Miles Kimball on the good, the bad, and the ugly

Miles Kimball has a characteristically interesting post on monetary policy, credit policy, and fiscal policy (which I regard as the good, the bad, and the ugly.) Kimball certainly agrees that fiscal policy is the worst option:

Monetary policy and fiscal policy are not equally good as ways to stimulate the economy. Traditional monetary policy (that is, lowering the short-term interest rate) has two key advantages over traditional fiscal policy:

  • It does not add to the national debt

  • Because many governments have””however controversially””been willing to let monetary policy be handled by an independent central bank, it is not doomed to be tangled up politics to the same extent that discretionary fiscal policy inevitably gets tangled up in long-running political disputes about taxing and spending.

Kimball’s exactly right.  BTW, I am amazed by how many proponents of fiscal policy don’t understand that it’s symmetrical.  Fiscal policy doesn’t mean more government; it means more government during recessions and less government during booms, with no overall change in the average level of government. Anyone who doesn’t even get to that level of understanding, who doesn’t think in terms of policy regimes, is simply not part of the serious conversation.

Unfortunately Kimball is too pessimistic about the possibilities of monetary policy, arguing that Fed policy is not effective at the zero bound unless they starts paying negative interest on the medium of account (reserves in Kimball’s proposal.)  I won’t discuss why this is wrong here; I’ve done a zillion other posts explaining why the zero bound is not a problem.  Instead I’d like to focus on an alternative policy suggested by Kimball, credit policy:

The lack of legal authority for central banks to issue national lines of credit is not set in stone. Indeed, for the sake of speed in reacting to threatened recessions, it could be quite valuable to have legislation setting out many of the details of national lines of credit but then authorizing the central bank to choose the timing and (up to some limit) the magnitude of issuance. Even when the Fed funds rate or its equivalent is far from its zero lower bound at the beginning of a recession, the effects of monetary policy take place with a significant lag (partly because of the time it takes to adjust investment plans), while there is reason to think that consumption could be stimulated quickly through the issuance of national lines of credit. Reflecting the fact that national lines of credit lie between traditional monetary and traditional fiscal policy, the rest of the government would still have a role both in establishing the magnitude of this authority and perhaps in mandating the issuance of additional lines of credit over the central bank’s objection (with the overruled central bank free to use contractionary monetary policy for a countervailing effect on aggregate demand).

In another paper, Kimball spells out the credit policy in more detail. It might involve the government giving each American a credit card with a $2000 credit limit. This is certainly better than fiscal stimulus, but still falls far short of the efficiency of monetary stimulus.

We need a NGDP level targeting regime, with perhaps a 5% trend line. Under this sort of regime, monetary policy is always set in a position where expected NGDP growth is whatever is required so that the economy is expected to return to the trend line in 12 months.   The zero interest rate bound is not a problem for this type of policy. What might be a problem is the zero bound on the amount of government debt (plus MBSs) held outside the Federal Reserve. If the Fed runs up against that boundary it has several options.  One option is to pay negative interest on bank reserves but continue to allow currency to trade at par. A second option would be to raise the NGDP growth target path, perhaps to 6%. A third option would be to allow the Fed to buy a wider range of assets. In practice, none of these options would be necessary, as the public certainly would not wish to hold $20 trillion in base money if the interest rate on reserves was 0% and expected nominal GDP growth was 5%. But it’s nice to have Chuck Norris standing behind you just in case.

The lag issue is over-rated.  Estimates of monetary policy lags are susceptible to the identification problem. If the stance of monetary policy is correctly characterized as expected nominal GDP growth, then policy lags would be seen as not very important. Changes in current aggregate demand are strongly impacted by changes in expected future aggregate demand. If you keep twelve-month forward expected nominal GDP growth equal to the target path, than current nominal GDP will be well-behaved. Recessions would be exceedingly mild.

Zero rates are not a problem; they are a symptom of a central bank that is aiming too low.


Tags:

 
 
 

63 Responses to “Miles Kimball on the good, the bad, and the ugly”

  1. Gravatar of Morgan Warstler Morgan Warstler
    18. October 2013 at 10:49

    Miles is nearly on the GI / CYB train:

    http://blog.supplysideliberal.com/post/63725670856/janet-yellen-efficiency-wages-and-monetary-policy

    And I think after back and forth, he’s even more cozy.

    My point is that, the other part of common ground here is that:

    BAD fiscal sucks.

    It’s not just that MP can do the lift during bad fiscal (more of the PK view of QE), but that since we are going to use MP, we ought to free our minds and let go of Bad Fiscal when we look at a given policy and say “well at least it creates jobs” etc.

    As such, once we commit ourselves to MP, it’s morally wrong to have BOTH Minimum Wage and a Safety Net.

    These things compliment each other as much as the French:

    The Safety Net is the Wealth Transfer.

    The Minimum Wage simply raises prices so that the Transferred Wealth buys less stuff.

    So when we look the People in the eye, and say “Trust us we’re monetarists, this isn’t going to hurt a bit”…

    It’d go a lot farther, if we said, “we don’t just inflate willy-nilly, we are always on the look out for sticky wage and price policies (BAD FISCAL) that are antithetical to our MP”

  2. Gravatar of Greg Ransom Greg Ransom
    18. October 2013 at 10:49

    So “fiscal policy” is like a weightless elephant or a 5 sided triangle — it’s an impossible thing which the world can never experience, and can’t ever come close to experiencing.

    “Fiscal policy doesn’t mean more government; it means more government during recessions and less government during booms, with no overall change in the average level of government.” — Scott Sumner

  3. Gravatar of jknarr jknarr
    18. October 2013 at 11:37

    The asset and liability sides of the central bank is an atavism and a relic of the gold standard. At the end of the day, the Fed only needs (or need threaten) to hold some 20% of the (liability) monetary base in liquid-ready-to-sell-and-absorb-reserve-funds form.

    80% of the base is effectively permanent. Why not simply hold a “platinum coin” on the asset side and revalue as needed for the 80% of Fed assets that will never, never be sold? This would free up debt markets considerably, and remove any lingering asset-side quasi-constraints on monetary policy.

    On the liability side, there is a much greater role for currency as parallel “permanent” monetary policy. Yet there are clear (and expanding) restrictions on using cash in any reasonable size: you’d think that they don’t want the base to enter the nominal economy.

    At zero rates, banks are negative utility after fees — so businesses and consumers can and should use more cash, and circumvent the reserve-lending demand bottleneck. (Interesting Waffle House example.)

    Currency is a inalienable part of the monetary system — it needs to be free in order to work well — and yet they are throttling its usage. Cash demand at the zero bound is a feature that boosts NGDP at low debt-demand levels, not a bug.

    Excess reserves don’t do much, circulating currency can do a lot.

  4. Gravatar of Wawawa Wawawa
    18. October 2013 at 12:02

    Corrections in parenthesis: “Fiscal policy doesn’t (neccessairily) mean more government; it means (in practice) more government during recessions and (when compared to the preceding recession, theoretically) less government during booms, with (theory implying little to) no overall change in the average level of government (across a business cycle).”

  5. Gravatar of Aidan Aidan
    18. October 2013 at 12:35

    “BTW, I am amazed by how many proponents of fiscal policy don’t understand that it’s symmetrical. Fiscal policy doesn’t mean more government; it means more government during recessions and less government during booms, with no overall change in the average level of government.”

    I’m going to give you the benefit of the doubt and assume that you’re simply failing an ideological Turing test and not being willfully misleading. This would be an accurate statement if applied to opponents of expansionary fiscal policy in a depression, but can you point to some Keynesians who believe that countercyclical fiscal policy is a permanent expansion of government? Certainly not Larry “Timely, targeted, and temporary” Summers and the designers of the stimulus package. More government during recessions and less government during booms is the entire point.

  6. Gravatar of Steve Steve
    18. October 2013 at 14:56

    USA, Banana Republic

    Tea Party to ‘Primary’ Republicans who vote to reopen government.
    http://www.bloomberg.com/news/2013-10-18/republican-civil-war-erupts-business-groups-v-tea-party.html

    AFL-CIO to oppose any Democratic who votes for entitlement reform
    http://www.washingtonpost.com/blogs/plum-line/wp/2013/10/17/labor-puts-dems-on-notice-dont-touch-medicare-and-social-security-benefits/

  7. Gravatar of Lorenzo from Oz Lorenzo from Oz
    18. October 2013 at 14:59

    Fiscal policy doesn’t mean more government; it means more government during recessions and less government during booms, with no overall change in the average level of government.
    I thought “fiscal policy” in this context means the balance between spending and taxing. If you raise spending during recessions and taxing during booms, would not that be countercyclical but have the level of government (as ratio to GDP) trend upwards? Conversely, if you cut taxing during recessions and spending during booms, would not that also be countercyclical but have the level of government (as ratio to GDP) trend downwards? After all, the extra spending would be particularly credible in the first policy regime as the tax cuts would be in the second.

  8. Gravatar of benjamin cole benjamin cole
    18. October 2013 at 15:29

    Excellent blogging…taper up QE, taper down IOER…

  9. Gravatar of Steve Steve
    18. October 2013 at 15:51

    USA, Banana Republic, part 2

    Work less, earn $2,000 less, receive $12,000 subsidy

    http://www.sfgate.com/business/networth/article/Lower-2014-income-can-net-huge-health-care-subsidy-4891087.php

  10. Gravatar of ssumner ssumner
    18. October 2013 at 16:29

    Morgan, Good points.

    Wawawa, The correction should be “doesn’t” replaced with “shouldn’t”

    Aidan, I’m going to give you the benefit of the doubt and assume you are simply ignorant, and not stupid. The Summers comment has no bearing on my post. It says nothing about the average level of spending. As far as Keynesians guilty of the fallacy I identified, my comment sections are full of them.

    Lorenzo, I should have said optimal fiscal policy.

    Steve, Yes, I saw that. Unbelievable incompetence in Congress.

  11. Gravatar of Geoff Geoff
    18. October 2013 at 17:32

    Kimball is characteristically wrong.

    “It does not add to the national debt.”

    The truth is the opposite. Monetary policy in the form of interest rate targeting does indeed add to the national debt, because the central bank must purchase t-bills in order to bring about a lower interest rate via what market monetarists call the “liquidity effect”, which of course itself is the norm during traditional inflationary periods.

    I am not surprised that there is a denial of the link between central bank inflation and national debt.

  12. Gravatar of Keshav Srinivasan Keshav Srinivasan
    18. October 2013 at 18:31

    Scott, off-topic but have you seen this research from the St. Louis Fed criticizing NGDP targeting?

    research.stlouisfed.org/publications/es/article/9942/

  13. Gravatar of Steve Steve
    18. October 2013 at 18:39

    “Steve, Yes, I saw that. Unbelievable incompetence in Congress.”

    Sadly, it’s cynicism, not incompetence.

    If the subsidy were expanded, ObamaCare would fail CBO scoring.

    If the subsidy were reduced, ObamaCare would be unpopular.

    Therefore, Congress says, we’re reducing the deficit, unless you work less, wink wink.

  14. Gravatar of John John
    18. October 2013 at 18:47

    Scott,

    On days I’m feeling pessimistic I wonder if even perfect monetary policy is enough to restore the economy over the long run. So much has happened since 2008 that crushed the ability of the economy to produce and create jobs. The financial and healthcare sectors have been permanently damaged and cannot be repaired.

    In finance, all major companies know that they will be bailed out and therefore have the incentive to make risky gambles with what is essentially tax payer money. Combined with the bailouts, the Dodd-Frank bill is so costly to comply with that there is no opportunity for new companies or innovation. The big companies now are the only financial companies which will ever be big. Essentially we have now created a permanent oligopoly.

    In healthcare, a system already badly distorted by overregulation has just gotten more regulated. No one knows what the final content of the Affordable Care Act will be and the laws will be constantly changing and shifting creating an impossible environment for businesses to make plans. Much of the hospitals capital has already been malinvested in integration under the idea that the old system would last. The uncertainty in that sector is unlike anything I’ve ever seen before. It is a great exercise in arbitrary and almost despotic government. Like finance, small competitors will be crushed and companies that are big now will be the final companies in the industry.

    In the labor market, I believe that Casey Mulligan is correct and that the natural rate of unemployment is permanently higher on account of legislation over the past 6 years (high min. wage and longer unemployment insurance). The disincentives to produce or take lower wage jobs combined with the outright job destruction of the minimum wage and other labor regulations have created a permanent underclass dependent on government support and ruined the future of many young college graduates.

    Given all of these obstacles to recovery that have been heaped on the back of an already fragile economic system, I have a hard time seeing a slightly higher rate of NGDP bring us back to some type of boom.

  15. Gravatar of If You’re Not Outraged, You Haven’t Been Reading Scott Sumner’s Blog If You’re Not Outraged, You Haven’t Been Reading Scott Sumner’s Blog
    18. October 2013 at 21:13

    […] post title is misleading, but I couldn’t think of anything wittier. Scott Sumner calmly discusses reflections from Miles Kimball and says […]

  16. Gravatar of Saturos Saturos
    18. October 2013 at 21:31

    Evans criticizes tightening to burst bubbles: http://blogs.wsj.com/economics/2013/10/18/feds-evans-bad-idea-to-use-monetary-policy-to-burst-bubbles/

    Keshav, Scott is probably sick of rebutting those arguments now…

  17. Gravatar of Saturos Saturos
    18. October 2013 at 21:33

    Perhaps should do a reply to Andolfatto, though? http://andolfatto.blogspot.com.au/2013/09/ngdp-targeting-and-taylor-rule.html

  18. Gravatar of Poor Ricardo Poor Ricardo
    18. October 2013 at 22:38

    I like the National Lines of Credit idea. From a practical implementation stand point, government credit cards for every citizen would be a nightmare though. The fraud and cost of set up would make it totally impractical. Why not use national lines of credit to fund tax cuts? The Fed and Treasury could set up such an arrangement in days.

  19. Gravatar of Negation of Ideology Negation of Ideology
    19. October 2013 at 04:00

    Stimulating the economy by increasing the monetary base does not add to or subtract from the national debt, and decreases annual deficits by whatever interest the central bank earns on the assets it buys.

    However, cooling the economy when it is over target by reducing the monetary base, doesn’t add to or subtract from the national debt, and increases the annual deficit by whatever interest it forgoes on the assets it sells.

    At first glance, that would imply we should use monetary policy to stimulate and fiscal to cool, but it makes more sense to always run large fiscal surpluses and offset them with a larger monetary base. Also, we should favor regulations that lower the money multiplier and velocity and offset them with a larger monetary base. Then for a given NGDP target, we will have the smallest deficit and largest base, therefore the lowest interest burden. In fact, the federal government could be net interest earner in a relatively short time.

  20. Gravatar of Kevin Donoghue Kevin Donoghue
    19. October 2013 at 04:25

    Me, I’m amazed by how many opponents of fiscal policy don’t understand that it’s symmetrical.

  21. Gravatar of Morgan Warstler Morgan Warstler
    19. October 2013 at 05:54

    John,

    Get thee to the GI / CYB Nunnery!

    http://www.morganwarstler.com/post/44789487956/guaranteed-income-choose-your-boss-the-market-based

    One small change. One that the Cong Black Caucus, the Tea Party and the Occupy Wall Street crowd can agree on…

    1. no more worrying about unemployment EVER again.

    2. we just use NGDPLT to keep the state from growing via crisis.

    3. Profit!

  22. Gravatar of TravisV TravisV
    19. October 2013 at 06:36

    Andy Harless on Twitter:

    In the long run, easy money (which leads to more inflation & therefore higher nominal interest rates) tends to make bubbles less likely.

    ………..

    To avoid asset bubbles, we need larger fiscal deficits and lower saving rates.

    ………

    @DeanBaker13 Better regulation could help, but I think attempts to use monetary policy to avoid bubbles would be self-defeating.

  23. Gravatar of ssumner ssumner
    19. October 2013 at 06:36

    Thanks Keshav.

    John, Keep in mind that the maximum unemployment benefits will return to 26 weeks. But I accept much of your pessimism, we will never get back to the old trend line, pre-2008.

    Saturos, That was an old post, and has been addressed. The easiest way to see the difference is to recognize that estimates of the output gap have no impact on NGDPLT, but do impact the Taylor rule. So they are very different.

    Kevin, Good point. I think they feed off the rhetoric of the fiscal proponents. They never see Krugman advocate cutting government spending to slow the economy.

  24. Gravatar of TravisV TravisV
    19. October 2013 at 06:38

    “Fed won’t slow easing any time soon, thanks to Congress”

    http://www.cnbc.com/id/101122607

  25. Gravatar of Ralph Musgrave Ralph Musgrave
    19. October 2013 at 06:47

    The idea that fiscal policy adds to the national debt is flawed. What might be called “pure fiscal policy” (i.e. government borrows and spends) will initially drive up interest rates. But assuming stimulus is in order, the central bank will simply print money and buy back enough debt to stop rates rising. So the debt rises, but interest rates won’t.

    Moreover, if the interest on the debt is held below the rate of inflation, then government makes a PROFIT out of its debt. So more debt means more profit!!! Indeed, Warren Mosler argues that the rate should be kept permanently at zero (in that case, debt and monetary base become more or less identical). What’s the problem with more monetary base? To put it figuratively, what’s wrong with everyone having more $100 bills?

    Second there’s the “tangling up in politics point”. That’s certainly a big problem under the existing system: the worst all time example of that being the recent debt ceiling shinanigans in Congress. But that’s clearly a crass system.

    In contrast, it would be perfect possible to have a system where the amount of stimulus was determined PURELY BY a committee of economists, with strictly political stuff (e.g. what proportion of GDP is allocated to public spending) remaining with politicians. Such a system is set out here:

    http://www.positivemoney.org.uk/wp-content/uploads/2010/11/NEF-Southampton-Positive-Money-ICB-Submission.pdf

  26. Gravatar of Mike Sax Mike Sax
    19. October 2013 at 07:49

    I must admit I find neither of these disadvantages of fiscal policy so compelling.

    With reason one we’ve had a natural experiment during this recession where despite a sharp increase in govt debt there has been no explosion of interest rates, just the opposite in fact. What this actually points to is this would be the ideal time to actually do fiscal stimulus at such low interest rates.

    Scott you yourself pointed out that fiscal policy is symmetrical so there’s nothing wrong with arguing for increasing it now and cutting it later.

    As to Miles’ second reason, well, I’m no fan of ‘independent’ CBs anyway. The answer is to get rid of their independence. After all, you yourself has praised Canada’s monetary policy and they’re not nearly so ‘independent’ as our Fed is, nor is Britian’s.

    Sumner vs. Krugman on the ZLB, fiscal policy http://diaryofarepublicanhater.blogspot.com/2013/10/sumner-krugman-and-zlb-denial.html

  27. Gravatar of Daniel Daniel
    19. October 2013 at 08:43

    Mike Sax,

    we have no actual proof that nonconventional monetary policy works

    Really now ? Do you actually believe that ?

  28. Gravatar of Mike Sax Mike Sax
    19. October 2013 at 08:48

    Daniel why would I say it if I didn’t. For me it’s just an interesting conjecture. If you have the proof I’d be interested in hearing it.

  29. Gravatar of Tom Tom
    19. October 2013 at 08:51

    Isn’t that SFgate about Obamacare subsidies wrong. My understanding is that the subsidies scale down as income goes up. I think you’d have to give up a lot more than 2k in income in order to get a 12k subsidy.

  30. Gravatar of Daniel Daniel
    19. October 2013 at 09:00

    http://www.theguardian.com/business/2011/sep/06/switzerland-pegs-swiss-franc-euro

    Wow, how in the world was such a thing even possible ?

    I mean, we have like ZER0 proof such a thing would work in practice.

    You know, as much as I love taking shots at the Austrians – they’re actually harmless. They’re just a bunch of kooks with zero influence.

    It’s people like you, with your mindless repetition of “ZLB means no traction for monetary policy”, who are the source of today’s ills.

  31. Gravatar of Mike Sax Mike Sax
    19. October 2013 at 09:14

    Sure I’m the source of today’s ills. That makes a lot of sense. I like many have suffered from today’s ills. Rather it’s Monetarists like you with your sophistical arguments for austerity who are responsible as you seem to want to make this personal.

    If we simply get rid of the filibuster and the gerrymander we’ll be rid of much of these ills. Of course that’s not what you want is it Daniel? You want a phony justification to continue these Republican policies-‘we can have all the austerity we wantand the Fed will offset it!’

  32. Gravatar of Mike Sax Mike Sax
    19. October 2013 at 09:17

    As for Switzerland you assume that it somehow proves NGDP works but my guess is it’s just confirmation bias at work.

    In any case, how do we know what the true causes and effects are in Switzerland? Correlation doesn’t prove causation.

  33. Gravatar of Daniel Daniel
    19. October 2013 at 09:28

    Keynesians say – “ZLB means we have to borrow big”

    Meanwhile, Switzerland devalues its currency, despite being at the ZLB – exactly the sort of thing Keynesians said was impossible

    Keynesians answer “that doesn’t prove anything”.

    On another continent, a decades-long experiment in fiscal stimulus only manages to produce a gigantic public debt – which, to the Keynesians, only means they didn’t try hard enough.

    And somehow, all of this means monetarists are shills for the Republicans.

  34. Gravatar of ssumner ssumner
    19. October 2013 at 10:22

    Ralph, Monetary policy has no long run effect on real interest rates, so an increase in debt will add to future tax liabilities.

    Mike, You said;

    “Scott you yourself pointed out that fiscal policy is symmetrical so there’s nothing wrong with arguing for increasing it now and cutting it later.”

    Sure there’s something wrong. Start with the optimal fiscal policy considering all factors other than AD. How does the optimal fiscal policy change if we add AD in? Not at all if monetary policy is an option.

    As far as “proof” that unconventional monetary policy works, I don’t know what you consider “proof” but surely there is more proof for unconventional monetary policy than fiscal policy? After all, “correlation doesn’t prove causation.”

  35. Gravatar of Mike Sax Mike Sax
    19. October 2013 at 11:21

    Daniel did Switzerland do fiscal austierity? Otherwise how do you know that’s not what helped them? Why is ‘borrowing big’ a problem with the kind of interest rates we’ve had?

    I don’t get this hysteria over public debt-the market clearly doesn’t share it as is obvious by looking at the performance of interest rates over the last 5 years.

    Are monetarists shills for Republicans? If you’re waiting for someone to say “Hello I’m a monetarist and I’m a shill for Republicans’ you’re pretty simple minded. Obviously no one would admit this. However, look at the political comittments of the father of Monetarism and you’ll get some strong clues.

    However, the monetary offset argument on its face implicitly says that we should do all the austerity the Republicans want-after all the Fed will just offset it and this will bring down that bogeyman public debt.

    We have a Democrat party that believes in fiscal stimulus and a Republican party who believes in fiscal austerity-I’m just connecting the dots. Why do you argue with me-just look at what Morgan Warstler says-he says the same thing I am but he approves of it, that’s the only difference. Look at his comments and tell me that’s not what Monetarism is about?

    “It’s not just that MP can do the lift during bad fiscal (more of the PK view of QE), but that since we are going to use MP, we ought to free our minds and let go of Bad Fiscal when we look at a given policy and say “well at least it creates jobs” etc.”

    “As such, once we commit ourselves to MP, it’s morally wrong to have BOTH Minimum Wage and a Safety Net.”

    The difference between Morgan and most Market Monetarists like Soctt, et. al, is that Morgan is just more explicit. He doesn’t deny that Monetarism is really about being a shill for Republicans he wants to urge Republicans to get behind it for that very reason.

  36. Gravatar of Daniel Daniel
    19. October 2013 at 12:17

    Mike,

    You’re either very dense (think Geoff) or deeply dishonest (think Krugman).

    Daniel did Switzerland do fiscal austierity? Otherwise how do you know that’s not what helped them?

    http://www.tradingeconomics.com/switzerland/government-budget

    So far, my vote goes with “very dense” (and “intellectually lazy”). Nevertheless, I’ll try again.

    If the example of Switzerland (just one among very many) proves anything, it’s that there is no “liquidity trap”.

    If the Japanese experiment in fiscal stimulus proves anything, it’s that no amount of deficit spending will manage to lift AD if the central bank doesn’t go along with it.

    So instead of taking the central bankers to task for their failure at their jobs, big government shills like you invent concepts like ZLB, which only serve to run up the national debt – while failing to do anything about the economic hardship of millions of people.

    But hey, I guess it’s more important to argue with the Republican bogeymen under your bed.

  37. Gravatar of Mike Sax Mike Sax
    19. October 2013 at 12:39

    “You’re either very dense (think Geoff) or deeply dishonest (think Krugman).”

    Well Daniel with your puerlie insults you sound like Geoff yourself-or more like his precursor Major Freedom.

    The Republican ‘bogeymen’ are alas quite real, as we’ve just seen a loss of $24 billion dollars in GDP thanks to them as well as the fact that we may not get an accurate read of monthly CPI for a considerable while. So the Republicans are not mere figments of my imagination.

    http://diaryofarepublicanhater.blogspot.com/2013/10/it-delays-jobs-report-may-hurt-monthly.html

    If anything I think you’re the one who sees things in a distorted way:

    “So instead of taking the central bankers to task for their failure at their jobs, big government shills like you invent concepts like ZLB, which only serve to run up the national debt – while failing to do anything about the economic hardship of millions of people.”

    I mean there’s no reason I can’t critize the virus that is today’s Republican party which only has any power at thanks to the filibuster, the gerrymander, and stopping minorities from voting under the prextext of nonexistent ‘voter fraud’ and criticize the CB at the same time.

    Why can’t one do both? I mean I certainly agree that the CB deserves it’s sehare of criticism. First an dforemost we should do away with it’s ‘independence’ which is realy just about independence from the concerning itself with the public interest so that it can take care of the interest of the private banks in low inflation at any cost.

    As to Japan I don’t know what this is supposed to prove. They did QE as well so you can make the same argument about its effectiveness as you want to make about fiscal stimulus. Japan also proves again that worry about the public debt level is a red herring. AFter all, Japan has some of the lowest interst rates in the world.

    What you or no one else can explain is why we should have your paranoia about public debt. I notice you didn’t even try to answer that but wasted your time trying to attack me personally as if you have a clue and as if I care about your opinion of me.

    Why have U.S. rates stayed so low? Could it be that the markets don’t care that much about debt levels right now? Japan begs that question over a longer time frame as despite having a debt level that the Rogoffs tell us should be catclysmic everyone continues to by their debt.

    So even if you bought your argument that they did real fiscal stimulus over all these years and it had no impact-you have to explain why it didn’t do anything to interest rates-where are the bond vigilantes? Maybe in your next response you could spend more time explaining that and less time with your childish insults.

  38. Gravatar of Geoff Geoff
    19. October 2013 at 12:43

    “Zero rates are not a problem; they are a symptom of a central bank that is aiming too low.”

    This is wrong. You’re reasoning from interest rates.

    It is possible for the rate of saving and investment relative to consumption to be so high that the difference between total spending (consumption plus capital goods) and consumption spending, the difference of which is profits, tends to zero, with the effect that interest rates tend towards zero as well.

    There is no implication here that there is not enough money or spending in general.

    By merely observing interest rates and making policy prescriptions based on them, is exactly what you have said many times people should not do.

  39. Gravatar of Daniel Daniel
    19. October 2013 at 12:54

    Mike,

    The problem with big government shills like you is that your line of reasoning starts with something along the lines of

    we’re at the ZLB, so we should engage in massive deficit spending

    and you keep saying that in face of all the real-world evidence that there is no “liquidity trap”.

    I don’t care what your political affiliations (if any) are, but I am very angered by this nonsense with the ZLB – since it serves as an excuse for central bankers to inflict tight money on everyone.

    And you and your ilk are willing accomplices to that.

  40. Gravatar of Mike Sax Mike Sax
    19. October 2013 at 13:13

    Daniel I knew you’d avoid the question of public debt husteria. You’re talk of ‘you and your ilk’ tells me the kind of person you are and it’s not a very high quality person clearly.

    What ‘you and your ilk’ do is evade a simple question. Why should we care about public debt right now? The ZLB wasn’t my invention and I don’t know what ilk you may think I’m part of but I have actually struggled with unemployment in recent years. I do have a full time job now not that those of your ilk would give a hott.

    My concern as someone who knows firsthand the pain of unemployment and disappointment is that part of what Market Monetarism seems to be all about is making fiscal policy that can help the poor and unemployed in various ways being made unacceptable

  41. Gravatar of Lorenzo from Oz Lorenzo from Oz
    19. October 2013 at 14:00

    Thanks Scott, that makes things much clearer.

  42. Gravatar of Mike Sax Mike Sax
    19. October 2013 at 14:45

    Incidentally, the Swiss Miracle seems to have a few glitches.

    “About 20 thousand teachers, medical workers, police staff and workers of other public services took to the streets of the Swiss capital, Bern, on Saturday, to protest against austerity measures implemented by the authorities, and to demand higher wages.”

    “The Government of the Swiss canton has virtually revoked its past practice of regular automatic public sector wage hikes, besides slashing government spending on education and healthcare by almost 45 million euros.”

    “The current protest rally in the Swiss capital was the largest in the past ten years.”

    Read more: http://voiceofrussia.com/2013_03_17/Mass-protests-against-austerity-measures-in-Switzerland/

  43. Gravatar of Mike Sax Mike Sax
    19. October 2013 at 14:47

    Are these 20,000 protestors all becoming unmoored from reality too?

  44. Gravatar of Daniel Daniel
    19. October 2013 at 17:07

    Daniel I knew you’d avoid the question of public debt husteria

    I’m not interested in any “public debt husteria”, you were the one who brought it up.

    I’m only interested in taking down the “liquidity trap” nonsense, since it’s the excuse central banks use to avoid doing anything about the plight of the unemployed.

    And since “you and your ilk” willingly parrot it, it makes you their accomplices.

    As for the “Swiss miracle”, I never said anything of the sort either. I just pointed out that Switzerland’s successful devaluation of the franc falsified the liquidity trap theory (one example among many, I might add).

    And a falsified theory should go out the window – unless, of course, it provides political cover for one’s true aims – namely, increasing the size and scope of government.

    But hey, nice strawmen you’ve built over there.

  45. Gravatar of Ideology and Macroeconomics | askblog Ideology and Macroeconomics | askblog
    20. October 2013 at 05:50

    […] Scott Sumner writes, […]

  46. Gravatar of ssumner ssumner
    20. October 2013 at 06:08

    Mike, You said;

    “My concern as someone who knows firsthand the pain of unemployment and disappointment is that part of what Market Monetarism seems to be all about is making fiscal policy that can help the poor and unemployed in various ways being made unacceptable”

    And you wonder why no one takes you seriously.

  47. Gravatar of Mike Sax Mike Sax
    20. October 2013 at 07:20

    Plenty of people ‘take me seriously’ and I don’t care about your opipion or a couple of your hagiographers. I wonder what I said in this quote that makes you not take me seriously-is it becaue I’ve personally been unemployed? I know that must be culture shock for you.

    I’m sure in your social spher that already rules me out as someone you would ‘take seriously.e’ Luckily I just consider the source. That you continue to think you can somehow shame me is laughable. Again, consider your own moral level.

  48. Gravatar of Mike Sax Mike Sax
    20. October 2013 at 07:20

    I don’t care if you and 20 of your cultish followers insults me that doesn’t make you right.

  49. Gravatar of Mike Sax Mike Sax
    20. October 2013 at 07:25

    We’ll see just how seriously you end up being taken-to the extent that your attacks on fiscal policy are taken seriously that doesn’t show you’re right just the low quality of the audience involved.

  50. Gravatar of Ideology and Macroeconomics | The Penn Ave Post Ideology and Macroeconomics | The Penn Ave Post
    20. October 2013 at 08:16

    […] on October 20, 2013 by Mark Thoma Arnold Kling: Ideology and Macroeconomics, by Arnold Kling: Scott Sumner writes, I am amazed by how many proponents of fiscal policy don’t understand that it’s symmetrical. […]

  51. Gravatar of Mike Sax Mike Sax
    20. October 2013 at 10:54

    The reason you won’t answer the question about public debt Daniel is you can’t. I think you are actually describing yourself-your goal is not to help the unemployed as if you give a damn about them-I actually have been unemployed yet you claim you actually have the poor taste to blame it on me, talk about blaming the victim- but rather to shrink the size of government. That’s what Monetarism amounts to. That was Milton Friedman’s real aim. It’s obviously Scott Sumner’s as well no matter how much he tries to deflect the point. what I like about Morgan Warstler is that at least he’s honest about this.

    Monetarism argues that we shouldn’t do fiscal stimulus because of public debt but the behaviour of interest rates shows the market doesn’t worry about this. There’s no reason you can’t raise pubilc debt levels during a recession and lower them during a boom. Even during a boom there’s no need for austerity. We were able to pay for the much higher U.S. public debt not by budget cutting but simply by increased growth and revenue.

    You can avoid the question all you want but it’s still there, there’s no reason to avoid fiscal in favor of monetary policy during a recession as the hysteria over public debt is a red herring-demonstrated by the bond vigilantes who have never come.

    In any case the protests in Switzerland shows that what ever you want to say about the Swiss peg, there is still scope for fiscal policy there.

  52. Gravatar of Daniel Daniel
    20. October 2013 at 11:42

    Mike,

    You are completely unhinged.

  53. Gravatar of Daniel Daniel
    20. October 2013 at 11:50

    Come back when you’re capable/willing to grasp the concept of “monetary offset”.

  54. Gravatar of Mike Sax Mike Sax
    20. October 2013 at 16:27

    Great argument Daniel. Name calling is all you have. I’ve already covered monetary offset-it’s an argument for fiscal austerity. You can’t answer this point so you worry about ‘unhinged.’ This is what cult members always say. I’m sure before they drunk the coolaid the people at JOnestown would have found unhinged the one person who didn’t want to drink it.

    What’s ‘ubhinged’ is your silly claim that the problem has been that central bankers the world over won’t do what you want them to because they read too much Paul Krugman.

    Right it’s because they’re been benighted by the idea of the liquidity trap not because most of them are total inflation phobes who’d rather have 50% unemployment than see inflation rise even a little bit.

  55. Gravatar of Mike Sax Mike Sax
    20. October 2013 at 16:30

    Nytice Daniel how I argue ideas but you and other MMers try to argue about me-you make armchair diagnoses about my mental health; it’s as if to not believe in Market Monetarism one is not only wrong but ‘unhinged.’ Again, you’re the one who sounds like you’ve lost it.

    Why don’t you ‘come back’ after you can argue the substance of a point without making it personal. I’m sure you cant because the personal attacks are just a deflection for the weakness of your argument.

  56. Gravatar of Geoff Geoff
    20. October 2013 at 16:48

    Mike:

    “Name calling is all you have.”

    Yeah, too bad he doesn’t have a gun and a government badge, then you’d say he’s justified.

  57. Gravatar of Mike Sax Mike Sax
    21. October 2013 at 00:01

    “Name calling is all you have.”

    How you doing Major Freedom? It’s been awhile.

  58. Gravatar of Daniel Daniel
    21. October 2013 at 01:05

    Mike,

    Talking about the “zero lower bound” and “liquidity trap” and “no proof that unconventional monetary policy works” as reasons for fiscal stimulus when there’s actual proof that the central bank can always inflate and fiscal stimulus only results in a bigger national deficit when the central bank doesn’t go along – which it never will, as long as their real inflation target is 1.5% – that’s what’s UNHINGED.

    But hey, what do I know – I’m just a Republican shill who wants to see people starve in the streets.

    Also, I thought “there was no proof that unconventional monetary policy works” – now you say that central bankers should be taken to task for their tight money policies.

    Which one is it, bro ? You can’t have it both ways.

  59. Gravatar of ssumner ssumner
    21. October 2013 at 05:17

    Mike, It’s starting to get comical. Are you simply incapable of understanding anything people say to you? That’s not really a very good quality for someone who wants to be a blogger, is it?

  60. Gravatar of Mike Sax Mike Sax
    21. October 2013 at 16:01

    I have no problem understanding anything anyone says to me, Scott. What’s laughable is that you think I can’t see through your sophistical arguments. What I notice is when I ask questions you don’t give me a straight answer.

    For example straight question which I know you wont answer: are you in favor of the sequester-the non-defense discretionary party. Yes or no. while my question is very plain what are the chances you’ll answer it. So is it ‘laughable’ when you can’t-or more like it don’t want to-understand what I’m saying to you? You also couldn’t expalin to me why you can’t take me seriously because I admitted to being unemployed. You can’t answer that either as a lot of sheep have convinced themselves that you give a hoot about the unemployed when nothing could be further from the truth.

    “But hey, what do I know – I’m just a Republican shill who wants to see people starve in the streets.”

    Well if the shoe fits. You tell me what is factually wrong in that statement. I mean you’ve accused me-along with my ‘ilk’ of being responsible for this mess, so you’re basically blaming a victim of the recession for the recession.

    You’re proof for unconventional policy working is the Swiss peg? Whatever you think of that policy it’s scarcely repeatble. Certainly most countries can’t just peg their currency. There is no proof whatsover that NGDP targeting works and that’s really the choice. Now you can argue that it works but there’s nothing wrong, much less ‘unhinged’ about questioning that it will.

    All MMers actually argue is that its expectations, that’s their entire transmission mechanism. When they’re pushed they just say well if the CB just buys up the entire planet surely that will move the needle. Of course, at this point it becomes mere hairsplitting to insist that this is monetary rather than fiscal policy.

    As for deficits we want higher deficits during a recession. There’s nothing ‘unhinged’-I guess your projecting. I would say the CB needs a higher inflation rate. Ultimately we need a better CB, one that doesn’t value low inflation more than any other objective.

    The answer isn’t to say that we should never do fiscal stimulus because the CB will offset it, rather we should tell the CB to cut it out. That’s why I don’t believe in CB independence in the first place.

    The level of hostility is instructive. This not just an intellectual movement anymore it’s a kind of church.

    It’s ok Scott-I’m not worried over it, I find you laughable all the time as do many other people. I’m already a blogger and many continue to read me. As for directing your hostility at me, I guess I finally have occaision to quote the great Dan Quayle: ‘I wear their scorn like a badge of honor!’

  61. Gravatar of Mike Sax Mike Sax
    21. October 2013 at 16:25

    Liquidity traps and kicking the hornets nest over at Sumner http://diaryofarepublicanhater.blogspot.com/2013/10/yes-scott-sumner-one-certainly-should.html

    See Scott, far from being emarassed I find you embarrassing and lots of fun to laugh and point at. Thanks for all the great material

  62. Gravatar of Hits and Misses | John Goodman’s Health Policy Blog | NCPA.org Hits and Misses | John Goodman's Health Policy Blog | NCPA.org
    22. October 2013 at 08:58

    […] Scott Sumner: Keynesianism does not imply support for big government. […]

  63. Gravatar of Geoff Geoff
    24. October 2013 at 17:40

    Daniel:

    “Mike, You’re either very dense (think Geoff)”

    Wouldn’t it be amazing if you actually showed a substantive response to anything I write?

    You’re clearly evasive.

Leave a Reply