinum, TIPS, or high quality stocks. What major and all the other Austrian trolls are asking for is for cash savers to receive a return on their cash in excess of all other returns in the economy. an abnormally high risk free return. What constitutes abnormally high? When The economy is growing nicely at five percent nominal NGDP growth, and yet their is three percent deflation, That isn’t a problem because the deflation is minor burden on the red hot growth of the real economy. Its similar to when you add a risk free rate on government bonds to your discounted cash flow analyses of stocks. But when the economy is contracting at -5% NGDP the deflation and expected premium on cash EXCEED the expected value of other investments in the economy. Cash Savers get a deflation adjusted profit just by sitting on their cash, at the expense of everything else going to hell in a hand basket. So when Major Freedom sheds crocodile tears for cash savers, bear this in mind. What he is really asking for is a risk free handout to them, AT THE EXPENSE OF THE REST OF US! Nice, huh? Oh and by the way, when people sit on cash, it isn’t because they want to increase their purchasing power. Thats the stupidest thing I’ve heard in my life. cash hoarding is precautionary, nine times out of ten, both by corporations and individuals. If they want to increase their purchasing power, they can invest in non cash assets.

    2. Austrian Business Cycle Theory. This zombie has been slain so many times and yet it just won’t die. A lot of people have killed it, just look up on google, refutation ABCT, anti-Austrian or something along those lines
    Just the quick and dirty:

    Universal Decline in the economy. No this doesn’t mean everyone has to contract BY THE EXACT SAME AMOUNT. You’d expect a boom in housing to lead to a bust in housing more than the rest of the economy. What you wouldn’t expect is for everything to go IN THE SAME DIRECTION. This is continually ignored by the Austrians. As Ayn Rand would say, blank out!

    Physical Scarcity vs Monetary Scarcity. One favorite of the Austrians is the bricklayer analogy. A bricklayer has plans for a house and discovers to his horror that he only has 40,000 instead of the required 50,000. If it were really a question of physical scarcity than wed expect physical resources to GO UP in price during a bust. And yet, we had actual deflation in 2008. Not by the same amount, But even oil fell rapidly in wake wake of Lehman’s explosion.

    Consumer preferences vs government preferences. One favorite and idiotic tactic of Major Freedom. is to accuse all of us of “central planning” I don’t favor central planning, and I’m sure Scott doesn’t [ Right Scott? ;-) ] What we favor is PRAGMATISM. I too would like a free market in money production. ( I don’t think it would look like anything envisioned by Major, but thats a different story) But since we are a century away from abolishing legal tender laws I’ll take NGDPLT as THE NEXT BEST THING. I see NGDPLT as an incredibly positive thing, much less coercive and interventionist. Imagine two commissars in form Eastern Europe. Comisar 1 is very heavy handed and brutal, a stalinist nightmare. Comisar 2 gives the order that production is to be increased by five percent each year but leaves it up to the workers and the consumers to decided what that means. In effect, he ends up tolerating a large welfare enhancing bblack market in his district. Now granted Commissar 2 might not be ideal. BUT HE IS LIGHT YEARS BETTER than commissar number 1.
    The position of Major and the other dumb internet austrians is so incredibly thick they end up attacking people like commissar two, probably because they don’t think of them as true believers in freedom. or some cr*p like that.
    So they end up supporting by default commissar number one. This is the incredible irony.
    More to Come based on responses

  31. Gravatar of Doug M Doug M
    30. July 2012 at 15:34

    Bill Ellis,

    “I would like to see some gauge of “public wealth” that would include things, the value of healthcare, and retirement…so that when tax and budget policy are being debated the public would have a clear figure, a single metric to see how much well-being-wealth they were going to lose or gain.”

    These safety-net items that you would like to count as part of “national wealth” have exactly offsetting liablities.
    So whatever number you come up with should tie out to a more conventional measure of total assests less debt.

    If you read Lawrence Kotlikoff, he measures the social security and healcare obligations at $202 Trillion.

  32. Gravatar of RonT RonT
    30. July 2012 at 15:36

    MMT people indeed need to brush up on the money multiplier to come down to the appropriate level. OTOH the mainstream econ would do well to read something on monetary policy not written by academics, like Bindseil.

  33. Gravatar of Bill Ellis Bill Ellis
    30. July 2012 at 15:53

    Mark A. Sadowski

    @dwb and Saturos,
    You may or may not realize it but Nick did a recent post asking armchair economists to please read a principles textbook:

    Butting in here…but, I wonder what you guys think of this…?

    http://www.khanacademy.org/finance-economics/macroeconomics?k

    It might be nice for you guys to just be able to direct someone to one of these online lessons instead of explaining over and over…if you think they are any good.

    I tried to post this suggestion over at your link but failed.

  34. Gravatar of Bill Ellis Bill Ellis
    30. July 2012 at 15:59

    Doug M,

    “have exactly offsetting liablities”

    Yes, In the aggregate, but specifically who’s liabilities and who’s public wealth ?

  35. Gravatar of Mike Sax Mike Sax
    30. July 2012 at 16:02

    Is anyone else having trouble posting right now?

  36. Gravatar of Bill Ellis Bill Ellis
    30. July 2012 at 16:19

    Mike,
    Nope

  37. Gravatar of bmcburney bmcburney
    30. July 2012 at 16:21

    I don’t understand the factual basis for your assertion that what Krugman wants is “demand side” inflation. As I understand it, Krugman supports organized labor, higher minimum wages, generally higher and “much more progressive” taxes, and more regulations (especially in the financial, medical, energy and manufacturing industries). It seems to me he is unambiguously a supporter of “supply side” inflation.

    As a specific example of the foregoing, you find it difficult to answer the question of why Americans would be better off with $4.50 per gallon gas. My understanding is that Krugman believes higher gas prices are self-evidently a very good thing and if it makes average Americans poorer that just exactly what the bastards deserve.

    I am not a pedigogue myself and consequently would take your advice regarding potential improvements in understanding based on banning certain words from the language (although it seems conceptually unsound on the surface). However, it seems to me that a lot of confusion in the field of enconomics would be reduced if we just stop assuming that guys like Krugman and DeLong like average Americans and are attempting to design and advocate policies which would benefit them.

  38. Gravatar of Mike Sax Mike Sax
    30. July 2012 at 16:21

    Major Unfreedom, now you’re contradicting yourself even within comments:

    “I didn’t say you did say “no one prior to now” has questioned it.”

    If you didn’t then this comment of yours makes no sense:

    “That is not a recent phenomenon. Your characterization of economic history is flawed.”

    Now, about all the times you claimed that I said success is all about luck:

    “The conjecture that wealthy people can only be wealthy because of luck, is false”

    “You say it’s nothing but luck, I disagree”

    “I am making a targeted argument with the goal of proving that wealth is not necessarily a product of luck.”

    If I never said success is not only a product of luck why do you need to make any “targeted argument?”

    “luck isn’t the only thing, which is what you said,”

    Want another one? Ok you win:

    “The conjecture that wealthy people can only be wealthy because of luck, is false”

    “What I am saying is that wealth is not solely a function of luck, which is what you are fallaciously claiming is the case.”

    There are plenty more cases. It’s like those Highlights magazines for kids: ‘what is wrong with this picture’ and the kid has to pick how many errors.

    You can spend the whole day finding examples of Major Unfreedom claiming I said that it’s solely about luck. Now he admits I dind’t say that but that he never claimed that I did. His own words says otherwise

  39. Gravatar of Mike Sax Mike Sax
    30. July 2012 at 16:33

    Ok it was working now it’s a problem again

  40. Gravatar of ssumner ssumner
    30. July 2012 at 16:36

    RonT, The biggest output gap in history was 1933, and the devaluation got high inflation right away. Go study that event and come back here when you grow up and are no longer a sarcastic jerk.

    dwb, Those people really are morons. They don’t even know the Great Inflation happened all over the world. They know nothing about hyperinflation in Latin America, or superneutrality of money, or any of the basics of monetary economics. They latch on to a few anecdotes and think they have a general theory. Pathetic.

    Wadolowski, I don’t think debt matters for inflation or the business cycle in the US. And I don’t believe in complete Ricardian equivalence–it’s partly true, but not completely.

    Mark H, Yes.

    Floccina, NGDP is shorter.

    Saturos, Yes, sounds like me.

    Nick, We think alike.

    Doug, you said;

    “By the theroy of AD and AS as it was tought to me in school, an increase in AD cannot create iflation if the economy is opperating below capacity. Not that that theory is correct.”

    You must have had a really stupid professor. Maybe it was Ron T.

    Thanks Bill, Not a ban, just agree to stop using it.

    Mark, I’m really surprised that Krugman has never used AS/AD before. And I feel your pain on the lack of knowledge of basic econ. You get MMTers coming over here claiming textbooks assume the money multiplier is constant, which just means they’ve never read a textbook. And a commenter above says he was taught the SRAS curve was flat.

  41. Gravatar of Jim Glass Jim Glass
    30. July 2012 at 16:43

    Reuters:

    ECB Thinks the Unthinkable

    The European Central Bank is thinking the unthinkable to save the euro — including resuming its controversial bond-buying programme and possibly even pursuing quantitative easing…

    Thinking about the unthinkable — doing its job.

  42. Gravatar of OhMy OhMy
    30. July 2012 at 16:50

    SS
    “RonT, The biggest output gap in history was 1933, and the devaluation got high inflation right away. Go study that event and come back here when you grow up and are no longer a sarcastic jerk.”

    Sorry to be a jerk, but the FRED database shows 5% increase in prices in 1933-34. So much for the “high inflation”.

  43. Gravatar of Mike Sax Mike Sax
    30. July 2012 at 16:54

    Still having issues with things getting printed

  44. Gravatar of Major_Freedom Major_Freedom
    30. July 2012 at 16:55

    Bill Ellis:

    Mike, why bother ?

    He gets from me what he cannot get from you, namely, a different, superior theoretical perspective?

    Edward:

    To those of you who are new to this blog, I’ll give a short summary as to why you shouldn’t listen to our resident troll, Major (Un)Freedom

    You obviously do not know what a troll is. Hint: It’s not someone who disagrees with your ideas.

    1. Cantillon Effects.

    Major keeps yammering, on and on, and on and ON about Cantillon Effects.

    That’s because Sumner, yourself, and all of his other followers yammer on and on, and on and ON while totally ignoring it. It is the source of relative demand and price distortions, bubbles, the business cycle, and all the major problematic “macro” effects you observe. I keep mentioning it because nobody else is mentioning it.

    You guys yammer on and and on and on and ON about NGDP, not even noticing that you’re doing it far more often than I mention Cantillon Effects.

    While I agree that Cantillon Effects, (first in line to new money steals purchasing power from the last). represent a problem, its a minor one.

    No, it is not a minor one. It is a MAJOR one. It is precisely what brings about more investment than there are real savings. For that is what occurs when those who LEND receive the new money first. Their lending increases. They do not necessarily lend the new money they receive, but the new money they receive does encourage them to lend more than they otherwise would have lent. This is CRUCIAL to understanding the business cycle. It is not only about transfers of purchasing power.

    First Cantillon effects could exist anywhere, even in a private market economy.

    In a private market, anyone can legally produce money. There is a difference between forced Cantillon Effects, and inevitable Cantillon Effects due to economic scarcity and division of labor.

    Second, those last in line are hardly powerless against monetary inflation. I like to think of Cantillon Effects as a similar situation to when a corporation issues new stock. What happens to the previous or older stockholders, they get diluted, all things being equal. IF THEY DONT LIKE THIS THEY CAN DUMP THE FRIGGIN STOCK!.

    THEY CAN’T DUMP THE FRIGGIN DOLLAR BECAUSE THEY ARE FORCED TO PAY TAXES IN IT!

    Your analogy is horrible. If you want to use stock as an analogy, then it would be like Apple’s owners hiring goons to threaten everyone to accepting Apple stock, because Apple demands that everyone hand over a particular quantity of Apple stock over to Apple’s owners, even if people do not want anything to do with the company. Even if you buy and sell Microsoft stock, it doesn’t matter, Apple with “calculate” a Apple stock equivalent, and force you to give them Apple stock, which of course means if you want to avoid being sent into a cage, then you are going to have to go out and accept Apple stock from others.

    THEN, once that is taking place, Apple than issues stock to the people who run Apple’s treasury department, and financing department, and maybe some of their friends outside of Apple. This will dilute everyone’s Apple shares.

    How in the world can you compare what the Fed does, with what stock issuing companies do, when the former is based on coercion, while the latter is based on consent? At least with Apple, I do not have to acquire shares of Apple if I don’t want to, and I won’t have to leave the country or else get thrown into a cage.

    If cash savers want to protect their purchasing power they can buy gold, (Capital gains taxes are no big deal) silver, platinum, TIPS, or high quality stocks.

    This is not a solution. They would still have to pay taxes in US dollars if the dollar is devalued such that the dollar price to gold rises. The IRS will treat this as a “capital gain”, and you will have to pay taxes in US dollars, EVEN IF you don’t want to accept more US dollars!

    Only if taxation on gold drops to ZERO, can your argument make sense.

    What major and all the other Austrian trolls are asking for is for cash savers to receive a return on their cash in excess of all other returns in the economy. an abnormally high risk free return.

    What Edward and all the other monetarist trolls are asking for us for cash savers to be deprived of purchasing power, despite the fact that they did nothing wrong by merely holding the money they earned.

    Monetarist trolls like Edward want everyone to believe that the real gains that can be made through cash holding are “unjust” gains, because the cash holders allegedly didn’t do anything to earn that gain (despite the fact that they did do something to earn that return, namely, they produced to earn that cash). Monetarist trolls such as Edward need to demonize innocent people who did nothing wrong, so as to justify in their own minds the alleged purity and sanctity of central bank inflation. For if purchasing power taxation were correctly identified as unjust, then it would be much harder to justify hurting those people, wouldn’t it?

    You say that people who hold cash are earning unjustified gains. So what are you saying, that if inflation was used to induce people into buying treasuries, that the gain from treasuries is justified, despite the fact that treasury interest payments are backed by violence against other people? This is insane. It is insane to demonize peaceful gains through free trade, and to make sacrosanct violence backed gains through state borrowing and taxation.

    What constitutes abnormally high? When The economy is growing nicely at five percent nominal NGDP growth, and yet their is three percent deflation,

    Monetarist trolls like Edward also arrogate themselves into claiming themselves to being some sort of judge when it comes to what constitutes “abnormally high” returns. They arrogate themselves as allegedly knowing “5% NGDP targeting” is optimal, and they arrogate themselves as allegedly knowing that any returns above HIS asserted “normal” rate are “abnormal”, and his his case, worthy of dilution from masters in the state.

    That isn’t a problem because the deflation is minor burden on the red hot growth of the real economy. Its similar to when you add a risk free rate on government bonds to your discounted cash flow analyses of stocks. But when the economy is contracting at -5% NGDP the deflation and expected premium on cash EXCEED the expected value of other investments in the economy. Cash Savers get a deflation adjusted profit just by sitting on their cash, at the expense of everything else going to hell in a hand basket.

    False. Cash savers are NOT “gaining at the expense of others.” A cash holder cannot hold more cash unless others hold LESS cash. I cannot hold more cash unless I find others willing to hold less cash. You cannot claim that if I hold onto the cash that I gain at other people’s expense. It’s my property! One cannot gain at other people’s expense my merely holding onto their own property.

    Do I gain at your “expense” by holding onto my PC instead of giving or selling it to you? Of course not, for it is my property and I am not using force against you.

    Everyone is free to try to hold more cash. The way you are characterizing things, it would seem like everyone has zero cash while the cash savers hold it all, refusing to donate it. This crude caricature of the market is only matched by your crude understanding of the implications of cash holding.

    So when Major Freedom sheds crocodile tears for cash savers, bear this in mind. What he is really asking for is a risk free handout to them, AT THE EXPENSE OF THE REST OF US! Nice, huh?

    False. It is precisely you monetarist trolls who want a handout that comes at the expense of others. You want more printed money, which dilutes the incomes even of those holy and sacred profligate consumers who never save but are last in line to the printing press.

    Cash holding IS A CONSEQUENCE OF FREE TRADE AND HENCE CANNOT COME AT THE EXPENSE OF ANYONE.

    Oh and by the way, when people sit on cash, it isn’t because they want to increase their purchasing power. Thats the stupidest thing I’ve heard in my life.

    False. When people seek to hold more cash, they do in fact want higher purchasing power. They don’t seek more cash to sit on it forever. They seek more cash so that they have the potential to spend more in the future than they otherwise would have been able to spend had they not sought more cash.

    This hysterical smearing of cash holding is a product of an intellectually bankrupt understanding of money and trade.

    cash hoarding is precautionary, nine times out of ten, both by corporations and individuals. If they want to increase their purchasing power, they can invest in non cash assets.

    Are you for real? You just said that cash holders in a free market could earn a real return. And now you’re saying if people wanted to earn a return, they can invest in assets? You’re contradicting yourself.

    The real return for holding cash in a free market is NOT exploitative. I am not exploiting you by holding onto my cash for longer than you subjectively deem as justified. You have not even attempted to address the elephant in the room, which is precisely when cash holding goes from being justified to unjustified. Suppose I receive an income today. How much time has to pass before your silly worldview demonizes me as an exploiter? One minute? One hour? One day? One week? One month? Stop me when your arbitrary illogical anti-economic worldview rings the warning bell in your mind. One year? One year and 6 months? Two years? When? Be specific. If holding cash is exploitative, then ANYONE WHO EARNS ANY CASH AND HOLDS IT FOR ANY POSITIVE LENGTH OF TIME, MEANING EVERYONE, WOULD BE EXPLOITING EVERYONE ELSE!

    In other words, everyone who earns money are necessarily guilty of exploitation, and it isn’t until they do their holy duty and SPEND their money, do they avoid this guilt. Oh but then then receivers of this spending would also be guilty sinners, until they do the holy duty of spending their money. This means that for the average company that pays bi-weekly wages, for two weeks the owners are unholy monsters who are exploiting everyone else. Then for that one moment on Thursday, or Friday, they cease being evil exploiters for only a fleeting moment, when they actually pay the wages. But then oops, they immediately become unholy exploiters again for another two weeks.

    In other words, every company that pays bi-weekly wages are evil exploiters the entire year save for 26 fleeting moments when cash ownership rights changes from employers to employees.

    This absurdity and many, many more, which I won’t get into here unless Edward wants to troll this board with yet more silliness, is what follows from the fetish of hating those who hold cash. The poorest among us typically delay their consumption by way of holding cash, and they would benefit the MOST from a free market in money production that enables them to earn a real return through holding cash. And yet Edward the zombie monetarist troll wants to demonize ME for advocating for a free market in money production? Has it not occurred to him that those who EARN cash are not exploiting anyone, and that everyone holds cash for at least a positive period of time? Cash is not only a commodity that is for spending. It is also a commodity that is for storing value. Only monetary crank trolls like Edward believe money is so evil when held that holy money printers must benefit themselves and their friends by diluting the money and incomes of those last in line, even the holy sacred profligate consumers.

    2. Austrian Business Cycle Theory. This zombie has been slain so many times and yet it just won’t die. A lot of people have killed it, just look up on google, refutation ABCT, anti-Austrian or something along those lines

    This is just plain silly. ABCT has not even been correctly understood by the entire population of its critics. It is a running joke among most Austrians that not a single critic of ABCT has ever displayed knowledge that they even understand it. It is rather remarkable when you think about it.

    The irony is that the central bank inflation zombie has been slain so many times by so many Austrians.

    Universal Decline in the economy. No this doesn’t mean everyone has to contract BY THE EXACT SAME AMOUNT. You’d expect a boom in housing to lead to a bust in housing more than the rest of the economy. What you wouldn’t expect is for everything to go IN THE SAME DIRECTION. This is continually ignored by the Austrians. As Ayn Rand would say, blank out!

    Utterly false. A general decline in business activity is a core aspect of Austrian business cycle theory. As expected, you don’t understand it.

    Physical Scarcity vs Monetary Scarcity. One favorite of the Austrians is the bricklayer analogy. A bricklayer has plans for a house and discovers to his horror that he only has 40,000 instead of the required 50,000. If it were really a question of physical scarcity than wed expect physical resources to GO UP in price during a bust. And yet, we had actual deflation in 2008. Not by the same amount, But even oil fell rapidly in wake wake of Lehman’s explosion.

    This is also false. It is not true that ABCT predicts falling prices of capital assets. Quite the opposite in fact. ABCT says that because certain capital goods were bid too high in the past (because of a partial relative over-expansion of industries due to monetary inflation), that these prices would otherwise fall during the bust. The bust is CHARACTERIZED by falling values in accumulated savings and capital.

    Again, you don’t understand this aspect either.

    Consumer preferences vs government preferences. One favorite and idiotic tactic of Major Freedom. is to accuse all of us of “central planning” I don’t favor central planning, and I’m sure Scott doesn’t [ Right Scott? ] What we favor is PRAGMATISM.

    You favor central banking, and central banking is central economic planning in the area of money and interest rates.

    “Pragmatism” is just a euphemism you are using for central planning. Socialists always do this, by the way. They call their central plan a particular name and capitalize it, then, when it fails, another group of socialists arise with their own plan, and they don’t want to call it the same word because it has already been tarnished. So they call it something else. Then it fails and the process repeats.

    Communism, socialism, pragmatism, all of these words refer to the same economic phenomena: State ownership and/or control over means of production. This control can extend anywhere from the barest minimum to the maximum, but they are all based on the same economics of state planning.

    I too would like a free market in money production. ( I don’t think it would look like anything envisioned by Major, but thats a different story)

    I have not described what it would look like. I have only made the claim that I suspect the result will be a precious metal money, but I don’t know for sure, because each individual would have their own ideas for storing value.

    But since we are a century away from abolishing legal tender laws I’ll take NGDPLT as THE NEXT BEST THING.

    You are arrogating yourself to being able to predict the future 100 years from now? You don’t have such knowledge.

    If you view NGDPLT as the next best thing, then why do you never make any statements detailing the inferiority of NGDPLT as compared to a free market in money?

    I see NGDPLT as an incredibly positive thing, much less coercive and interventionist.

    So you see central banking as coercive and state interventionist then. Well, that’s what I mean when I say central banking is central planning in money.

    Imagine two commissars in form Eastern Europe. Comisar 1 is very heavy handed and brutal, a stalinist nightmare. Comisar 2 gives the order that production is to be increased by five percent each year but leaves it up to the workers and the consumers to decided what that means. In effect, he ends up tolerating a large welfare enhancing bblack market in his district. Now granted Commissar 2 might not be ideal. BUT HE IS LIGHT YEARS BETTER than commissar number 1.

    The position of Major and the other dumb internet austrians is so incredibly thick they end up attacking people like commissar two, probably because they don’t think of them as true believers in freedom. or some cr*p like that.

    Except commisarie number two doesn’t believe in freedom you dumb oaf. Supporting commassarie two is not supporting freedom just because you fallaciously believe the only alternative is commissarie one.

    Internet troll dimwitted morons like Edward are so incredibly obtuse, that they believe Austrians who attack commissarie number two is somehow a defense of commissarie number one, when in reality they attack both commissarie number two and commissarie number one, because they don’t believe in the religion that only one of the two commissaries are inevitable.

    Edward is so dense that he can only compare commissarie number two to an even worse commissarie than number one, and that is supposed to be a justification for supporting commissaire number two! Hey, moron, do you actually believe that Hitler or Stalin can be defended, by imagining even worse totalitarians who kill more people and cause even more hardships? Using your logic, any Austrian who attacked Stalin or Hitler would be “dense”, because heck, the totalitarian could be worse!

    So they end up supporting by default commissar number one. This is the incredible irony.
    More to Come based on responses

    False dichotomy. One does NOT “support” a worse central planner “by default” if one does not support a given central planner.

  45. Gravatar of Brito Brito
    30. July 2012 at 17:03

    On Cantillon Effects: http://socialdemocracy21stcentury.blogspot.co.uk/2011/09/are-cantillon-effects-argument-against.html

  46. Gravatar of Major_Freedom Major_Freedom
    30. July 2012 at 17:26

    Mike Sax:

    “I didn’t say you did say “no one prior to now” has questioned it.”

    If you didn’t then this comment of yours makes no sense:

    “That is not a recent phenomenon. Your characterization of economic history is flawed.”

    Do you dispute that it is not a recent phenomenon?

    Now, about all the times you claimed that I said success is all about luck:

    “You say it’s nothing but luck, I disagree”

    “luck isn’t the only thing, which is what you said,”

    Those comments were directed at these particular statements you made:

    “You could just as easily say it’s much too painful for those with high social status or wealth to realize they werwe just lucky.”

    and

    “Basically you were lucky that your parents wanted you to have an unfair advanatage over other kids.”

    I was directing those comments at those particular statements you made, where I deny that it is only luck. I wasn’t directing them at your understanding of wealthy people in general. That’s why I said

    “I am making a targeted argument with the goal of proving that wealth is not necessarily a product of luck.”

    You asked me:

    If I never said success is not only a product of luck why do you need to make any “targeted argument?”

    Do you honestly believe that I am justified in making a targeted argument only when prompted? I think it was important to say.

    I do not hold that wealth is always a product of luck or even always in part a product of luck, because that would imply that even if nobody did anything with regard to investment, that wealth would arise spontaneously through luck.

  47. Gravatar of Edward Edward
    30. July 2012 at 17:41

    “Suppose I receive an income today. How much time has to pass before your silly worldview demonizes me as an exploiter? One minute? One hour? One day? One week? One month? Stop me when your arbitrary illogical anti-economic worldview rings the warning bell in your mind. One year? One year and 6 months? Two years? When? Be specific. If holding cash is exploitative, then ANYONE WHO EARNS ANY CASH AND HOLDS IT FOR ANY POSITIVE LENGTH OF TIME, MEANING EVERYONE, WOULD BE EXPLOITING EVERYONE ELSE!”

    I never said holding cash was “exploitative.” It just has a bad side effect. And the answer to your question is the next earnings cycle, whenever that may be.

    “Physical Scarcity vs Monetary Scarcity. One favorite of the Austrians is the bricklayer analogy. A bricklayer has plans for a house and discovers to his horror that he only has 40,000 instead of the required 50,000. If it were really a question of physical scarcity than wed expect physical resources to GO UP in price during a bust. And yet, we had actual deflation in 2008. Not by the same amount, But even oil fell rapidly in wake wake of Lehman’s explosion.

    This is also false. It is not true that ABCT predicts falling (rising?) prices of capital assets. Quite the opposite in fact. ABCT says that because certain capital goods were bid too high in the past (because of a partial relative over-expansion of industries due to monetary inflation), that these prices would otherwise fall during the bust. The bust is CHARACTERIZED by falling values in accumulated savings and capital.

    Again, you don’t understand this aspect either.

    You clearly don’t understand a little things called supply and demand. It doesn’t matter what ABCT says. It it says that, than its even stupider than I thought. For when a supply of goods grows scarcer than it used too all things being equal, the price must… RISE!

    “cash hoarding is precautionary, nine times out of ten, both by corporations and individuals. If they want to increase their purchasing power, they can invest in non cash assets.

    Are you for real? You just said that cash holders in a free market could earn a real return. And now you’re saying if people wanted to earn a return, they can invest in assets? You’re contradicting yourself.”

    I’m not. Cash holders can earn a return through deflation but that;s not as reliable investing in things like stocks etc.

    If people really wanted more purchasing power they have to increase their INCOME, not cash savings. You clearly are so ignorant you don’t understand the difference between percentage saving, and absolute levels. of saving.

    “If cash savers want to protect their purchasing power they can buy gold, (Capital gains taxes are no big deal) silver, platinum, TIPS, or high quality stocks.

    This is not a solution. They would still have to pay taxes in US dollars if the dollar is devalued such that the dollar price to gold rises. The IRS will treat this as a “capital gain”, and you will have to pay taxes in US dollars, EVEN IF you don’t want to accept more US dollars!

    Only if taxation on gold drops to ZERO, can your argument make sense.

    This is horse hooey. I can make money investing, beating inflation, state, city, and federal taxes, far above what either of them would take from me.

    More to come…

  48. Gravatar of Mike Sax Mike Sax
    30. July 2012 at 17:55

    “Do you honestly believe that I am justified in making a targeted argument only when prompted? I think it was important to say.”

    Your many quotes showed that you were not making an unprompted arugment but were answering your false inference that I claim all success is based on luck. I said it was a factor.

    So you were dead wrong.

  49. Gravatar of Razer Razer
    30. July 2012 at 18:14

    Why is it Austrian economists know Keynesian and MM theory backward and forward, but Keynesians and MMers can’t even get the basics down of Austrian theory? No wonder guys like Krugman are scared to debate them.

  50. Gravatar of Mike Sax Mike Sax
    30. July 2012 at 18:52

    “He gets from me what he cannot get from you, namely, a different, superior theoretical perspective”

    Bill don’t listen to Major Unfreedom. I just talk to him for the laughs. I’m fasincated about someone with such a pronounced chemical imbalance. It’s a casse studythat when I write about it I’ll probably win a Pulitzer

  51. Gravatar of Wadolowski Wadolowski
    30. July 2012 at 23:19

    Thank You professor for your answer.

  52. Gravatar of Wadolowski Wadolowski
    31. July 2012 at 00:47

    One more question professor.

    So you are standing on position that private debt totally doesn’t matter? (public debt as well???)

    Debt as a category doesn’t influence anything, or it does influences something (private or public)?

    Do you think that deleveraging process that is going right now in US doesn’t have anything in common with current slump?

    And lastly, on the Figure 12 in Steve Keen’s research:

    http://www.debtdeflation.com/blogs/2012/01/03/the-debtwatch-manifesto/

    there is a prediction, that deleveraging process could stop when private debt ratio to GDP will reach 75% (and that will be in a long, long time).

    As I understand you standing on a position that this whole leverage cycle concept is flawed on its roots, because debt and the change in debt simply do not matter? (And those Keen’s regressions are only a matter of coincidence.)

    Regards

    (Very sorry for any grammar mistakes, I’m native polish so you understand.)

  53. Gravatar of Integral Integral
    31. July 2012 at 02:32

    For what it’s worth, I don’t think that NGDP is identical to AD either. I think they’re close, and I think under your null hypothesis they are the same thing, but not in general.

    The shape and position of the AD curve is determined by the interaction of private agents with the central bank, and as always the bank moves last. Hence AD can be a rectangular hyperbola (if you’re targeting NGDP), a horizontal line (if you’re targeting the price level) or something in between (if you’re targeting a combination of both).

    The distinction between NGDP and AD vanishes if and only if you’re already setting an NGDP target. However, even if you aren’t, I have a very strong intuition that US AD is essentially a rectangular hyperbola (due to the dual mandate) and hence that we can proxy it pretty closely with NGDP.

    I am also pretty strongly in favor of talking about AD and AS, not inflation and output. If macro’s taught me anything, it’s to reason from shocks, not from changes in endogenous variables. “Do we need more inflation” is an impossibly ill-defined question because inflation can be caused by either supply or demand shocks (or technology shocks, which are a mix of both). However, “do we need more NGDP” is almost well-defined because the dominant source of fluctuations in NGDP is demand shocks, not supply shocks.

    As a rhetorical device, identifying NGDP with AD is extremely useful because it allows one to talk about NGDP shocks as AD-shifters, which is an excellent backdoor to talking about AD shocks directly.

    Just to clarify a few things, I guess.

  54. Gravatar of Mike Sax Mike Sax
    31. July 2012 at 04:45

    Heard on the Street:

    “Wall Street Now Almost Certain Fed and ECB Will Act” is the headline:

    “Markets now overwhelmingly expect significant action from the U.S. and European central banks, according to the latest CNBC Fed Survey.”

    “In the survey of market participants, 89 percent said they believe the European Central Bank will purchase more sovereign debt and 78 percent said they expect the Federal Reserve to undertake additional quantitative easing.”

    “In June, just 58 percent of respondents expected the Fed to act. The results are similar to those from October, 2010, a month before the Fed launched QE2, when 93 percent of respondents predicted the QE2 program.”

    So we’ll see if the Fed dares to not act as it knows eveyrone expects it to.

  55. Gravatar of Mike Sax Mike Sax
    31. July 2012 at 05:01

    However, isn’t it a fact that inflation can only come after all the slack is out of the economy?

    As for this comment:

    “The biggest output gap in history was 1933, and the devaluation got high inflation right away.”

    Inlfation didn’t get high, though deflation did come to an end.

    According to Inflationdata.com, in 1933 we had delfation-a negative inlfaton rate of 5.09%-in 1934 it came back to 3.51% in 1935 it was 2.56%. The 1934 rate of 3.51% was the highest it got during any year in the 1930s.

    http://inflationdata.com/Inflation/Inflation_Rate/HistoricalInflation.aspx

    So we ended deflation but never got high inflation. It would seem to me that this is not unexpected as high inflation only comes when we don’t have slack in the economy.

  56. Gravatar of Mike Sax Mike Sax
    31. July 2012 at 05:03

    This commment: “isn’t it a fact that inflation can only come after all the slack is out of the economy?”

    should read not that inlfation only comes but that high inlfation only comes after the slack in the economy is gone

  57. Gravatar of Morgan Warstler Morgan Warstler
    31. July 2012 at 05:43

    Edward, I think you are MF’s sock puppet.

    :)

    Because you are horrible at arguing with MF.

    As I have said before MF is correct in his line of thinking. It is just that we as a society are not there yet.

    We will get there. In the end, MACRO GOES AWAY.

    Eventually we do end up with private money, exclusively digital, infinitely divisible, and therefore favoring the first holders adopters (see bitcoin), none of whom will be governments.

    Free banking, private money, etc. We aren’t that far away.

    And IN THAT MOMENT we will never view money or monetary theory as a a social good.

    And soon after everyone will grasp that government (what public goods it provides) is charity provided by the top half to the bottom half that gives the top half the “rule of law” – which allows them to keep the bottom half from interfering with property rights.

    BUT, we aren’t there yet. In 500 AD, we were not ready for Democracy, and the guy spouting democratic theory sounded as crazy as MF.

    That’s why it is best to view NGDPLT as a step towards the future.

    NGDPLT is the lesser evil if we assume fiat money directed by a CB.

    —–

    There is nothing so funny as when MF finally hits a good wind on the absurdity of MM acting as if inflating away savers money is a morally acceptable thing under certain conditions.

    When people SAVE MONEY, that may “increase demand” but the demand is based on WANTING that money to stay at its present value.

    The world favors the competent, and the competent make the rules.

    So MM wins when it argues the MGDPLT is better for the competent – indeed at 4.5% NGDPLT with no make up

    (which Sumner will accept if forced – ask him not what he favors, but what he’ll eat if starving)

    At that rate 78% of the time historically, we’d have had tighter money.

    Which means a much smaller government today than we have now.

    This is the strongest argument. THIS IS A FACT. It is a fact because it appeals to the top half, it appeals tot he owners, and the savers, and the likely voters.

    And we must ask ourselves WHY MMs have such a hard time putting the meat in the window.

    Why NOT forget about promising more immediate inflation and focus on arguing:

    1. a weaken Fed.
    2. Less long run inflation.
    3. Smaller govt.

  58. Gravatar of RonT RonT
    31. July 2012 at 06:02

    Dear Wadolowski,

    Why ask Sumner about Keen?

    Keen predicted the crisis and Sumner didn’t. Keen thinks Sumner and his neoclassical/monetarist friends have no idea how the money system operates (he is right) because Sumner believes that the Fed controls the money supply. This already failed in the 1980s. Why would Sumner endorse Keen in this situation? People would just go and read Keen and not pay attention to Sumner.

  59. Gravatar of Mike Sax Mike Sax
    31. July 2012 at 06:27

    “Because you are horrible at arguing with MF.”

    I actually thought the same thing, not becuae I agree with MF but because once you go down the road of aruging that you favor Commisar B over Commissar A, what kind of leash have you left yourself to argue with him on?

    In reality most of the Market Monetarists in theory argue that “free banking” is the optimum result. From such a position it’s hard to argue with MF that in demanding that you go there now and aruging that increasing the role of the CB is unlikley to somehow set in motion it’s lessening in the future.

    My arugment is simply that money is not like other markets and that therefore there’s nothing wrong with a central bank. Empiricallly we’ve done better since the CB era.

    As I don’t see the CB as a ncessary evil-but simply necessary-I’m not concered to argue that this will lead to free banking as I don’t believe in it.

  60. Gravatar of Mike Sax Mike Sax
    31. July 2012 at 06:30

    “In 500 AD, we were not ready for Democracy, and the guy spouting democratic theory sounded as crazy as MF.”

    Morgan, you realize that MF still isn’t ready for Democracy?

  61. Gravatar of Wadolowski Wadolowski
    31. July 2012 at 06:46

    Dear RonT,

    I’m not asking about Keen and I’m not asking about Sumner. It’s about model not the man. (Where have I heard that ;).)

    I’m not asking prof. Sumner to endorse anybody. I’m asking prof. Sumner about macroeconomics. And I think that the questions like:

    “So you are standing on position that private debt totally doesn’t matter? (public debt as well???)”

    aren’t very hard to answer. And prof. was so polite that he answered me:

    ” I don’t think debt matters for inflation or the business cycle in the US.”

    Now I want to precise the answer. Does he think that debt matter at all in economics.

    And why if the public debt is so important, everybody is debating about that, why nobody notice private debt, which I think is an elephant in the room.

    You know, when I stare at the Figure 1. from the research

    http://www.debtdeflation.com/blogs/2012/01/03/the-debtwatch-manifesto/

    one thing is coming to my mind. It couldn’t be that private debt don’t matter at all… there’s something wrong.

  62. Gravatar of RonT RonT
    31. July 2012 at 07:11

    Drogi Wadolowski,

    Of course debt does matter. It is simply not in mainstream macro models. So what are they supposed to say?

    You are right: one look at the graph and the coincidence, two high private debt episodes and two events: Great Depression and The Great Recession. Hmmm. Plus we know of Minsky mechanism: private debt is unsustainable and can cause contractions, because at some point the households have to curtail spending to service their debt. Once they curtail spending their income… drops, because in the whole economy by necessity spending=income, and once their income drops they are dead: less income, too much debt to service. The vicious cycle of debt deflation begins. Only government with own currency can spend indefinitely, because they don’t spend their income, they create money out of nothing. So the government debt is sustainable (I am not talking about the Eurozone, they use currency created by ECB, so their debts are not in currency they control, hence unsustainable), the private debt isn’t. Everybody who predicted this crisis did it based on private debt. Btw our money is debt-based, the private sector creates money by creating debt (when you get a loan in the bank you and the bank create debt out of nothing and the result is more deposits in the banking system. They have to be backed by some form of capital, but the debt/deposit pair itself comes out of nowhere http://www.interfluidity.com/v2/3402.html). Sumner says money is super important, but somehow debt isn’t, c’mon.

    See also this:
    http://www.debtdeflation.com/blogs/2012/04/16/inet-presentation-minskian-perspective-on-instability-in-financial-markets/

    pozdr.

  63. Gravatar of Major_Freedom Major_Freedom
    31. July 2012 at 08:14

    Mike Sax:

    “Because you are horrible at arguing with MF.”

    I actually thought the same thing, not becuae I agree with MF but because once you go down the road of aruging that you favor Commisar B over Commissar A, what kind of leash have you left yourself to argue with him on?

    Again, what I am arguing that it is wrong to claim that we can only choose between Commisar A or Commisar B. I don’t hold that we are powerless and that we MUST accept central banking. It is precisely that attitude which makes central banking possible.

    It is a derivative of the old Marxist screed that held socialism is bound to come “with the inexorability as a law of nature.”

    When people believe that central banks are inevitable, then they become inevitable. It’s a self-fulfilling prophecy. It isn’t people realizing from a bird’s eye view what will occur. It is people making their own futures and not realizing that they can choose otherwise.

    Intellectuals who put majority opinion above their own ideas, in terms of validity and legitimacy, where it is allegedly the intellectuals job to take what the majority wants, and then tweak it slightly, are the very intellectuals who make it impossible for the majority to learn otherwise. Intellectuals are society’s lampposts. If intellectuals look backwards at the majority, instead of forward towards enlightenment, then it is inevitable that they will crash and burn.

    In reality most of the Market Monetarists in theory argue that “free banking” is the optimum result. From such a position it’s hard to argue with MF that in demanding that you go there now and aruging that increasing the role of the CB is unlikley to somehow set in motion it’s lessening in the future.

    There is no theory or justification or ideas inherent in market monetarism that can ever turn it into free banking. NGDP targeting presupposes central banking. It is not a step towards free banking. It is the crystalization of a new central plan.

    My arugment is simply that money is not like other markets and that therefore there’s nothing wrong with a central bank. Empiricallly we’ve done better since the CB era.

    Your argument is flawed, erroneous, wrong.

    Money is a commodity because it is a scarce object of economic action. It is economized. It just so happens to be a relatively popular commodity, like rice, salt, and other widely accepted commodities. It just so happens to be the most popular commodity out of the most popular accepted commodities.

    You have not one in any way shape or form even attempted to show why one cannot consider money a commodity. All you have done is give your opinion that money is not a commodity. I on the other hand have given arguments for why money is a commodity.

    Unless and until you can show a superior argument to mine when it comes to money and the concept of commodities, then I will continue to be absolutely convinced that you are wrong and have not a leg to stand on.

    As I don’t see the CB as a ncessary evil-but simply necessary-I’m not concered to argue that this will lead to free banking as I don’t believe in it.

    Central banking is not necessary because initiating violence is not necessary.

    “In 500 AD, we were not ready for Democracy, and the guy spouting democratic theory sounded as crazy as MF.”

    Morgan, you realize that MF still isn’t ready for Democracy?

    You say that like democracy represents a progression, an advancement of some sort, where everyone can only deny its progressive representation, or go along with it and progress themselves.

    On the contrary, I have moved beyond democracy. I have left it behind for a superior, more free alternative. Democracy is not something to be “ready” for. It is something to be left behind. It is an old system that was tried in ancient Greece, and dictatorship followed once the well ran dry from years of majority looting. Democracy is just a watered down version of communism. Property rights are not respected in democracy. 51% can “nationalize” the property of the remaining 49% if they so desire. Democracy is just a sanctioning of violence as long as the majority agree with it. It’s two wolves and a sheep “voting” on what’s for dinner. It’s ten men “voting” to attack a single woman. It’s MOB RULE.

    The only defense against such tyranny, given we have democracy, is individual rights philosophy that educate the majority, so that they don’t manifest democracy in its full, true, horrific form.

    You almost certainly won’t understand this, but I’ll say it anyway: If 51% agreed to torture and kill the remaining 49%, then that is democratically legitimate. Democracy contains zero, ZERO rejection of such an event. Pro-democracy advocates would have NOTHING to say against this. Any argument they do give against this, would be a movement AWAY from your democratic philosophy, to MY philosophy instead.

    I just go the extra step that you are unable or unwilling to go. I take individual rights to their logical conclusion, and say that not only is the majority totally unjustified in voting to torture and kill the remaining 49%, but they are totally unjustified in imposing ANY involuntary rules concerning the minority’s own property (including taxation, zoning laws, etc, etc), and ANY involuntary rules concerning the minority’s persons.

    10 people do not have any right whatsoever to “vote” to coerce a single individual. The Constitution is not a legitimate document. It is a piece of paper signed over 200 years ago. None of the signers of that document had any right to impose their rules on the unborn. Nobody has any right to vote to coerce a minority. Nobody has any right “granted” to them by the Constitution. The state has no right to do to the minority what the majority wants.

    You are simply not ready for growing up and leaving mommy and daddy government. You refuse to cut the proverbial umbilical cord. You want to be taken care of on the basis of force against others. As Bastiat trenchantly pointed out:

    “The state is that great fiction by which everyone tries to live at the expense of everyone else.”

  64. Gravatar of Negation of Ideology Negation of Ideology
    31. July 2012 at 08:32

    “My arugment is simply that money is not like other markets and that therefore there’s nothing wrong with a central bank.”

    As you know, I’m on board with market monetarism and I completely agree with that statement. I don’t think any serious person can dispute the following three points:

    1. The government has to use something for money.
    2. If the government picks something to use, then demand will be higher than otherwise for that thing, creating an implicit subsidy.
    3. If the government uses its own notes, then it keeps that subsidy to itself – saving the taxpayers enormous sums of interest.

    I don’t care if we call the agency that issues the notes a Central Bank or a Currency Board or something else, but there has to be some process for determining how many notes to issue. I prefer a rules based approach like what Scott Sumner has proposed, and then the Central Bank (or whatever you call it) would be similar to the Bureau of the Public Debt or the Patent Office, more of a technical implementer than a policy making body.

  65. Gravatar of Morgan Warstler Morgan Warstler
    31. July 2012 at 08:54

    Negation,

    I think we’ll see the government be forced to adopt a currency like BitCoin that is in play and favored by the top 1/3 of global citizens.

    They will choose at a tipping point to work amongst themselves this this limited infinitely divisible digital currency, many online banks will make loans with it, and at a tipping point governments will accept it, because it will topple their own overprinted stuff.

    That’s certainly not now, but it will come.

    MF / Sax,

    Democracy is a step, it sin’t the end game, we had to try communism, we had to try Christianity, we have to try many things int he science experiment of human organizing principles.

    What we certainly KNOW is that some humans deserve more than others, and those attracted to bureaucracy and government are seeking more than they deserve.

    MF,

    I’m sorry life is tough, but just like Sumner if PUSHED TO DECIDE will choose 4.5%, even 3% NGDPLT with no make up, if it gets his policy adopted.

    And MF, if you are given a choice between what we have now and that switch, you would support it as well.

    You’d both have your own wildly different caveats, but support it you would.

    Saxie, would probably blow with the wind – maybe his intellectual curiosity would beguile him into trying it, but if too many of his tribe line up against it, he’d bolt.

    Note: MF Ron Paul and Rothbard would accept 4.5% NGDPLT in a choice between it and status quo.

    It shrinks the government. Anything that shrinks the government is a good thing.

  66. Gravatar of Major_Freedom Major_Freedom
    31. July 2012 at 09:11

    Propagation of Ideology:

    “My arugment is simply that money is not like other markets and that therefore there’s nothing wrong with a central bank.”

    I completely agree with that statement. I don’t think any serious person can dispute the following three points:

    1. The government has to use something for money.

    2. If the government picks something to use, then demand will be higher than otherwise for that thing, creating an implicit subsidy.

    3. If the government uses its own notes, then it keeps that subsidy to itself – saving the taxpayers enormous sums of interest.

    None of these points are relevant to why money is (allegedly) not a commodity.

    Three things:

    Money does not require a government.

    Government does not have to monopolize money in order to tax in money.

    The lack of interest payments inherent in government imposing its own currency on everyone by force, comes at the tremendous cost to the taxpayers in the form of more pronounced business cycles and price inflation.

    I don’t care if we call the agency that issues the notes a Central Bank or a Currency Board or something else, but there has to be some process for determining how many notes to issue.

    Using your “logic”:

    Those in the government have to eat. Therefore, there has to be government control over how much food gets produced. Thus, the government should monopolize food production so as to minimize transactions costs associated with acquiring privately produced food.

  67. Gravatar of Major_Freedom Major_Freedom
    31. July 2012 at 09:27

    Morgan:

    And MF, if you are given a choice between what we have now and that switch, you would support it as well.

    Sure, I have always said that NGDP targeting is superior to consumer price level targeting. But I also think productivity norm is superior to NGDP targeting, and I also think a free market in money production is superior to the productivity norm.

    I vehemently reject the illusion that we have to choose between NGDP targeting and dual mandate. If I said killing 1 million innocent people is superior to killing 100 million innocent people, then it would be absurd to support killing 1 million people on the silly foundation that “we have to choose between these two, so choose.”

    I think anyone who did support it would only be doing so to manifest a desire to harm people. The fake “If it’s not 1 million, it will be 100 million” is a cop out.

    Life is not tough. Like is wonderful. Ideas can change. Knowledge can spread. We are not doomed to NGDP or dual mandate.

    I refuse to capitulate, Morgan. If enough people thought like me, NGDP targeting would be an impossibility and the optimal that you say is not possible, will become possible.

    If we lived in a concentration camp, and everyone capitulated, then who will abolish the concentration camps? The guards? No, the prisoners are the only hope. But they can’t abolish it if they are being educated by people who apologize for the guards.

    Being a true intellectual is not like a 9-5 job where you punch in and punch out and secure your income in the warm bosom of taxpayer financing. Those are court intellectuals. Technocrats. Bureaucrats. Political strategists. Opportunists. True intellectuals are radicals, bordering on insanity in the eyes of others, at the fringe.

    When you look back on history, and you think of influential intellectuals, do you think of back office econometricians who collect economic data for the statesmen’s pleasure? Or do you think of those who were so crazy in the eyes of others that the rabble jailed them and killed them (Socrates)?

  68. Gravatar of Morgan Warstler Morgan Warstler
    31. July 2012 at 09:31

    noted.

  69. Gravatar of dwb dwb
    31. July 2012 at 09:48

    @RonT

    “Of course debt does matter. It is simply not in mainstream macro models.”

    yes, it is: there are lots of models that incorporate debt (for example, see Dallas Fed’s Koenig’s model is a pretty recent addition). {technically, there is no such thing as a single “mainstream model”} but almost every “mainstream” model has some sort of wealth/borrowing constraint based on the present value of future income.

    Most of the arguments you mention related to debt are key reasons some “mainstream” economists favor nominal income targeting. Mainly, you have the cause and effect backwards: mortgage delinquencies rose in part because the Fed was too timid with the easing in 2007/2008 (due to excessive focus on oil prices).

  70. Gravatar of Mike Sax Mike Sax
    31. July 2012 at 10:18

    “You have not one in any way shape or form even attempted to show why one cannot consider money a commodity”

    Major Unfreedom

    I’m saying that money as a faciliator of exchange is different from what it’s commodity form might be. Of cousre, with fiat money there is no separate commodity form.

    However, with gold, there was always cofusion between gold’s role as the unit of exchange and it’s market value as a commodity. It had a duel role.

    “You say that like democracy represents a progression, an advancement of some sort, where everyone can only deny its progressive representation, or go along with it and progress themselves.”

    Actually I was quoting Morgan who thinks it’s a progression though I do agree it is. That is pretty much the choice, You’ve chosen denial. But I disagree with Morgan that you are on the side of progress. To the contrary you are on the side of retrogression.

    Just as after Galileo and Copernicus there were some scholastic flat earthers still arguing for the old Ptolemic system, we have fellows like yourself and the fellow Austrians who are today’s Scholastics.

    They too surely at the time deceived themselves that they were the true progressive rather than the actual progressives of the Copernican revolution.

    You’re dream of a gold standard of for that matter currency ompetition is like their dream of the ptolemic system. A quaint relic.

    “Property rights are not respected in democracy.”

    So America is not a democarcy then? That democracy was around in ancient Greece hardly argues against it. Gold was around for eons too. Yet you still dream of a gold standard.

  71. Gravatar of RonT RonT
    31. July 2012 at 10:20

    dwb,

    So without the Fed there would be no recessions? Every recession is a fault of the Fed, not enough “easing”? How about before the Fed was created, all bliss?

    I think the writing on the wall was already in 2006. Once the home prices stopped appreciating those who borrowed only on the assumption that they would be able to repay if they rise said “uh-oh”. Then there was waiting until the teaser loans kick into a normal mode of huge monthly payments. Then you need to sell your house. But to whom? Houses now lose value, everybody goes “uh-oh”.

    Once there is too much debt, how can the Fed “ease”? Lower rates and hope that people will take some MORE debt? Yes, it might work, but short term only.

    ps. direct me to the Koenig’s model pdf if you could, I am interested to see it, thank you.

  72. Gravatar of Edward Edward
    31. July 2012 at 10:27

    “If I said killing 1 million innocent people is superior to killing 100 million innocent people, then it would be absurd to support killing 1 million people on the silly foundation that “we have to choose between these two, so choose.”

    Insane. You compare central banking to murder, thats just… wow. And sometimes we do operate under constraints. Even if I believed in the ridiculous, nonexistent, capital structure distortions of money inflation, if i had to choose between easy money and the rise of Hitler, I would choose easy money. This isn’t mere conjecture. it was Chancellor Bruning’s hard money policies that impoverished the German people to such a degree that they chose Hitler rather than continue with them!
    Sure in the long run anything is possible. But in the short run Sometimes one has to choose the least bad alternative. Your ridiculous way of thinking would be akin to a sheriff given responsibility to patrol a town with nineteen bullets in his semiautomatic. The town has twenty rapes a day. Are you going to friggin go out there and do as much good as you can shoot nineteen, and try and stop the twentieth with your bare hands, or are you sit down in a huff and whine, whine whine?

  73. Gravatar of dwb dwb
    31. July 2012 at 10:41

    @Ron T:
    Koenig’s papers can be found at the dallas fed working paper site (that’s only one example of course).

    recessions up until 2000 were generally allowed by the Fed to lower inflation “opportunistically disinflation” – yes. Even so, the Fed may not be able to *avoid* recessions but up until 2008 they were more aggressive in avoiding a decline in both nominal and real income.

    We had a real estate / housing “crash” in 1990, why no “debt crisis”?

    how do you interpret the meeting minutes from sept 2008 when they left rates on hold at 2% due to “inflationary concerns” when by the way the GDP deflator was at or below 2%?

    You are too focused on interest rates as the monetary policy transmission mechanism. anyway, there is no objective definition of “too much debt” debt accumulates as function of prior investment demand, which is mostly housing demand.

  74. Gravatar of Major_Freedom Major_Freedom
    31. July 2012 at 10:47

    Mike No Sax:

    I’m saying that money as a faciliator of exchange is different from what it’s commodity form might be. Of cousre, with fiat money there is no separate commodity form.

    Money is a facilitator of exchange precisely because it is a scarce object of action (commodity) and can serve as a datum for catallactic behavior.

    Fiat money is still a commodity. Cotton and linen (for Fed notes), bits and bytes (for digital transactions), etc.

    However, with gold, there was always cofusion between gold’s role as the unit of exchange and it’s market value as a commodity. It had a duel role.

    As most fiat bugs are want to do, you are fallaciously thinking in terms of a paper money standard when you are analyzing gold as money. You believe that gold money still has a paper price, when in reality, gold money IS the standard from which prices are calculated, for example, the price of 1 shirt is 0.001 ounces of gold, the price of 1 car is 20 ounces of gold, and so on. What you are doing is saying that gold money has a paper money price, as if gold money means you can say “the price of gold is $X an ounce.”

    But that’s not how to think of gold money. It would be as silly to ask what the price of gold is in a gold money standard, as it would be to ask what the price of a fiat dollar is in a fiat money standard.

    You cannot possibly ground your assertion that money is not a commodity on the basis that you are confused regarding the relationship between gold as a medium of exchange, and gold as a consumer good.

    I am not confused about this. If gold were money, then gold can be used for BOTH a medium of exchange (to calculate profit and loss, and to do cost accounting) AND as a consumer/capital good (teeth, jewelry, electronics, machinery, etc).

    The marginal utility of gold will determine how much of it people devote to consumer goods and capital goods, and how much to devote to medium of exchange.

    “You say that like democracy represents a progression, an advancement of some sort, where everyone can only deny its progressive representation, or go along with it and progress themselves.”

    Actually I was quoting Morgan who thinks it’s a progression though I do agree it is. That is pretty much the choice, You’ve chosen denial.

    False. I cannot “deny” what hasn’t been shown to be true. You only “agree” that it is a progression. You haven’t shown WHY it is a progression, nor have you shown why your values concerning democracy are justifiably imposed on me by force.

    But I disagree with Morgan that you are on the side of progress. To the contrary you are on the side of retrogression.

    I disagree. I think democracy is a retrogression from constitutional republicanism. Despite all their faults, the founders knew that democracy could not protect individual liberty. That’s why they loathed democracy and why they formed a republic.

    Just as after Galileo and Copernicus there were some scholastic flat earthers still arguing for the old Ptolemic system, we have fellows like yourself and the fellow Austrians who are today’s Scholastics.

    Except your philosophy predates ours by millennia. You are just re-imagining a very old and oppressive system and presenting it as if it were somehow new.

    I am presenting a progressive, newer, more superior social philosophy of individual liberty. You are presenting just another round of ancient mob rule.

    They too surely at the time deceived themselves that they were the true progressive rather than the actual progressives of the Copernican revolution.

    You are deceiving yourself. You too are deceiving yourself the same way monarchists thought they were true progressives over nomadic warlord tribalism.

    You’re dream of a gold standard of for that matter currency ompetition is like their dream of the ptolemic system. A quaint relic.

    Straw man. I don’t advocate for a gold standard. I advocate for monetary freedom at the individual level.

    “Property rights are not respected in democracy.”

    So America is not a democarcy then?

    It wasn’t originally designed to be. It was designed as a constitutional republic.

    That democracy was around in ancient Greece hardly argues against it.

    You are today’s ancient Athenian.

    Gold was around for eons too. Yet you still dream of a gold standard.

    No, I want monetary freedom.

  75. Gravatar of Major_Freedom Major_Freedom
    31. July 2012 at 11:04

    Edward, Earl of False Dichotomy:

    “If I said killing 1 million innocent people is superior to killing 100 million innocent people, then it would be absurd to support killing 1 million people on the silly foundation that “we have to choose between these two, so choose.”

    Insane.

    I agree. It IS insane to support killing 1 million people on the fallacious basis that we MUST choose between 1 million or 100 million.

    You compare central banking to murder, thats just… wow.

    I didn’t compare central banking to murder. I used murder to ILLUSTRATE an argument I am making against the alleged inevitability of central banking.

    And sometimes we do operate under constraints. Even if I believed in the ridiculous, nonexistent, capital structure distortions of money inflation, if i had to choose between easy money and the rise of Hitler, I would choose easy money. This isn’t mere conjecture.

    Yay, another false dichotomy being presented in order to present inflation in a more favorable light.

    By that logic, I could support Hitler on the basis that someone else could have killed even more people.

    The choice isn’t between inflation and Hitler. That’s preposterous. In fact, now that you mention it, it is precisely inflation (specifically hyperinflation) that played a large role in Germany that agitated the public to such a degree that they became more willing to support a dictator years later.

    it was Chancellor Bruning’s hard money policies that impoverished the German people to such a degree that they chose Hitler rather than continue with them!

    ??? No, it was the previous inflation that impoverished the German people. The wealth during the inflation was illusory.

    You have history backwards.

    Sure in the long run anything is possible. But in the short run Sometimes one has to choose the least bad alternative.

    You are again presenting your false dichotomy as the only available choice. Tomorrow, Congress could vote to legalize gold competition with the Federal Reserve’s fiat money, by simply voting yay to Ron Paul’s bill.

    Your ridiculous way of thinking would be akin to a sheriff given responsibility to patrol a town with nineteen bullets in his semiautomatic.

    No, my way of thinking would be to legalize private sector security, so that if mistakes are made with monopolist Sheriffs, of them having insufficient ammo, or too much ammo, of them being aggressors themselves, can be judged not by whims of bureaucrats and sheep like yourself, but by individual consumer choice.

    The town has twenty rapes a day. Are you going to friggin go out there and do as much good as you can shoot nineteen, and try and stop the twentieth with your bare hands, or are you sit down in a huff and whine, whine whine?

    Again another false dichotomy.

    If the town has 20 rapes a day, then obviously central monopoly in security and protection is failing you oaf. The solution is to decentralize security so that we don’t have to suffer at the hands of the misdeeds of monopolists who are not financed voluntarily.

    I’d rather decentralize security and protection than whine, whine whine at the Sheriff to please pretty please be an omniscient and omnipotent being and bring as all towards safety and prosperity.

    ——————

    Instead of whining at central planners, and believing your central plan will work, realize that the flaw is the central planning itself. Then we can finally move on and stop making a grand mess of things with arrogant and presumptuous ivory tower hubris from arm-chair technocrats who can’t do what you believe central planners can do.

  76. Gravatar of Mike Sax Mike Sax
    31. July 2012 at 11:11

    “You cannot possibly ground your assertion that money is not a commodity ”

    Major Unfreedom

    I see now that you’ve given up trying to claim I said all success is luck your new thing is claiming that I said money is not a commodity. My point it’s a uniquely different kind of commodity.

    I also think that gold as just one other commodity was different from when it was the unit of account

    “No, I want monetary freedom.”

    If by monetary freedom you mean currency compoettion that’s been around for eons as well. Attacking deomcracy-or fiat money-as being along for eons doesn’t prove anything as ll these things were.

    We’ve seen all forms of currency standards since ancient Greece.

    So no points are won aruging about what was around at the time of the Greeks.

    You’ve also indicated that you think that your precious currency competition will likely result in a gold standard of precious metals standard.

    “You are today’s ancient Athenian.”

    If that’s so Unfree, then you are today’s ancient man of the Bronze Age. Cause I’m a lot younger than you.

    “Straw man. I don’t advocate for a gold standard. I advocate for monetary freedom at the individual level.”

    As usual you overuse the term in a way that suggests you don’t know what it means. I said gold standard or currency competition.

    You have also suggested that you think currency competition may likely result in either a gold standard or a metallic standard-perhsps gold and silver.

    So I’m hardly attacking a straw man, simply accureatly describing your position. I wonder why you argue so much about it. Is there shame in your precious currency competition? Then why when I say that’s what you support you falsely claim I’ve attacked a straw man?

  77. Gravatar of Mike Sax Mike Sax
    31. July 2012 at 11:16

    “Except your philosophy predates ours by millennia. You are just re-imagining a very old and oppressive system and presenting it as if it were somehow new.”

    Really? The gold standard wasn’t around a long time, bimetallism wasn’t, currency competition wasn’t? There was a time when cities all had their own currencies, where there were a lot more choices of currency than today.

    I see that as proof that there’s very little value in having different currencies. Historical development seems to show everyone leaving currency competition behind. We had a lot more of it in prevous centuries.

  78. Gravatar of RonT RonT
    31. July 2012 at 11:28

    dwb,

    “Koenig’s papers can be found at the dallas fed working paper site (that’s only one example of course).”

    I saw them, many papers, which title?

    “recessions up until 2000 were generally allowed by the Fed to lower inflation “opportunistically disinflation” – yes. Even so, the Fed may not be able to *avoid* recessions but up until 2008 they were more aggressive in avoiding a decline in both nominal and real income.”

    How about pre 1913, where did recessions come from in absence of Fed?

    “We had a real estate / housing “crash” in 1990, why no “debt crisis”?”

    Look at the amount of wealth destroyed in 1990 and 2008. That is the hit to your balance sheet.

    “how do you interpret the meeting minutes from sept 2008 when they left rates on hold at 2% due to “inflationary concerns” when by the way the GDP deflator was at or below 2%?”

    I interpret this that they were wrong. But if they were right, what should they have done? Lower rates? Ok, to zero? What good does it do if the problem is debt/income and housing prices are falling?

    “You are too focused on interest rates as the monetary policy transmission mechanism.”

    OK, I ask second time: HOW the Fed should have “eased” in 2008? Specifics. Not some nonsense about “not allowing the money supply to plunge”. Specific actions. WHAT should they have done?

    “anyway, there is no objective definition of “too much debt” debt accumulates as function of prior investment demand, which is mostly housing demand.”

    True. The debt wouldn’t have been too much if income was rising. Alas deficits were too small for it to happen.

  79. Gravatar of Negation of Ideology Negation of Ideology
    31. July 2012 at 11:45

    Major -

    “None of these points are relevant to why money is (allegedly) not a commodity.”

    I never said money is not a commodity.

    “Money does not require a government.”

    Agreed.

    “Government does not have to monopolize money in order to tax in money.”

    Agreed. I don’t advocate the government monopolizing money. But the government still has to choose what it will use for money.

    “The lack of interest payments inherent in government imposing its own currency on everyone by force, …”

    I don’t advocate the government imposing its own currency by force.

    Your food analogy is faulty. I don’t advocate banning private monetary systems. If people want to issue bills of credit to each other that’s perfectly fine. I just don’t believe the government should use private money.

    You’ve advocated in a previous thread that everyone pay taxes in the currency of their choice. But even under that wasteful Rube Goldberg scheme the government would have to convert whatever currencies it received into some currency to use for payments to employees, suppliers, etc. It would auction off those currencies for one common currency, creating demand for that currency. So the government would still have to make a choice of currency.

    In fact, even if a government had no taxes at all, and funded itself entirely on voluntary contributions, it would still have to make a decision on what to use as money. You keep trying to avoid that choice, but you can’t.

  80. Gravatar of Mike Sax Mike Sax
    31. July 2012 at 11:56

    “Saxie, would probably blow with the wind – maybe his intellectual curiosity would beguile him into trying it, but if too many of his tribe line up against it, he’d bolt.”

    Morgan part of me thinks it’s worth a try. I mean I like it better than infattion targeting. Still I’ve always been skeptical at the same time as you know.

    Indeed a lot of why you argue for it is the basis of my skepticism.

    I don’t think we had too much inflation over the last 30 years so have no interest in it getting lower.

    I believe in the free market of ideas. If NGDPT can get it done, more power to it.

  81. Gravatar of Major_Freedom Major_Freedom
    31. July 2012 at 11:57

    Mike No Sax:

    I see now that you’ve given up trying to claim I said all success is luck your new thing is claiming that I said money is not a commodity. My point it’s a uniquely different kind of commodity.

    I see you’ve given up actually backing up your claim that I said you said all success is luck.

    Money is a unique commodity? Of course, but then so is basmati rice, silver, sugar, salt, iron, copper, and every other commodity. All commodities are unique.

    That money is a unique commodity is no justification that the state has the right to use violence to monopolize what constitutes medium of exchange.

    I also think that gold as just one other commodity was different from when it was the unit of account

    When it was used as a unit of account is was still a commodity. It still had to be economized.

    “No, I want monetary freedom.”

    If by monetary freedom you mean currency compoettion that’s been around for eons as well.

    False. As long as the state uses threats of force to compel payment of taxes in US dollars, as long as the state uses threats of force to compel courts and police to enforce contracts payable in “equivalent” US dollars, then no, we don’t have monetary competition. We have a coercive monetary monopoly.

    Attacking deomcracy-or fiat money-as being along for eons doesn’t prove anything as ll these things were.

    You attacking the freedom of the minority, you attack monetary decentralization and competition, and then you say the incoherent statement “Attacking deomcracy-or fiat money-as being along for eons doesn’t prove anything as ll these things were”…

    What else can I say?

    We’ve seen all forms of currency standards since ancient Greece.

    You don’t know history, because if you did, then you would know that precious metals have been voluntary currencies for both medium of exchange and unit of account purposes, without any state control.

    So no points are won aruging about what was around at the time of the Greeks.

    It’s not because it’s old, it’s because it was already tried and it eventually failed, because democracy cannot last when everyone attempts to live at the expense of everyone else, without any anti-democratic individual rights protections.

    You’ve also indicated that you think that your precious currency competition will likely result in a gold standard of precious metals standard.

    Yes. It likely will, but that is not the same thing as saying “I want the state to point its guns at you and force you into accepting gold by demanding taxes in gold, and by enforcing legal tender laws in gold.

    “You are today’s ancient Athenian.”

    If that’s so Unfree, then you are today’s ancient man of the Bronze Age.

    Except the ancient men of the Bronze age were against what I am for, which means you’re wrong.

    Cause I’m a lot younger than you.

    The statement that precedes this one is therefore a non sequitur.

    “Straw man. I don’t advocate for a gold standard. I advocate for monetary freedom at the individual level.”

    As usual you overuse the term in a way that suggests you don’t know what it means.

    It is you who doesn’t understand what it means. A state enforced gold standard is not a free market money standard, even if the free market process results in gold.

    You have also suggested that you think currency competition may likely result in either a gold standard or a metallic standard-perhsps gold and silver.

    You have already said that.

    So I’m hardly attacking a straw man, simply accureatly describing your position.

    No, it is a straw man.

    If I advocated for individual liberty, that doesn’t mean I necessarily advocate for what people specifically do with their individual liberty.

    You lack subtlety.

    I wonder why you argue so much about it.

    I don’t really argue so much about it, just when I am accused of supporting a state enforced gold standard.

    Is there shame in your precious currency competition?

    No.

    Then why when I say that’s what you support you falsely claim I’ve attacked a straw man?

    Because I don’t advocate for a gold standard and yet you accused me of wanting it.

    “Except your philosophy predates ours by millennia. You are just re-imagining a very old and oppressive system and presenting it as if it were somehow new.”

    Really? The gold standard wasn’t around a long time, bimetallism wasn’t, currency competition wasn’t?

    I was referring to democracy when I made that argument.

    My philosophy is individualist anarchism. That hasn’t been around for a long time by any stretch. It hasn’t yet been tried universally.

    And before you respond to that, please be aware that I know of the double standard statists like you tend to use. If I point to examples of pockets of individualist anarchism throughout history, you say “Well then it failed because it didn’t last.” If I point to the lack of it being universal, you say “Then it is Utopian.”

    So no matter what, it’s heads you win, tails I lose. If we had individualist anarchism only temporarily, then it can’t work. If we never had it, then it can’t work. The only social philosophy than COULD work in that standard, is anything goes, and whatever happens, is the optimal, which means the only justified social system, is whatever social system happens to exist at the time. People who go to that length are called historicists.

    There was a time when cities all had their own currencies, where there were a lot more choices of currency than today.

    Not really. There are, according to the CIA factbook, around 180 currencies today, all of them coercively monopolized by central banks. I don’t have the data for all of history, but suspect that at any given time, the number of non-state imposed currencies around the world throughout history was probably not “a lot more” than 180 at any given time.

    I see that as proof that there’s very little value in having different currencies.

    You see that as proof because you don’t understand the dualism inherent between theory and history in the social sciences. You view history as equivalent to theory as do physicsts and chemists.

    Human history is unique to the past. Even if there was a movement towards fewer currencies (which we have not actually established yet), that doesn’t mean it is evidence that people value state imposed currencies. It is a logical contradiction. State imposed currencies are by definition a negation of individual values in favor of some other individual values. It isn’t objective value as such.

    History isn’t proof in the social sciences, because unlike atoms and molecules, humans can LEARN over time and adjust their actions. Humans can, and have, retrogressed for periods of time. Who would argue that the rise of communism and fascism represented progressions? It’s absurd.

    Historical development seems to show everyone leaving currency competition behind.

    This claim is a product of flawed historicist epistemology, that sees humans as but players in some grand inevitable history.

    Currency competition is being coercively oppressed. It isn’t being voluntarily abandoned.

    We had a lot more of it in prevous centuries.

    You haven’t shown that. And even if you did, it wouldn’t constitute a counter-argument to anything I said. For it does not follow that currency competition will necessarily result in “many” currencies. In today’s world, monetary competition would almost certainly be precious metals based on an almost universal scale. And even if there were not, then should there be gains to be made through fewer currencies, then people will voluntarily choose to do so on their own, and those who want to keep using unpopular currencies will not be coerced.

    If you truly believed that people value fewer currencies over more currencies, then you have no foundation for state force centralizing money. It would be like saying “Almost everyone values eating, so we have to get the state to force everyone to eat or else get thrown into a cage.”

    Your position is untenable.

    Subtlety is something you’re going to have to learn.

  82. Gravatar of Mike Sax Mike Sax
    31. July 2012 at 12:02

    If anything Morgan, I give it to you that you’re not a half bad progenitor of intuitive ideas either.

    But for me it’s all about negotiation. You know- you be Mitch McConnel, I’ll be Harry Reid or whatever. Let’s sit down and make a deal. If there’s no negotiation, I lose interest

    This is just barganining anyway. You start with an offer you know is too high so you can later say you compromised.

    Of course the problem is that if the interests of each are two far away nothing gets done.

    Which is why today was such an unusual day.

    http://diaryofarepublicanhater.blogspot.com/2012/07/man-bites-dog-congress-agrees-not-to.html

  83. Gravatar of Major_Freedom Major_Freedom
    31. July 2012 at 12:13

    Propagation of Ideology:

    “The lack of interest payments inherent in government imposing its own currency on everyone by force, …”

    I don’t advocate the government imposing its own currency by force.

    Then you cannot advocate central banking, for central banking is precisely the name we give to the government agency that issues currency derived from forced backed monopoly of money!

    Yay.

    I don’t advocate banning private monetary systems. If people want to issue bills of credit to each other that’s perfectly fine. I just don’t believe the government should use private money.

    You do know that if people do issue bills of credit, the IRS will tax those transactions in US dollars, right? You do know that if this is the case, then people are NOT actually free to issue their own bills of credit for monetary purposes, right? For they would have to acquire US dollars in the market somehow, which means they are forced into the US dollar standard.

    You’ve advocated in a previous thread that everyone pay taxes in the currency of their choice. But even under that wasteful Rube Goldberg scheme the government would have to convert whatever currencies it received into some currency to use for payments to employees, suppliers, etc.

    It isn’t wasteful, it would be gainful, since it would be a product of displayed preferences of individuals. If individuals CHOOSE to use other currencies rather than US dollars, then that would be a movement towards gains, not waste. It would be wasteful from the perspective of the state, but then that would only show the inefficiency and wastefulness of the state.

    If the state wants to “transact” with employees, suppliers, etc, then in monetary competition the state could say “We will only pay you in the following currencies:…” and then employees and suppliers can take it or leave it. If they take it, then they want to earn the state’s dollars. If not, then they can find income to earn from those who have what they want.

    Since currency competition would probably result in most people accepting precious metals, then the state would probably have to pay their employees and suppliers in precious metals.

    It would auction off those currencies for one common currency, creating demand for that currency. So the government would still have to make a choice of currency.

    You’re ignoring others not in the government who would also have the choice on whether or not they will accept what the state ends up offering them. Employees and suppliers can choose whether to accept what the state is offering them.

    In fact, even if a government had no taxes at all, and funded itself entirely on voluntary contributions, it would still have to make a decision on what to use as money. You keep trying to avoid that choice, but you can’t.

    Nobody is denying this necessity. But you have to keep in mind the context of currency competition. If the state no longer had a monopoly over money, then they would have to procure what employees and suppliers want, which means they’re going to have to borrow and tax in those currencies.

    Everyone else would be free to accept currencies that the state does not collect and receive. Yes, it would be more difficult for the state to grow, and the state would almost certainly shrink by a massive margin, but all you people here are supposedly small government types, are you not? Currency competition would shrink the state to a degree that NGDP targeting advocates could only dream of doing.

  84. Gravatar of Major_Freedom Major_Freedom
    31. July 2012 at 12:18

    Mike Sax:

    I believe in the free market of ideas. If NGDPT can get it done, more power to it.

    You believe in a free market of ideas, but not of non-thinking practical actions. When it comes to those types of actions, you are anti-free market. You want the minority to be enslaved by the majority. But of course, the minority can always think “freely”, won’t they?

    You believe in freedom of thought, but slavery of the body.

  85. Gravatar of Mike Sax Mike Sax
    31. July 2012 at 12:34

    “You believe in freedom of thought, but slavery of the body.”

    As usual Major you are quite wrong. I like the free market. And why not? I’m having my best day over on my blog yet today with the advertisers.

    Now I do believe there needs to be a public sector as well, with an adequate saftety net and some level of redistributiion? Of coursse.

    I don’t think the market is absoultely all sufficent. But I am a fan.

    Look it’s the same even with your beloved ABCT. People vote with their feet. It’s really not so new, it goes back to 1871 and Carl Menger.

    You act like this is a brand new idea. Yet in 142 years it hasn’t become anywhere near the mainstream idea in economics. Why is that? iF people vote with their feet and I think they do then they have used their feet to keep walking when it comes to ABCT.

    There’s no reason to think that people are more interested in it now than they ever were.

  86. Gravatar of Major_Freedom Major_Freedom
    31. July 2012 at 13:08

    Mike Sax:

    As usual Major you are quite wrong.

    Wait, wouldn’t you have had to show that am as usual quite wrong? I’m still waiting.

    I like the free market.

    I don’t believe you.

    Now I do believe there needs to be a public sector as well, with an adequate saftety net and some level of redistributiion? Of coursse.

    That’s why you can’t like the free market. It betrays your actual beliefs.

    Look it’s the same even with your beloved ABCT.

    How so?

    People vote with their feet. It’s really not so new, it goes back to 1871 and Carl Menger.

    Vote with my feet and go where, exactly? I already moved.

    You act like this is a brand new idea.

    On the contrary, I know violence is a very old idea.

    Yet in 142 years it hasn’t become anywhere near the mainstream idea in economics. Why is that?

    The same reason democracy didn’t become anywhere near the mainstream for over a thousand years during the dark ages of Kings and dictators?

    iF people vote with their feet and I think they do then they have used their feet to keep walking when it comes to ABCT.

    They can’t walk away from central banks. They’re everywhere.

    There’s no reason to think that people are more interested in it now than they ever were.

    I disagree. Before 2007, the knowledge of what I am saying was not even known to exist by the overwhelming majority of the population, especially those on the internet. Now libertarianism is a mainstream idea. Because of me you now know the names of authors that you would never have even known about.

    You aren’t very alert, are you? I just notice things that you don’t.

  87. Gravatar of dwb dwb
    31. July 2012 at 13:31

    @RonT
    one thing at a time

    Koenig: 2011 working paper as i said (i think there is only 1 by Koenig in 2011, but he also has one in 2012)

    “debt wouldn’t have been too much if income was rising.”

    “What good does it do if the problem is debt/income and housing prices are falling?”

    suspend your disbelief about the Fed for a second (lets call it “what the combined Treasury/Fed could do” for a while).

    Lets suppose for a second the “combined treasury/Fed” could stabilize nominal income (deficits, interest rates, QE, whatever you like).
    Setting aside how its achieved, the case for nominal income targeting is most of the points you mentioned. I would add however, that keep in mind that prices for investments are a function of future nominal income. For example, if i am willing to pay 25% of my income towards housing for the next 30 years, then the nominal price is just the PV of 25% of my income over thirty years (including x% growth), and if my expected future income drops 9% (every year from now), then home prices drop a lot more. asset price declines are both a cause and effect of recessions, but in any case they are a function of expected future monetary policy.

    So if the “combined Treasury/Fed could achieve this” I think you must agree this is an optimal outcome.

    Part B for later – the Fed can do this on its own, but for now, lets agree that the combined govt entity should be conducting “countercyclical macro policy” to stabilize nominal income.

  88. Gravatar of Mike Sax Mike Sax
    31. July 2012 at 13:38

    “The same reason democracy didn’t become anywhere near the mainstream for over a thousand years during the dark ages of Kings and dictators?”

    You and Hoppe believe monarch was superior to democracy. So it wasn’t a dark age in your book.

    “Wait, wouldn’t you have had to show that am as usual quite wrong? I’m still waiting.”

    You are also as usual either suffering form short term memory loss or lying. Just scroll up this very post and see where I totatlly annhilated your claim that you had never tried to claim I said all success is luck.

    You belive many urban legends but none more than this idea that nothing you’ve ever said has been falsified.

    I don’t know if you simply forget what was said two sentences ago or you’re simply a congenital liar of the first magnitude.

    “You act like this is a brand new idea.”

    “On the contrary, I know violence is a very old idea.”

    Even there you confused yourself. I was talking about ABCT. You don’t answer it but instead start muttering about some imaginary “violence” you’re always so agitated about.

    “Vote with my feet and go where, exactly? I already moved.”

    You claim you’re an economist yet you dont even understand what the expression “vote with your feet” means

    “I just notice things that you don’t.”

    The above shows you don’t notice much of anythiing at all.

    “I disagree. Before 2007, the knowledge of what I am saying was not even known to exist by the overwhelming majority of the population, especially those on the internet. Now libertarianism is a mainstream idea. Because of me you now know the names of authors that you would never have even known about.”

    Even there you’re wrong. I knew who Hayek was long before 2007 as well as Rothbard. I had also heard of Mises and Menger.

    Hoppe and Hazlitt are new though I didn’t learn them through you. Hoppe was through a satire at Naked Capitalism. Hzlitt is always mentioned as someone who doesn’t do good econ analysis.

  89. Gravatar of Major_Freedom Major_Freedom
    31. July 2012 at 14:01

    Mike Sax:

    “The same reason democracy didn’t become anywhere near the mainstream for over a thousand years during the dark ages of Kings and dictators?”

    You and Hoppe believe monarch was superior to democracy. So it wasn’t a dark age in your book.

    Both Hoppe and I favor anarcho-capitalism. So it was a dark age in our books.

    Again with the false dichotomies.

    “Wait, wouldn’t you have had to show that am as usual quite wrong? I’m still waiting.”

    You are also as usual either suffering form short term memory loss or lying. Just scroll up this very post and see where I totatlly annhilated your claim that you had never tried to claim I said all success is luck.

    Perhaps you are being willfully blind then, where I completely eradicated your alleged proof by showing you that those comments were in reference to two specific points you made, not to success in general.

    You belive many urban legends but none more than this idea that nothing you’ve ever said has been falsified.

    I never said nothing I have ever said has been falsified. I said I am still waiting for you to show me how I am “quite wrong as usual.” You haven’t shown that.

    I don’t know if you simply forget what was said two sentences ago or you’re simply a congenital liar of the first magnitude.

    The problem is you, not me. You’re not able to read.

    “You act like this is a brand new idea.”

    “On the contrary, I know violence is a very old idea.”

    Even there you confused yourself.

    I was talking about ABCT.

    I know. ABCT is a theory about coercive centralized fiat money systems. I do not “act like” the outcomes of such coercion is “new.” It’s very old.

    “Vote with my feet and go where, exactly? I already moved.”

    You claim you’re an economist yet you dont even understand what the expression “vote with your feet” means

    Yes, it means physically moving your body away from what you claim to be against. Apparently you don’t know what the expression means.

    One cannot vote with their feet concerning ideas. That is a misuse of the expression.

    “I just notice things that you don’t.”

    The above shows you don’t notice much of anythiing at all.

    The above what? You haven’t shown how anything of the above constitutes not noticing anything.

    “I disagree. Before 2007, the knowledge of what I am saying was not even known to exist by the overwhelming majority of the population, especially those on the internet. Now libertarianism is a mainstream idea. Because of me you now know the names of authors that you would never have even known about.”

    Even there you’re wrong. I knew who Hayek was long before 2007 as well as Rothbard. I had also heard of Mises and Menger.

    I don’t believe you. You tend to lie, so your claims just aren’t credible to me.

  90. Gravatar of Mike Sax Mike Sax
    31. July 2012 at 15:48

    “One cannot vote with their feet concerning ideas. That is a misuse of the expression.”

    Evidently you are so dense you’ve never head of an anlogy. I mean the free market of ideas is an analogy. So in that sense the meaning of “voting with your feet” is an analogy. No no one’s feet literally move. But that’s not what the expression means. Boy you are dense. I said it before but it is shocking that you don’t know anything about non-literal speech.

    “I don’t believe you. You tend to lie, so your claims just aren’t credible to me.”

    Major as we saw on this post you’re crediblity is dirt. How could you possibly be any guide to what’s credible and what’s not? I have no reason to lie to you, I don’t have nearly high enough an opintion of you to bother.

    If you want to believe that no one knew anythng about the Austrains before 2007, fine, “believe” it. You’re beliefs are so often fallacious anyway.

    Ok, you will have another brain fart and say “how is my crediblity dirt?”

    Again scroll up. Better yet knowing how feelbeminded you are you probably can’t even do that right.

    One more time. You claimed that I said all success is luck. Then when I protested that’s not my view you started claiming that you neer said it was and that I was lying.

    Then I gave you many examples-that you said didn’t exist-and now you were speaking of “Perhaps you are being willfully blind then, where I completely eradicated your alleged proof by showing you that those comments were in reference to two specific points you made, not to success in general.”

    You didn’t eradicate anything. How are these very strong, categorical claims of yours not about success in general but to two specific points?

    ““The conjecture that wealthy people can only be wealthy because of luck, is false”

    “You say it’s nothing but luck, I disagree”

    You were claiming that I said success is nothing but luck. Those are your own words.

    You say I tend to lie? You had accused me of lying about these quotes until I produced them.

    Do you still stand behind when you called me a liar for pointing out that you had repeatedly accused me of claiming success is only luck?

    “I never said you claimed success is solely a product of luck. You keep accusing me of saying that, when I never did. Stop lying.”

    Turns out you were the one lying. So if anyone has a credibility problem it’s you.

  91. Gravatar of RonT RonT
    31. July 2012 at 17:12

    dwb,
    I completely agree on the need to stabilize incomes.
    Waiting for your part B.

  92. Gravatar of Stalinist Stalinist
    31. July 2012 at 17:15

    Poor Mike Sax. If you are truly a champion for the lower classes you should pray to Buddha that the ideology of Major_Freedom and Morgan wins the day.

    Only when the devastation wrought by their evil embrace of plutocracy will Stalinism return to save the world.

  93. Gravatar of ssumner ssumner
    31. July 2012 at 17:18

    OhMy, The devaluation occurred in April, and the WPI rose over 20% between March 1933 and March 1934. Unemployment was 25%. Explain that with a Keynesian model.

    Wadolowski, Debt can be a problem in some cases, but it doesn’t affect NGDP or RGDP.

    Integral. The shape of the AD curve is an assumption, it doesn’t depend on monetary policy. I prefer to assume AD is a hyperbola even if the Fed targets inflation.

    Mike Sax, You are much better off asking me about interwar data than looking it up, because I probably know more about the subject than the person who wrote whatever you looked up.

  94. Gravatar of Morgan Warstler Morgan Warstler
    31. July 2012 at 18:31

    In other news, Teddy Cruz is a US Senator.

  95. Gravatar of OhMy OhMy
    31. July 2012 at 18:37

    “OhMy, The devaluation occurred in April, and the WPI rose over 20% between March 1933 and March 1934. Unemployment was 25%. Explain that with a Keynesian model.”

    Somehow Fred data shows ~5% increase in prices. You cannot even find 1934 on this graph. No model needed to explain something that never happened.
    http://research.stlouisfed.org/fred2/graph/?chart_type=line&s1id=CPIAUCNS&s1transformation=pc1

    Is FRED a part of a vast MMT conspiracy?

  96. Gravatar of OhMy OhMy
    31. July 2012 at 18:39

    The FRED graph again. The inflation 1933-34 was never above 5%.

    http://tinyurl.com/24skjm6

  97. Gravatar of Jim Glass Jim Glass
    31. July 2012 at 23:58

    The inflation 1933-34 was never above 5%.

    Actually the NBER monthly data give the general price level increase from 3/33 to 3/34 as being 10.6%. (Index 123 to 136)

    The Wholesale Price Index is different from the CPI you keep citing, and indeed rose more than 20% over that period (from circa 64 to circa 78).

  98. Gravatar of Alex Alex
    1. August 2012 at 04:40

    Scott,

    Not sure if you’ve seen this…

    http://blogs.wsj.com/economics/2012/08/01/should-fed-target-credit-instead-of-rates/

  99. Gravatar of Negation of Ideology Negation of Ideology
    1. August 2012 at 04:46

    Major -

    “Nobody is denying this necessity.” is your response to my assertion that the government “would still have to make a decision on what to use as money.”

    Maybe you don’t deny that necessity, but you never say what decision the government should make. It’s not enough to just admit the government has to make a decision, then bash those of us who say the decision should be units of GDP, and then refuse to say what you think the decision should be.

    You consistently talk about the side issue of alternate currencies, and refuse to address the main issue, which is what the government itself should use as a currency.

    As for your specific proposal – it would only be possible for ad valorem taxes, not specific duty taxes such as the gas tax. So let’s assume we go entirely to ad valorem taxes, for example a 10% retail sales tax. I have a store that only accepts pork bellies. Consider:

    1. When the tax is due, I sell 10% of the pork bellies I receive for dollars and send the dollars to the government.
    2. When the tax is due, I send 10% of the pork bellies to the government and the government sells the pork bellies for dollars.

    The differences between the two approaches are smaller than you think. The size of government is exactly the same, and the effect on the dollar is pretty close. The administrative costs are lower for #1 though. And in either case, as you admit, you still have to have a government decision on whether the dollar is based on GDP, CPI, gold, silver, ad hoc by some board, or something else. You could have market monetarism with your proposal or without it.

  100. Gravatar of Negation of Ideology Negation of Ideology
    1. August 2012 at 04:55

    One more point, if your proposal were put in place, the overwhelming majority of people and businesses would continue to use dollars. A tiny percentage would use gold, silver, foreign currencies or something else for a significant part of their business – probably less than 1%. Business would go on as usual. If you think Walmart would suddenly stop accepting dollars, you’re dreaming.

  101. Gravatar of OhMy OhMy
    1. August 2012 at 06:21

    Jim Glass,

    In other words you answer in the affirmative: FRED is indeed part of an MMT conspiracy. OK.

    Please help me find WPI data, I couldn’t.

    10% or 5% inflation is not a high inflation. Looking at NBER data, inflation immediately subsided to 5% and persisted until the fiscal contraction of 1937 although the Fed did nothing. You can barely find 1934 on NBER graph as well.

    Similar patterns can be seen in 1879, 1894, 1915, 1922. Is there a model for that?

    Also, do you have a model on why the WPI inflation didn’t spill into CPI at all? Again 5-10% inflation is not “high inflation”.

    So the event of the “high inflation of 1934″ pivotal for your theory is a myth.

    My explanation: your model says there SHOULD be inflation in 1934. Sumner looked for it, didn’t find it in CPI data. But if facts don’t conform to the theory, the facts are wrong. So he looked at WPI and voila!

    Who cares that the broad economy that is sensitive to CPI didn’t even register this pivotal event of the Fed engineering “rapid inflation”.

  102. Gravatar of Mike Sax Mike Sax
    1. August 2012 at 10:05

    “Only when the devastation wrought by their evil embrace of plutocracy will Stalinism return to save the world.”

    Stalinis’t my choices are between you and Major Freedom? Is there no door number three?

    There really is no sensible center you’re telling me?

  103. Gravatar of Mike Sax Mike Sax
    1. August 2012 at 10:11

    “You are much better off asking me about interwar data than looking it up, because I probably know more about the subject than the person who wrote whatever you looked up.”

    Scott, that’s fair enough, though my link there wasn’t a person it was simply the yearly inflation rates according to inflationdata.com.

    According to them the highest inflation got was 3.71% during the entire 1930s-in 1934.You believe that’s wrong?

    Do you not subscribe to the idea that inflation only comes after all the slack in the economy has been filled?

  104. Gravatar of Mike Sax Mike Sax
    1. August 2012 at 10:23

    Morgan in still other news, Romney now trails by 6 points each in Florida and Ohio, and 11 in Pennyslvania.

    http://diaryofarepublicanhater.blogspot.com/2012/08/president-obama-opens-up-leads-in-3.html

  105. Gravatar of John David Galt John David Galt
    5. August 2012 at 19:01

    Banning the word won’t make the danger go away. Neither will putting your collective heads where the sun don’t shine.

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