An imaginary conversation

The Zen Master:  Money is too tight.

Exasperated Fed official:  But what do you want us to do?

The Zen Master:  First tell me where you want to go?

Exasperated Fed official:  What do you mean?

The Zen Master:  Provide an observable metric for the path of AD over time, and then tell us all the preferred trajectory of that indicator.

Exasperated Fed official:  OK, we’d like to see total spending rise by 6% a year for two years, then 4.5% per year thereafter.  But what do you want us to actually do?

The Zen Master:  You’ve just done it.

PS.  The master of monetary metaphors (Nick Rowe) has a couple highly recommended posts on the implication of various forms of price (and wage?) stickiness.  (Here and here.)


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13 Responses to “An imaginary conversation”

  1. Gravatar of Morgan Warstler Morgan Warstler
    27. August 2012 at 17:36

    The conversation is much clearer if you imagine it between the Fed and the Hegemony.

    The Fed: what would you like us to do?

    Hegemony: you are doing it.

  2. Gravatar of Brito Brito
    27. August 2012 at 17:54

    huh?

  3. Gravatar of ChargerCarl ChargerCarl
    27. August 2012 at 18:02

    http://www.dallasfed.org/assets/documents/institute/wpapers/2012/0126.pdf

    i think i just gave myself brain damage from facepalming so hard

  4. Gravatar of Bill Ellis Bill Ellis
    28. August 2012 at 08:19

    Exasperated Fed official: But President Romney and his gold bug Veep, think to get spending to rise by 6% a year for two years, then 4.5% per year thereafter requires tighter money.
    How can just announcing our goals without saying how we will achieve them effect expectations when everyone knows that the people who employe me can’t agree on how I should do my job ?

  5. Gravatar of Doug M Doug M
    28. August 2012 at 10:38

    Charger Carl,

    Thanks for the link, great stuff.

  6. Gravatar of Major_Freedom Major_Freedom
    28. August 2012 at 10:47

    ChargerCarl:

    i think i just gave myself brain damage from facepalming so hard

    I am sure priests during the enlightenment thought the same thing when reading the heretical works of scientists.

  7. Gravatar of Ben J Ben J
    28. August 2012 at 15:56

    Major_Freedom,

    Contrarian extraordinaire

  8. Gravatar of Browsing Catharsis – 08.29.12 « Increasing Marginal Utility Browsing Catharsis – 08.29.12 « Increasing Marginal Utility
    29. August 2012 at 04:01

    [...] Zen market monetarism. [...]

  9. Gravatar of W. Peden W. Peden
    29. August 2012 at 11:03

    Major Freedom,

    I’m surprised that you aren’t openly critical of an article like that, with conclusions like “the principal lesson for central banks would seem to be that they should lean more aggressively against credit driven upswings” and “What central bankshave done is to buy time to allow governments to follow the policies that are more likely tolead to a resumption of “strong, sustainable and balanced” global growth”. Doesn’t sound like your cup-of-tea, so I don’t know why you aren’t “facepalming”.

  10. Gravatar of Major_Freedom Major_Freedom
    29. August 2012 at 15:27

    W. Peden:

    I’m surprised that you aren’t openly critical of an article like that, with conclusions like “the principal lesson for central banks would seem to be that they should lean more aggressively against credit driven upswings” and “What central bankshave done is to buy time to allow governments to follow the policies that are more likely tolead to a resumption of “strong, sustainable and balanced” global growth”. Doesn’t sound like your cup-of-tea, so I don’t know why you aren’t “facepalming”.

    I was facepalming, but far less than from other papers that typically come out of the Fed. The fact that the Fed published a paper that even hints at the law of unintended consequences of easy money, and mentions ABCT in a non-pejorative light on page 3, I was knocked off my chair.

    The quotes you mentioned are partial snippets. These are the quotes with more context:

    “…the principal lesson for central banks would seem to be that they should lean more aggressively against credit driven upswings, and be more prepared to tolerate the subsequent downswings. This could help avoid future crises of the current sort

    This quote definitely has an Austrian “feel” to it. Austrians are the only school saying “let the market correct (go into recession)”.

    Then:

    “What central banks have done is to buy time to allow governments to follow the policies that are more likely to lead to a resumption of “strong, sustainable and balanced” global growth. If governments do not use this time wisely, then the ongoing economic and financial crisis can only worsen as the unintended consequences of current monetary policies increasingly materialize.

    I definitely facepalmed at the faith White seems to have that governments will willingly restrain themselves in an environment of central banks keeping money easy for their respective Treasuries (which they were originally in part designed to do). But the fact that the Fed published a paper that says central banks will ruin the economy by way of keeping spendthrift governments solvent, is just something I don’t see everyday.

  11. Gravatar of Major_Freedom Major_Freedom
    29. August 2012 at 15:32

    W. Peden:

    Also, check out page 36. It as well have been written by someone from the Mises Institute.

  12. Gravatar of W. Peden W. Peden
    29. August 2012 at 16:30

    Major Freedom,

    I think the correct analysis of the paper is that it is confused: there is a lot of good stuff in there, but a lot of bad policy conclusions from it. So we are given reasons to be sceptical about discretionary monetary policy, yet end up with a kind of hard-money Keynesianism; there are definite Austrian School moments, but also a credulous reference to “The Spirit Level”.

    “A curate’s egg” is how I’d describe it.

  13. Gravatar of ‘Free Market’ Double Standards 6.0 « Unlearning Economics ‘Free Market’ Double Standards 6.0 « Unlearning Economics
    13. October 2012 at 06:33

    [...] defend supposed incidences of Central Bank’s inability to control NGDP (like 2008) by arguing that the CB must announce a policy rule for it to work, but simultaneously hold up Israel and [...]

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