David vs. Goliath

I’m going to milk this underdog role for as long as I can.

In one corner is a lowly Bentley professor who was last on TV 50 years ago, as an audience member on a kids show in Wisconsin.

In the other corner is a guy who’s frequently on TV, and (I’m told) even has a TV studio in his house.

The experience was rather disorienting, as there are very bright lights and I wasn’t sure exactly where to look.  And then there are these voices in your ear-piece, but you can’t see the other people.  And nerves.

In other words if I wasn’t reduced to a blubbering drooling idiot, then I say I win.

By that criterion I think I eked out a slight victory (on content.)

Style?  Well there’s always next time.

I wish I’d had more time to address Schiff’s argument that inflation was much higher than the CPI showed.  That would mean RGDP growth would be far below 2%, probably below zero.  But that conflicts with about a zillion other data points:

1.  More than 2 million new jobs a year in recent years, and (contra Schiff) the average work week is stable.

2.  Rising industrial production and rising output in all sorts of other sectors like housing and oil and autos and retail and services.

Is all the output and employment data also being faked, just like the CPI?  To me that seems about as likely as the theory that no plane actually hit the twin towers and it was all a CIA plot.

PS.  Thanks for inviting me on Larry.  I promise to be better prepared next time.


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101 Responses to “David vs. Goliath”

  1. Gravatar of Morgan Warstler Morgan Warstler
    29. July 2013 at 17:20

    ROFL. awesome

    dude stare at the light. like it is a hot chick and you are behind a one way mirror, and no one knows your are there, and will never find out.

    and smile in exactly the same way.

    you don’t have to be there, you GET to be there.

  2. Gravatar of Morgan Warstler Morgan Warstler
    29. July 2013 at 17:23

    And would it kill you to say, just as an aside, when everything is becoming free, but people are consuming more, its hard to get inflation.

  3. Gravatar of J J
    29. July 2013 at 17:33

    Professor Sumner,

    You were great.

  4. Gravatar of Michael Michael
    29. July 2013 at 17:36

    Nicely done…

  5. Gravatar of Elmer Fike Elmer Fike
    29. July 2013 at 17:43

    Clear, effortless matter-of-fact and decisive rejoinders to Schiff.

    Thanks Scott.

  6. Gravatar of Caleb Caleb
    29. July 2013 at 17:47

    I thought you did a good job. Unfortunately, the format isn’t great for introducing a topic like NGDP targeting. But for people who understand it, it was a blowout in your favor.

  7. Gravatar of wufwugy wufwugy
    29. July 2013 at 18:07

    Smart conservative vs stupid conservative, more like

  8. Gravatar of Greg Greg
    29. July 2013 at 18:17

    I thought you did well.

  9. Gravatar of kebko kebko
    29. July 2013 at 18:24

    Another thing that people would have to believe if they think there is runaway unmeasured inflation is that for years, big bad bankers have been loaning people money and buying bonds at very negative real rates – just giving money away.

  10. Gravatar of Cameron Cameron
    29. July 2013 at 18:25

    This was wonderful. You actually did make the points you say you missed. If you can’t stand to watch the interview yourself I don’t blame you though. :) Watching one’s self on camera is always awful.

    Schiff has hundreds of TV appearances under his belt but you still managed to pull off a decisive victory. Kudlow also did a good job scolding Schiff for denying low inflation data. I love it.

  11. Gravatar of TravisV TravisV
    29. July 2013 at 18:27

    Prof. Sumner,

    Your takedown of Schiff The Clown was Phenomenal!

    In particular, your defense of the government’s inflation statistics was awesome. I can’t believe I hadn’t thought of that. Just observe that NGDP growth has been weak and back into a rough estimate of what inflation should roughly be.

    Well done!

    I imagine Kudlow will have you on his show more frequently, at least until 2016 when he will be advocating tight money no matter what! :)

  12. Gravatar of TravisV TravisV
    29. July 2013 at 18:29

    Peter Schiff is such a clown.

    See here: http://noahpinionblog.blogspot.com/2013/07/peter-schiff-trolls-sargent-and-sims.html

    Buy gold now, 30%+ inflation is just around the corner!!!

  13. Gravatar of TravisV TravisV
    29. July 2013 at 18:38

    Prof. Sumner,

    By the way, I’ve just thought of something inconvenient for your views. Here it is: monetary expansion is only possible if it’s coupled with big government intervention.

    Consider Shinzo Abe. Somehow, he’s managed to get the public to accept a higher rate of inflation. How did he do it? He included monetary expansion with a bunch of other big-government structural reforms. A politician can’t propose easy money and only easy money to the people. He has to sneak it in along with a bunch of other big interventions.

    Three Arrows!

    http://www.project-syndicate.org/print/shinzo-abe-and-soaring-confidence-in-japan-by-joseph-e–stiglitz

  14. Gravatar of Srw Srw
    29. July 2013 at 18:40

    I heard it on radio. You won.

  15. Gravatar of Beckett Beckett
    29. July 2013 at 18:40

    Ah! That video was amazing! Peter Schiff tried to come at Scott like Scott was some kind of crazed zombie communist, and Scott just tore him down. Love it!

  16. Gravatar of Bob Murphy Bob Murphy
    29. July 2013 at 18:50

    Scott do you realize how close you came to appearing on TV with a porn star?

  17. Gravatar of Bob Murphy Bob Murphy
    29. July 2013 at 18:51

    Shoot that link should have taken you to the 7m30s mark in the video…

  18. Gravatar of Anon Anon
    29. July 2013 at 18:52

    How was Fed balance sheet growth more effective than the ECB’s balance sheet growth? Until last fall, they were about equal.

  19. Gravatar of Negation of Ideology Negation of Ideology
    29. July 2013 at 18:54

    Great job Scott. Notice how he had to play the “Ump cheated me” card. His theories didn’t work, so the BLS must be engaged in a conspiracy.

    It’s always strange watching an academic vs. a demagogue. When you don’t have the luxury of simply making stuff up you’re obviously at a disadvantage.

  20. Gravatar of Tom Brown Tom Brown
    29. July 2013 at 18:56

    Scott, I’m happy you went up against Schiff on this. Morgan has some good pointers (above) for next time… but in general you were like the Amazing Randi debunking Uri Geller…. or this dude:

    https://www.youtube.com/watch?v=QlfMsZwr8rc&feature=player_detailpage&t=415

  21. Gravatar of Justin Irving Justin Irving
    29. July 2013 at 19:02

    Way to go Scott!

    ‘What if the earth is struck by a moon-sized panetoid?! What will your NGDPLT do THEN!’

    That was over before it began. The vulgar Austrians don’t even have a model, they have a book of catch phrases. I know because I tried to understand them before I found this blog.

    BTW you looked very composed.

  22. Gravatar of Ricardo Ricardo
    29. July 2013 at 19:04

    The professor “brand” works well: “matter-of-fact and decisive rejoinders,” like Elmer Fike said. Don’t get pulled into a clown fight. I was impressed.

  23. Gravatar of Tom Brown Tom Brown
    29. July 2013 at 19:32

    Scott, next time you’re debating an Austrian, here’s a handy list of terms:

    http://rationalwiki.org/wiki/Fun:Austrian_school

  24. Gravatar of Don Geddis Don Geddis
    29. July 2013 at 20:11

    I admire you for getting on TV, and fighting the good fight. Your content was excellent.

    All that said, the shifty eyes are a big problem, for TV. Especially at the very beginning, you looked everywhere except the camera. It gave the subconscious impression that you had something to hide. Or were distracted, not even interested in the conversation. Later, in the middle, you blinked and closed your eyes a lot, which made you look a bit sleepy, or at best disinterested.

    Not meant to be a strong criticism. Get out there, every chance you get! But definitely, you have room to improve in the style/presentation. Might as well work on it! Your loyal fans here have confidence that your star will continue to rise, so these opportunities will increase in the future. Might as well prepare now, to do a better job next time!

  25. Gravatar of Scott Freeland Scott Freeland
    29. July 2013 at 21:18

    Scott,

    I’ve seen a lot of people dismantle Schiff over the years, but this is the best take down of him and the Austrian conspiracy nuts I’ve seen.

    You were calm, collected, and you carved him up with surgical precision.

  26. Gravatar of Daniel J Daniel J
    29. July 2013 at 21:46

    The problem with this philosophy and conservatives/austrians is the supply side. You focus mainly on the demand side and yes how the two can intermingle. Yet they are focused like a laser on the supply side. I think a few posts on the flexibility (relatively) of the US labor market as well as our ability to switch and move capital at a pretty rapid pace should put this to bed, or make it take a nap. All Schiff cared about was the supply side, he doesn’t understand economics, but this is the allure of an Austrian theory. I remember you once commented on how America added millions of women to the labor force in World War II despite calls that we had a huge supply side problem. It would also be a good chance to synthesize your views on neo-liberalism and the good it has done for our supply side, there’s credit there where credit is due.

  27. Gravatar of Daniel J Daniel J
    29. July 2013 at 21:48

    Also as an aside, their argument is that it’s been all fat (inflation) and no muscle (GDP). Explain that the US economy has naturally big biceps (think Rosie the Riveter), it just isn’t eating enough.

  28. Gravatar of mbka mbka
    29. July 2013 at 22:21

    Actually you looked good, very stately and composed except for the shifty eyes. Luckily the rest of your body language was very assured so it neutralized much of the eye shift issue. And I suppose Morgan’s fix will work for next time ;-) As others have said your statements were near flawless. Your opponent, with all his well rounded appearance, felt more like a used car salesman.

  29. Gravatar of Tom Tom
    30. July 2013 at 00:30

    Slam dunk Scott.

  30. Gravatar of libertaer libertaer
    30. July 2013 at 00:39

    Great job!

    As a European I especially liked your point about Europe vs the US regarding the effects of QE. We have a double dip recession because of Draghi and all Schiff has to say to that is that he wants the US to have a recession. Awesome!

  31. Gravatar of Lorenzo from Oz Lorenzo from Oz
    30. July 2013 at 01:33

    I thought you did fine. Schiff was typical Austerian–his conclusion setting the ambit of his premises.

    I like Morgan’s process suggestions though. The Oz version is treat the camera as if it is someone in your lounge room you’re chatting with.

  32. Gravatar of Steve Ambler Steve Ambler
    30. July 2013 at 02:45

    Seemed like more of a knockout than a slight victory to me. I gather Austrians criticize the concept of velocity, but it seems to me that Schiff forgot about the V part of MV=PQ (it is an identity after all).

  33. Gravatar of BC BC
    30. July 2013 at 03:02

    I thought you looked a bit uncomfortable at first but then grew into the interview as it progressed.

  34. Gravatar of A 2-Sintence Proof Dat Peta Schiff Be Wrong About Inflashun | Oklahoma Sentinal A 2-Sintence Proof Dat Peta Schiff Be Wrong About Inflashun | Oklahoma Sentinal
    30. July 2013 at 03:26

    [...] N' a blog pos' respondn' ta dude interacshun wiff Schiff, Sumna providez a neat proof dat Schiff be wrong on dere ben' significant inflashun now. [...]

  35. Gravatar of A 2-Sentence Proof That Peter Schiff Is Wrong About Inflation | Lord of the Net A 2-Sentence Proof That Peter Schiff Is Wrong About Inflation | Lord of the Net
    30. July 2013 at 03:30

    [...] In a blog post responding to his interaction with Schiff, Sumner provides a neat proof that Schiff is wrong on there being significant inflation now. [...]

  36. Gravatar of Brian Donohue Brian Donohue
    30. July 2013 at 04:02

    Slow clap. Very smooth and a low-keyed pounding of Schiff. I instinctively root against the guy wearing the sandwich board in these tilts.

    I was expecting more of the Albert Brooks Broadcast News thing. Very well done.

    Still not sold on NGDP fairy dust, but I think the current Fed message (we only taper as the economy firms) is broadly similar.

    And even if inflation is low – 2.5% per year over the past three years – every trillion sitting in cash during that stretch is worth $75 billion less now. If I understand it, this is a feature, not a bug, right?

    Also, one could argue that the impact of QE has been to hold long-term rates down by 2% or so. Over the past year, rates have risen about 1%, and they could easily rise another percent if the Fed executes a smooth withdrawal.

    Now, take those rates and multiply by the $20 trillion + in outstanding debt. There’s a big squeeze coming in 5-6 years. The Seven Fat Years of Baby Boomer demographics are drawing to a close, and the larder is empty.

    The sequester, and 2013 in general, mark the first grim steps down this policy road. So far, so good.

  37. Gravatar of Hot Links: Preparing for a Storm | The Reformed Broker Hot Links: Preparing for a Storm | The Reformed Broker
    30. July 2013 at 04:08

    [...] Scott Sumner (Modern Monetary Theorist) crushes Peter Schiff (Austrian Economist, Amazing Investor) on Kudlow last night.  (BusinessInsider) and (TheMoneyIllusion) [...]

  38. Gravatar of Jack Cunningham Jack Cunningham
    30. July 2013 at 04:22

    I don’t understand Schiff’s point that QE is inflation, can anyone help me here or is it complete nonsense.

  39. Gravatar of Bob Bob
    30. July 2013 at 04:24

    Awesome! Nice work.

  40. Gravatar of Jack Cunningham Jack Cunningham
    30. July 2013 at 04:24

    Oh, and you were great by the way, Bravo!

  41. Gravatar of Gregor Bush Gregor Bush
    30. July 2013 at 04:39

    Way to keep your cool Scott. I asked Schiff about RGDP, employment, IP, auto sales the ISM ect. when he made the point that inflation was really 10% or whatever he thought it was. He implied that he didn’t beleive any of the economic data. So there’s really no arguing with him. But next time you’re on, ask him how his long MSCI World ex US/short US equity view is working out.

  42. Gravatar of Saturos Saturos
    30. July 2013 at 04:57

    Ohhh…. poor Scott, he looks so befuddled.
    (Nonetheless he did seem a lot cooler and calmer than Schiff, but then that’s hardly an achievement.)

    It’s interesting that firms like this “Euro-Pacific Capital” are willing to hire someone who obviously knows so little about economics as Schiff. (I LOLed on that “the money will come flooding back in from China” bit. Unless of course Cochrane is right, and the price level is somehow determined by the stock of T-bonds…)

  43. Gravatar of srw srw
    30. July 2013 at 05:00

    the ‘shifty eyes’ suggestions are important. I heard it on radio and you sounded calm, direct, to the point, putting as much info as possible into a few words. But remember the lesson of the Nixon-Kennedy debate (radio listeners said Nixon won, but TV watchers said Kennedy won). Visuals matter a lot. I bet a little practice can easily fix those glitches.

  44. Gravatar of Saturos Saturos
    30. July 2013 at 05:08

    Jack, basically he’s picked up on this lines that some of the Austrians are pushing, where “inflation” is redefined to literally “inflating the stock of money in the economy, which no one is interested in arguing about. And he has the gall to talk about moving the dartboard.

    Scott, while you’re milking the underdog role, do note that Larry called you the leader of the market monetarist school ;P

  45. Gravatar of A 2-Sentence Proof That Peter Schiff Is Wrong About Inflation A 2-Sentence Proof That Peter Schiff Is Wrong About Inflation
    30. July 2013 at 05:37

    [...] In a blog post responding to his interaction with Schiff, Sumner provides a neat proof that Schiff is wrong on there being significant inflation now. [...]

  46. Gravatar of There’s no persuading the hardcore inflationistas. But being really early is a lot like being really wrong | AEIdeas There’s no persuading the hardcore inflationistas. But being really early is a lot like being really wrong | AEIdeas
    30. July 2013 at 05:39

    [...] Here’s a bit from Sumner’s blog about this appearance: [...]

  47. Gravatar of Saturos Saturos
    30. July 2013 at 05:43

    Who is Roger Ferguson? http://www.theatlantic.com/business/archive/2013/07/who-is-roger-ferguson-and-could-he-be-the-next-fed-chair/278143/
    Apparently, the originator of the whole “make-QE-as-signal-explicit” idea.

  48. Gravatar of Rodrigo Escalante Rodrigo Escalante
    30. July 2013 at 05:45

    Congrats professor!

    I was actually watching the Kudlow report without any previous knowledge that you where going on live, so you can only image how pleasantly surprised I was when Larry introduced you as a professor of Bentley University and leader of the market monetarist!

    Hope you make another appearance soon.

  49. Gravatar of ssumner ssumner
    30. July 2013 at 06:30

    Everyone, Thanks, I agree on the shifty eyes, I’ll do better next time. I just have time for a few replies:

    Srw, You said;

    “I heard it on radio. You won.”

    That’s what they told Nixon.

    Oops, I see you had the same idea.

    Travis, FDR also used a try everything approach. I suppose it makes sense if a politician doesn’t know who to trust.

    Bob, That would have been exciting. Add some sex appeal to NGDPLT.

    Anon, Good point. But it’s about the overall policy regime, including signals of future policy intentions. EVERYONE agrees the Fed’s been more aggressive in all sorts of dimensions like keeping interest rates low and promising QE as needed to hit the dual mandate.

    Thanks Rodrigo, Good to hear from a former student.

  50. Gravatar of TallDave TallDave
    30. July 2013 at 06:42

    You were thoughtful and coherent, almost stereotypically professorial. Thought you came off very well.

    One simple point to hammer every time you get the chance: interest rates do not reflect monetary policy. If people stop saying that, MM wins.

  51. Gravatar of TallDave TallDave
    30. July 2013 at 06:55

    Reading the comments, I’d argue don’t worry about the eyes, worry about the ideas. I don’t think you need to go Hollywood to get MM across, if anything your demeanor helps sell you as a serious person. You look like what you are: a scholar. If you were yelling talking points like Schiff and Kudlow you’d be just another talking head and that’s much less interesting.

  52. Gravatar of Dan Dan
    30. July 2013 at 07:13

    I was afraid that Schiff’s lips were going to jump into Sumner’s screen and attack him.

  53. Gravatar of Bill Ellis Bill Ellis
    30. July 2013 at 08:08

    Scott,
    You did great. From your post I expected cringes. Not at all.

    You made your points well. You were very coherent to interested outsiders; in that way better than your posts. So… perfect for TV.

    I always like to see the economist I follow on TV, but I feel sorry for you guys too. The talking head format does favor the demagogue. You beat the odds.

  54. Gravatar of W. Peden W. Peden
    30. July 2013 at 08:19

    Schiff 2008: this increase in the money supply will cause inflation.

    Schiff 2013: we’ve seen inflation, by which I mean an increase in the money supply.

  55. Gravatar of W. Peden W. Peden
    30. July 2013 at 08:45

    Scott,

    What gives me most hope is that people on the left are taking the Yellen vs. Summers decision seriously, even beyond regulation and gender.

  56. Gravatar of Saturos Saturos
    30. July 2013 at 08:46

    There’s more you could have said to Schiff on inflation: http://blogs.wsj.com/economics/2013/07/27/number-of-the-week-even-offbeat-measures-show-no-inflation/

    And Matt O’Brien endorses Romer:
    http://www.theatlantic.com/business/archive/2013/07/why-christina-romer-should-be-the-next-fed-chair/277633/

  57. Gravatar of Saturos Saturos
    30. July 2013 at 08:51

    Weisenthal sums up the case against Summers: http://www.businessinsider.com.au/larry-summers-on-monetary-policy-2013-7

    And here is the NYT Room for Debate panel on replacing Bernanke; Pethokoukis bats for our side whilst DeLong endorses Summers: http://www.nytimes.com/roomfordebate/2013/07/29/who-should-lead-the-federal-reserve/the-fed-needs-a-leader-who-understands-and-embraces-macroeconomic-stability

  58. Gravatar of Bill Ellis Bill Ellis
    30. July 2013 at 09:09

    So Noah Smith smaks the crap out of Schiff blog style the same day Scott does it talking head mode.

    Coincidence ?

    Smith and Sumnner want us to think they are on opposite sides of the divide. (What the divide is… Who knows ? )

    I am not buying it.

  59. Gravatar of Wimivo Wimivo
    30. July 2013 at 09:13

    “Schiff 2008: this increase in the money supply will cause inflation.

    Schiff 2013: we’ve seen inflation, by which I mean an increase in the money supply.”

    Hah! So true.

  60. Gravatar of Bill Ellis Bill Ellis
    30. July 2013 at 09:17

    HEY….

    Peter Schiff Gets Totally Owned On Larry Kudlow’s Show In Debate About Inflation

    Read more: http://www.businessinsider.com/peter-schiff-vs-scott-sumner-on-larry-kudlows-show-2013-7#ixzz2aYAnXhVN

  61. Gravatar of Bill Ellis Bill Ellis
    30. July 2013 at 09:25

    I went to Schiff’s blog… http://peterschiffblog.blogspot.com/ Waste of time.

    He does not allow comments. Who says he is stupid?

  62. Gravatar of W. Peden W. Peden
    30. July 2013 at 09:40

    Bill Ellis,

    The problem with doomers is like the problem with stopped clocks: sure they’re sometimes right, but they’re more often wrong than right.

    There seems to be a human bias in favour of those who predict (in this case, without actually deriving a prediction from a rigorous model) nasty events. Peter Schiff’s entire reputation is based on (a) predicting that something bad was about to happen, even though he got many of the details wrong, and (b) having his predictions on youtube. Mark Matson, who is an investor that takes the EMH and modern economics in general very seriously, devoted a whole hour to debunking Schiff and goldbugs generally.

  63. Gravatar of Saturos Saturos
    30. July 2013 at 09:54

    To emphasize: DeLong is backing Summers for being “out of the box” and “creative”.

  64. Gravatar of BC BC
    30. July 2013 at 10:00

    Scott you got some mild criticism from Cullen Roche

    http://pragcap.com/scott-sumner-vs-peter-schiff

  65. Gravatar of W. Peden W. Peden
    30. July 2013 at 10:12

    Steve Ambler,

    The velocity of money is like the money multiplier: if people object to it as a concept, one can simply rephrase things in terms of the demand for money. Outwith statistical/theoretical papers, “money demand” does just as well; even in papers, there’s a lot to be said for the Cambridge version of the equation of exchange, so one talks in terms of a quantity k rather than a multiplier V.

  66. Gravatar of Steve Ambler Steve Ambler
    30. July 2013 at 10:48

    W. Peden,

    Of course. Just wanted to point out that growth in M has not translated into inflation because of an extraordinary drop in V. Scott more or less addressed this when he talked about money creation when short-run interest rates are close to zero, and also when he talked (without using the term) about the drop in the money multiplier (broad money has not grown as much as base money) since the Fed has been paying interest on reserves. Seems like Schiff doesn’t believe in the published numbers on P or Q anyway.

  67. Gravatar of Bob Bob
    30. July 2013 at 10:53

    Just like David vs Goliath: Poor Goliath had no way to win due to a huge technological disadvantage.

    We need to update the tale, in which we are surprised by how a replica of the battleship Yamato sunk by a single modern jet armed with anti-ship missiles.

  68. Gravatar of NOWAG NOWAG
    30. July 2013 at 11:24

    I think you are not giving enough credit to the real problem in Europe. You and Schiff both agreed regulation and red tape were getting worse in the US and that was hurting the economy. Earlier in the conversation, however, you stated the the difference between Eu and the US was QE. Europe is, overall, a worse business environment than the US and yet nobody talks about this. IE, NO amount of QE or bailouts will save Greece until they reform their business environment.

  69. Gravatar of Dwight Monson Dwight Monson
    30. July 2013 at 12:13

    Dear Professor Sumner:I haven’t missed a Kudlow TV show in 4 years and thought you did a fantastic job, calmly and cooly making your points and rebutting Mr. Shiff’s arguments. I entered this recession extremely sympathetic to the Austrian view of the business cycle because the 2000′s, as they unfolded, seemed to me to be right out of Murray Rothbard’s description of the years leading up to the Great Depression (in his circa 1980 book on the Great Depression). But I then started following your blog and it has continued to make great sense and seems to account for the evidence as it continues to unfold. I encourage you to be patient in these debates because, if market monetarism is right, I think you will eventually capture the minds of a majority of Republicans–both policymakers and voters. Paul Krugman’s snark and bad manners have kept me from taking him seriously; your thoughtful comments on his work have caused me to have second thoughts. Many Republicans love Austrian economics intuitively because of the centrality of the entrepreneur and hard work; printing money seems antithetical to that perspective and I believe is why many Republicans have been suspicious of Chairman Bernacke. Now that you have won the hearts and minds of Larry Kudlow and Jimmie P., your next goal should be George Will. I believe that his switching from a nebulous Austrian perspective to a market monetarist one, will help make inroads into Republican public policy-making. Best regards, Dwight Monson

  70. Gravatar of W. Peden W. Peden
    30. July 2013 at 12:17

    Steve Ambler,

    I agree.

    I think that Scott understates the case when he compares the CPI conspiracy theory to the 9/11 conspiracy theory: it would take a massive operation to convince bankers to accept extremely negative interest rates for decades in a row and to convince private estimators of inflation to shut up about it. After all, we know of a government that actually tried to fiddle the inflation numbers in a big way (Argentina) and it didn’t take too long for the private sector to not only call them up on it, but also publish independent numbers.

  71. Gravatar of ssumner ssumner
    30. July 2013 at 12:18

    Thanks everyone.

    Wimivo, Touche!

    NOWAG, The real problem in Europe is both the “real” problem and the “nominal” problem. I.e. both AS and AD.

  72. Gravatar of W. Peden W. Peden
    30. July 2013 at 12:18

    BC,

    That’s a good endorsement.

  73. Gravatar of ssumner ssumner
    30. July 2013 at 12:22

    BC, Of course reserves can leave the banking system, it’s called “currency”. It seems to me that Roche has made that mistake before.

  74. Gravatar of ssumner ssumner
    30. July 2013 at 12:26

    Thanks Dwight, I’d be honored if George Will converted.

  75. Gravatar of W. Peden W. Peden
    30. July 2013 at 12:28

    Scott Sumner,

    Yes, and I don’t see how the claim that a lot of QE involves purchases from non-bank agents sits well with the proposition that it has no effects on the economy. It’s one thing to say that it all gets stuck in the banking system, but not when a lot of primary dealers aren’t even employed by banks.

  76. Gravatar of Anon Anon
    30. July 2013 at 12:29

    If it’s “about the policy regime”, then perhaps QE, by itself, explains very little.

  77. Gravatar of Schiff vs. Sumner on the Fed and Inflation | timiacono.com Schiff vs. Sumner on the Fed and Inflation | timiacono.com
    30. July 2013 at 13:21

    [...] seems that rookie Scott Sumner gets the better of Peter Schiff in this discussion about Fed money printing and inflation on Larry [...]

  78. Gravatar of ChargerCarl ChargerCarl
    30. July 2013 at 14:30

    Posting this for comedy purposes:

    http://www.ronpaulforums.com/showthread.php?422745-Peter-Schiff-on-The-Kudlow-Report-7-29-13

  79. Gravatar of Bill Ellis Bill Ellis
    30. July 2013 at 15:08

    @ Jack Cunningham,
    I think Schiff is ignoring basic econ… supply and demand. He equates inflation with the Money supply because he is ignoring the demand side of the equation.

    Schiff acts as if money is like water in a lake that floats all our boats. Make more money and the (price) level must go up.

    But the reality is money is more like a commodity, the price level depends on the size of the supply AND the demand for it. As long as demand is low, it does not matter how much larger the supply gets it won’t effect prices/interest rates/inflation significantly. (hopefully increasing the money supply will have an effect by increasing Inflation EXPectations though)

    If When the demand for money does pick up and if the FED would do nothing to off set the demand by altering the money supply, then we would have inflation. …So the Fed would not do that.

    That Schiff ignores this begs incredulity.

    @ W. Peden,
    We see eye to eye on that. Well said.

  80. Gravatar of Tom Brown Tom Brown
    30. July 2013 at 15:29

    W. Peden, nice summary of “doomers” like Schiff. I see a lot of similarities between someone like Schiff and that Harold Camping guy running around telling everyone the Rapture was ABSOLUTELY going to take place on May 21, 2011. Remember him? The unbelievers were out having rapture parties, the “normal” believers were cringing, … even the “mainstream” rapture people were vocally disapproving of that clown.

    There must be a strong desire to be “raptured” while the majority suffer through the tribulation… wailing and gnashing their teeth… wishing they’d only listened to the warnings of the saved! They must imagine the radiant joy they’ll feel, looking down on all us poor rabble as we suffer… thinking to themselves

    “Yeah! Who’s the ‘fruitcake’ now? Huh?! Pity?… No way! You scum are getting *exactly* what you deserve!”

    This desire must be so strong that it blinds its adherents to reality. In Schiff’s case, you get “saved” by believing his brand of doom and gloom BS and buying into his funds I guess. All he has to do is stick his chin & chest out, stare confidently into the camera, and BS with a loud, clear, unapologetic, unwavering voice. His livelihood *literally* depends on it! This is the main “talent” of charlatans the world over: unwarranted, unashamed, and evidence-free fake uber-confidence. I’ve learned to deeply distrust that kind of delivery… … the delivery of the “cold reading” psychic, faith healing fraud, political/religious fanatic, and con-man… perhaps to the point where I’m unfairly biased against obnoxious arrogant *correct* people!

    Schiff perhaps is less like Camping (who staked it all on a single well publicized and easily falsifiable prediction) and more like this guy:

    http://en.wikipedia.org/wiki/Peter_Popoff

    Who no matter how many times he’s exposed as an out and out cynical fraud, keeps coming back again like a malignant cancer amongst the desperate “true believers.”

  81. Gravatar of Bill Ellis Bill Ellis
    30. July 2013 at 15:35

    ChargerCarl, Funny stuff.

  82. Gravatar of Coleton Stirman Coleton Stirman
    30. July 2013 at 15:35

    W. Peden,

    Don’t give the left too much credit yet on the fed chief debate.

    If they (we) were getting real serious, Larry Summers would have already exited stage left and the current debate would be Yellen vs. Romer.

    But — I agree with your premise, it is useful to see the left engage a bit deeper on issues they are not necessarily as comfortable with.

    Nice job Mr. Sumner, Schiff has seen lots of academics that he could trounce on volume and intimidation, but I suppose being in your own bunker helped keep his antics at bay. Keep it up, the U.S. is too dynamic to deserve such faulty monetary policy.

  83. Gravatar of Tom Brown Tom Brown
    30. July 2013 at 16:18

    Alternative theory on Schiff: perhaps rather than a rapture ready loon, or a faith healing fraud, Schiff’s appeal is most akin to this:

    Did anybody notice how Schiff’s argument seemed designed to appeal to a certain guilt ridden, self-flagellating, masochistic religious-ascetic instinct? To paraphrase:

    “We have to put a stop to this vile *fake* recovery now, so that a *true* cleansing (of the spirit) can occur with the resumption of suffering from an honest, character building RECESSION! … Yes this so-called “recovery” is an abomination to God! *Suffering* is the ONLY true path to redemption folks! Repent sinners, repent!! Put on your hair-shirt and pick up your cross!… you’re only making it worse by delaying the inevitable! The sooner we endure the punishment we despicable sinners so richly deserve, the sooner we’ll earn our heavenly reward. Hallelujah!”

    To be spoken in the following accent:

    https://www.youtube.com/watch?v=-gmraaFHfAg&feature=player_detailpage&t=16

  84. Gravatar of Tom Brown Tom Brown
    30. July 2013 at 16:23

    Sorry about all the religious analogies… but you started it Scott w/ your “David vs Goliath” bit!

  85. Gravatar of David N David N
    30. July 2013 at 16:49

    I think you did very well and the blinking, etc. didn’t bother me at all. However, I was left wanting more about that final what-if, which you seemed to agree could be a problem: stagflation. What is the likelihood of that scenario in your opinion. And if it did happen, could we afford a Volcker-like solution?

  86. Gravatar of Geoff Geoff
    30. July 2013 at 16:52

    I wish I’d had more time to address Schiff’s argument that inflation was much higher than the CPI showed. That would mean RGDP growth would be far below 2%, probably below zero. But that conflicts with about a zillion other data points:”

    No it doesn’t, as shown below.

    “1. More than 2 million new jobs a year in recent years, and (contra Schiff) the average work week is stable.”

    But how many people LEFT the workforce? 2 million more people in the workforce must be considered alongside the number of people who LEFT the workforce, who those 2 million new workers (plus existing workers) now have to provide for, which means less for those working.

    The number of people dropping out of the workforce is growing relative to the number of people in the population.

    “2. Rising industrial production and rising output in all sorts of other sectors like housing and oil and autos and retail and services.”

    Rising from what lows/highs?

    http://research.stlouisfed.org/fredgraph.png?g=l1m

    Production of autos and light trucks is at 2007 levels, which itself was at 1998 levels. This is auto production stagnation.

    How about housing starts?

    http://research.stlouisfed.org/fredgraph.png?g=l1n

    Housing starts are currently at 2009 levels, and 2009 was at 1991 levels. This is housing stagnation.

    How about oil and gas production?

    http://research.stlouisfed.org/fredgraph.png?g=l1p

    We’re at 1992 levels right now. This is oil and gas stagnation.

    You’re talking about all this “growth”, but all I see in the commodities you mentioned is stagnation. It’s almost as if we went through a huge boom and bust spanning the 1990s and 2000s, and are none the wealthier.

    You talk about a “zillion data points”, but you only showed three, and they are all consistent with Schiff’s argument.

    Perhaps you are taking your wishful thinking of hoping production is way up, and pretending it’s reality.

  87. Gravatar of Geoff Geoff
    30. July 2013 at 16:56

    OK, the oil chart I linked to concerned the number of employees, which isn’t actually production of oil per se, but a good proxy:

    http://i.imgur.com/Ifg07de.png

  88. Gravatar of J.V. Dubois J.V. Dubois
    30. July 2013 at 17:00

    Very good performance Scott. This part around 8:35 made me smile

    Schiff (shouts and interrupts Scott): What if dollar weakens and inflation flares up !!?

    Scott (keeping calm as if explaining something to a student that missed last lesson): Well if inflation really flares up … that would be consistent with much faster nominal GDP growth and government budget deficit will get much smaller in that case

  89. Gravatar of Geoff Geoff
    30. July 2013 at 17:15

    Home ownership is at an 18 year low.

  90. Gravatar of Geoff Geoff
    30. July 2013 at 17:16

    http://i.imgur.com/sYjY591.jpg

  91. Gravatar of Jeff Jeff
    30. July 2013 at 18:25

    @Bill Ellis,

    Actually, you have the money demand story reversed. What Scott is saying is that when the short term nominal rate is very close to zero, money demand rises. The opportunity cost of holding money rather than, say, Treasury Bills falls when the T-Bill pays next to nothing.

    This rise in money demand has to be accommodated by an increased money supply or a recession will result. As Nick Rowe would explain it, if people want to hold more money, they slow their spending in order to keep more money. If enough people do this at the same time, aggregate demand falls.

    In normal times, the short interest rate is not all that close to zero, and holding money rather than bonds is costly. Money demand is not extremely high, and if the Fed supplies more money than people want to hold, aggregate demand and nominal GDP increase as people try to exchange the money they don’t want to hold for something else.

    Keynes thought that if interest rates hit zero, money demand would effectively become infinite. That is, no matter how much money the Fed supplies, everyone is content to hold it. Keynes called this a “liquidity trap”, and apparently didn’t realize that, as Pigou would point out in 1948, it wasn’t really possible due to the real balance effect. (This became common knowledge even amongst Keynesians in the 1960′s after Don Patinkin’s restatement of Keynesian theory made it clear just what extreme assumptions you had to make to get model to have a liquidity trap. Except to a certain NY Times columnist.)

  92. Gravatar of Ben J Ben J
    30. July 2013 at 23:06

    Geoff,

    Just to be clear, you agree with Schiff’s argument that prices are rising much, much faster than the government is saying?

    And are you saying that it is a conspiracy that has been covered up by the BLS, or are you saying that the publicly available data points “are all consistent with Schiff’s argument”? Or some convenient hybrid?

  93. Gravatar of W. Peden W. Peden
    31. July 2013 at 03:28

    Tim Congdon weighs in on the Summers question-

    “He is an East Coast Keynesian of the worst kind. He doesn’t have monetary policy in his thinking at all.”

    http://www.telegraph.co.uk/finance/economics/10212389/Monetarists-see-recovery-danger-from-Summers-Fed.html

  94. Gravatar of Brian K Brian K
    31. July 2013 at 07:02

    Schiff is a clown and a very lousy investor

    Peter Schiff admits to losing millions in Gold:

    http://www.youtube.com/watch?v=Ox34bOw9MUg

  95. Gravatar of ssumner ssumner
    31. July 2013 at 07:05

    Anon, The policy regime is about expected future QE.

    David, I see little chance of the 1970s-type staglation. A bigger risk is 4% inflation and 1% RGDP growth. The Fed can’t solve that problem.

    W. Peden, Thanks, it seems like economists all across the spectrum are appalled by Summers.

  96. Gravatar of Charlie Charlie
    31. July 2013 at 07:15

    I thought you did really well. You were calm and cool. I wish there was something between QE and nominal GDP targeting to emphasize, as I doubt much of the audience will know what nominal GDP targeting is. Perhaps, the verbiage “credible forward guidance” would be helpful.

  97. Gravatar of Charlie Charlie
    31. July 2013 at 07:30

    Maybe permanent vs. temporary money injections is a good differentiation to make against Schiff. That seems to be a particularly Austrian blind spot. You explained that well in the econlog podcast (obviously, you time is much, much shorter).

  98. Gravatar of Geoff Geoff
    31. July 2013 at 17:24

    Ben J:

    “Just to be clear, you agree with Schiff’s argument that prices are rising much, much faster than the government is saying?”

    I think they are rising faster than reported, yes. How much faster is something I can’t give an accurate number for.

    And just to be clear, are you in agreement with my post that shows real production is stagnating?

    “And are you saying that it is a conspiracy that has been covered up by the BLS, or are you saying that the publicly available data points “are all consistent with Schiff’s argument”? Or some convenient hybrid?”

    I think in terms of public choice theory on this one. I don’t believe everyone at the BLS are sitting around a table and debating how to best fudge and lie about the numbers. I think what is happening is that there is a lot of pressure, psychological and career oriented, that ends up filtering out “bad models” from consideration (“bad models” = models that show uncomfortably high inflation). There are likely data analysts who find that the older models keep calculating 4 or 5% inflation, and with VSPs declaring that the official target is 2%, I think this gives incentives to the analysts to “massage” the models so that they output a more favorable inflation rate.

    I look at history. I notice very clearly that as we consider inflation calculation models further and further back in history, there is a very noticable change in the calculated inflation rate. For example, if the same model used in 1980 were used today, it would output 5-10% inflation, and if the same model from the early 1990s was used, it would show a 3-4% inflation rate. The model today outputs 2%.

    It’s very similar to the data collecting on the search for WMDs in Iraq. There was strong pressure and strong incentives for the analysts to conclude that yes, Hussein did have WMDs, and if some data said he didn’t, then put less weight on that data, etc.

    I find it incredibly baffling how so many of the people on this blog are gasping and offended at the notion that the government publicizes substandard data to the public. Given the fact that we were all lied to about being spied on, for many years, where thousands of people in the government knew about it, I think the whole “That’s a silly conspiracy, how in the world can they keep such a large secret from the civilian population, when they can’t even fix a bad road in time” should be stricken from the public discourse as antiquated bootlicking nonsense.

  99. Gravatar of W. Peden W. Peden
    1. August 2013 at 03:30

    “I find it incredibly baffling how so many of the people on this blog are gasping and offended at the notion that the government publicizes substandard data to the public.”

    That’s a strawman argument: the question is not whether or not there are substandard government stastistics, but whether or not the government, the private sector (including banks accidentally charging massively negative real interest rates) and international organisations are all getting US inflation rates WILDLY wrong. And we know exactly what it looks like when governments try to fiddle with the figures, because we’ve seen it in Argentina: people pick up on it very quickly and for example trade unions bargain on the assumption that the official figures are wrong.

    It’s true that the CPI index changes very considerably over time. In fact, it’s worse than that: the basis of the changes assume the possibility of interpersonal utility comparisons, but as Lionel Robbins pointed out, there is no basis in economics for such comparisons, since economic utility is ordinal rather than cardinal.

    However, we don’t have to look at the CPI index. We can use the GDP deflator, which changes only with changes in people’s patterns of consumption e.g. sewing machines are weighted less now than in 1980, whereas personal computers are weighted more.

    Annualised GDP deflator growth hasn’t been above 2% since 2008. No-one has presented an even remotely good argument to me as to why that’s wrong.

    You don’t have to believe that US government statistics are perfect or that conspiracy theories never take place to believe that Peter Schiff is wrong. You just have to believe that a very improbable conspiracy theory is wrong, even if it goes against what you want to believe.

  100. Gravatar of Sina Motamedi Sina Motamedi
    3. August 2013 at 12:10

    I thought you did quite well. Maybe I’m missing something.

  101. Gravatar of Geoff Geoff
    4. August 2013 at 20:02

    W. Peden:

    “the question is not whether or not there are substandard government stastistics, but whether or not the government, the private sector (including banks accidentally charging massively negative real interest rates) and international organisations are all getting US inflation rates WILDLY wrong.”

    This presumes they all agree, when in reality they do not.

    That isn’t the question. The question is of the quality of government statistics.

    “Annualised GDP deflator growth hasn’t been above 2% since 2008. No-one has presented an even remotely good argument to me as to why that’s wrong.”

    Then you haven’t been paying much attention.

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