Stanley Fischer to the Fed?

It’s hard to think of anyone more qualified that Fischer.  And yet there are a few red flags, which is one more piece of evidence in support of my claim that the problem has always been the economics profession, not the Fed.  The Fed follows the consensus, it’s the consensus that has been way off course.

Here are two red flags:

Asked in an Oct. 11 Bloomberg Television interview when theFed should begin tapering $85 billion in monthly bond buying,Fischer said, “there is an efficient way to do it, which is tostart doing it pretty soon and to do it gradually.”

“It would be good to start,” Fischer said.

.  .  .

Fischer would take over a post that Yellen turned into a platform for promoting greater transparency, including goals for employment and inflation. He has voiced skepticism about using so-called forward guidance to signal the Fed’s policy intentions as much as two years in advance.

And here are some positives:

Fischer, who holds both U.S. and Israeli citizenship and lives in New York, stepped down as governor of the Bank ofIsrael on June 30, midway through his second five-year term. He was credited with helping his nation weather the global economic crisis better than most developed countries.

.   .   .

Fischer earned a reputation as a trailblazer as the first central banker to cut interest rates in 2008 at the start of the global crisis and the first to raise them the following year in response to signs of a financial recovery.

I don’t quite understand that last comment, as the Fed was already cutting rates in 2007.  Does anyone know what they mean?  In any case, Israel came closer to NGDP level targeting that anyone else that I am aware of, with the possible exception of Australia.  So if Fischer is a discretionary policymaker, at least he’s a talented discretionary policymaker.

I wish Obama had picked Christy Romer, but I certainly support Fischer.  He’s highly talented and a mainstream monetary economist.  Bernanke and Draghi (and many other famous economists) were his students.

If Janet Yellen were to step aside for any reason, Fischer would become the first African-American to head the Fed.  (Yes, I’m half-joking.)

PS.  Speaking of ethnicity, it seems like a disproportionate number of the best monetary economists are Jewish.  I seem to recall that in the Middle Ages Jews were kept out of many professions, but Christians were not supposed to lend money at interest.  Hence many bankers were Jewish.  On the other hand Jewish scholars have a strong presence in many academic fields, so there may well be no specific connection between monetary economics and the peculiar history of banking.  I think it’s also a sign of progress if I am correct. Attitudes were quite different in America 100 years ago, when appointing several consecutive Jewish Fed chairs would have triggered all sorts of sordid conspiracy theories.

PPS.  My family background is Protestant, although I don’t belong to any religion.


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42 Responses to “Stanley Fischer to the Fed?”

  1. Gravatar of Michael Byrnes Michael Byrnes
    12. December 2013 at 08:24

    Maybe the article is referring to late 2008, when the Fed left rates at 2% citing equal risks of recession and inflation.

  2. Gravatar of gabe gabe
    12. December 2013 at 08:58

    Who funds the economics profession? who writes grants? who gives out and subsidizes loans for college tuition? what funds the universities besides tuition? who funds research at important private universities like MIT?(Lincoln labs, Draper defense cotnracts).

  3. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    12. December 2013 at 09:09

    ‘Fischer, who holds both U.S. and Israeli citizenship….’

    Oh great. Let loose the conspiracy dogs!

  4. Gravatar of Mark A. Sadowski Mark A. Sadowski
    12. December 2013 at 09:25

    I think Fischer has done an outstanding job as the Governor of the BOI. If he had been targeting inflation inflexibly in 2008-2009 it would have been reflected in far less movement in the exchange rate, and very likely would have resulted in a recession. See for example this:

    http://esoltas.blogspot.com/2012/06/israel-targets-ngdp.html

    However his comments about eurozone fiscal policy, and in particular his negative comments about the possibility of euro bonds, have really rubbed me the wrong way. See this for example:

    http://blogs.wsj.com/economics/2012/09/01/israels-fischer-calls-for-euro-zone-discipline/

    The eurozone desparately needs a true fiscal union in order for it to be an optimal currency area (OCA), and euro bonds would be an essential step towards this. Furthermore central banks should not be in the business of interfering with fiscal policy.

  5. Gravatar of Edward Edward
    12. December 2013 at 09:27

    I’m Jewish so thanks scott!

  6. Gravatar of 123 123
    12. December 2013 at 09:40

    Fischer:
    “The first is that a very expansionary monetary policy can be pursued even when the interest rate is almost zero. I have no doubt that asset purchases by central banks can have a much stronger impact on the market than that implied by the literature, even with the interest rate at almost zero levels.”
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2191582

  7. Gravatar of 123 123
    12. December 2013 at 09:53

    Fischer was reported to be first in cutting rates after Lehman.

  8. Gravatar of Doug M Doug M
    12. December 2013 at 09:55

    When I started in finance, there were “Jewish firms” (Bear and Solomon) and “white shoe” firms (JPMorgan). Goldman and Lehman were at one time Jewish banks and had become “white shoe” banks.

    And as long as we are talking about anti-diversity… all 9 supreme court justices are either Jewish or Catholic.

  9. Gravatar of jknarr jknarr
    12. December 2013 at 10:36

    It’s wonderful how central bankers have flexible state allegiances: Carney, now Fischer. Remarkably common interests, clearly.

    Also, he’s done a great job helping the equity markets get back on track. Think of how much else he could do now that he’s no longer just parking central bank assets, but in at the helm of the big balance sheet itself. Bullish!

    http://www.globes.co.il/serveen/globes/docview.asp?did=1000729611&fid=1725

  10. Gravatar of Stanley Fischer to the Fed? | Fifth Estate Stanley Fischer to the Fed? | Fifth Estate
    12. December 2013 at 11:25

    […] See full story on themoneyillusion.com […]

  11. Gravatar of benjamin cole benjamin cole
    12. December 2013 at 11:47

    Well. I would take issue that the economics profession influences the Fed—the Fed probably employs the bulk of monetary thinkers in the USA. Between regional and DC, hundreds of PhDs. The Fed is influential at economics publications.
    Besides all that, does one expect a powerful, well-financed, self-exalting independent public agency to listen to…pundits and cpollege professors? Or wayward e-book authors?
    Even more angst-inducing, elements within the Fed and allies are rhapsodizing about a “single mandate”—not for minimum economic expansion but for price stability, now defined by John Cochrane not as 2 percent inflation but zero.
    As early as the 1990s, Milton Friedman was concerned that the Fed, bulking up its own staff, would become impervious to outside economists.
    Has the Fed ever held a conference, or colloquium on Market Monetarism?
    If the Fed did so, and signalled that it thought MM was worthy of serious contemplation, would the profession go along?
    I think so.

  12. Gravatar of jknarr jknarr
    12. December 2013 at 11:52

    OT, but a nice drill-down into recent GDP.

    http://politicalcalculations.blogspot.com/2013/12/an-economic-detective-story-solving.html

  13. Gravatar of ssumner ssumner
    12. December 2013 at 12:52

    Michael, Could be.

    Gabe, I’d like to know who pays you to write these comments.

    Mark, I’d prefer breaking up the euro to going all in for fiscal union. It will be interesting to see how the eurozone deals with this issue.

    Edward, Good to hear that. Are you a monetary economist?

    123, That’s good to hear. The second one is also a plus.

    Doug, Good point. When America was dominated by “WASPs” they would have had trouble imagining that. Maybe someday the court will be 100% black, hispanic and Asian. My mayor, governor and president are all black. And I live in a white area.

    Ben, That’s a good point about Fed economists, but don’t forget that Fischer/Yellen/Bernanke bring ideas from academia into the Fed.

  14. Gravatar of ssumner ssumner
    12. December 2013 at 12:57

    jknarr, Fascinating post on inventories (a subject that usually bores me.)

  15. Gravatar of LK Beland LK Beland
    12. December 2013 at 13:05

    Poloz, of the Bank of Canada, explains that “right now, it looks to us like it will take around two years to get inflation back up to 2 per cent.”

    A few minutes later, he declares:
    “As we decide policy, we cannot take credibility for granted; we must keep earning it by ensuring, first and foremost, that monetary policy remains focused on keeping inflation on target.”

    You can’t make stuff like this up.

    http://www.bankofcanada.ca/wp-content/uploads/2013/12/remarks-121213.pdf

  16. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    12. December 2013 at 13:23

    Well, if it’s inventory stories you want;

    http://hisstoryisbunk.blogspot.com/2013/12/corn-you-cope.html

    ——-quote——–
    The increased storage has been a boon for makers of the circular metal bins. Sales volumes in the industry may increase 6% this year and 5% in 2014, estimates Tom Welke, president of Assumption, Ill.-based GSI Group, a unit of Agco Corp. AGCO +0.61% and the world’s largest maker of grain bins. Agco’s stock price has jumped 23% this year.

    However, storing corn for too long “definitely” poses risks for farmers, says Scott Stoller, a grain merchandiser at agricultural-advisory firm AgPerspective Inc. in Dixon, Ill.

    Among them: Placing corn in storage for more than a year can lead to rot and lower quality, reducing the amount buyers will pay for the grain. “Grain spoilage would be your No. 2 risk behind prices falling, and it looms just as large,” Mr. Stoller says.
    ———endquote———

  17. Gravatar of Mark A. Sadowski Mark A. Sadowski
    12. December 2013 at 13:31

    Scott,
    Have you seen this?

    http://blogs.wsj.com/economics/2013/12/12/fans-of-ecb-quantitative-easing-gain-a-strong-friend/

    And this?

    http://blogs.wsj.com/economics/2013/12/12/imf-official-back-ecb-using-negative-rates/

  18. Gravatar of TravisV TravisV
    12. December 2013 at 13:57

    Has everyone seen this analysis??????

    Lars Christensen: “There is no bubble in the US stock market”

    http://marketmonetarist.com/2013/12/10/there-is-no-bubble-in-the-us-stock-market

    “The model is quite simple. I used only three explanatory variables – A corporate Aaa-rate long-term bond yield to capture funding costs and/or an alternative investment to stocks. I used the nominal Personal Consumption Expenditure to capture demand in the US economy. It is also a proxy for earnings growth and finally I used the ISM New Orders index as a proxy for growth expectations. All variables have the expected signs and are statistically significant.

    Yes, it is a simple model, but it seems to work quite well in terms of fitting the actual level on the S&P500 over the years.

    If anything stocks are still cheap (and monetary policy too tight)”

  19. Gravatar of jknarr jknarr
    12. December 2013 at 14:12

    I know that alpha-repo-ville is a touchy spot, but as long as you can ignore the elephant in the room (that the Fed is a private bank system), MMT appears to be increasingly gaining on orthodoxy, now that they point at Krugman on board.

    http://ftalphaville.ft.com/2013/12/12/1721592/guest-post-the-helicopter-can-drop-money-gather-bonds-or-just-fly-away-3/

    BTW, Scott, the first paragraph of this post was distinctly civil!

  20. Gravatar of Mark A. Sadowski Mark A. Sadowski
    12. December 2013 at 14:29

    jknarr,
    The Alphaville post is virtually identical to the one Fullwiler and Kelton did at New Economic Perspectives yesterday except they removed the paragraph stating:

    “This all confirms Krugman’s point – there is no meaningful difference between what the government is doing today (case 1) and what Market Monetarists are urging it to do via helicopter financing via direct money creation (case 2). As Krugman says, “the results are the same.”

    Which made absolutely no sense since Krugman’s post opens by stating:

    “David Beckworth has a good piece on a point I’ve also tried to make: the irrelevance of “helicopter money”, and in particular the irrelevance of the decision to finance budget deficits by printing money as opposed to selling bonds.”

    It’s good to know that MMT has decided to endorse a position originally staked out by Market Monetarism.

  21. Gravatar of Lorenzo from Oz Lorenzo from Oz
    12. December 2013 at 14:35

    Charles Murray has a nice analysis of Jewish intelligence and genius.
    http://www.commentarymagazine.com/article/jewish-genius/

    Jews were important in banking and money-lending earlier in the medieval period. They were typically highly restricted in what they could do, subject to expulsions and persecutions while canon law banned usury (defined as lending with interest), so money lending and banking was an obvious niche. A problematic one however; Edward I of England was not the only ruler to liquidate his debts by liquidating his creditors.
    http://en.wikipedia.org/wiki/Edict_of_Expulsion

    Mind you, Philip IV of France did the same to the Knights Templars.
    http://en.wikipedia.org/wiki/Knights_Templar#Arrests.2C_charges_and_dissolution

    By the C14th, the Jews were overtaken by Northern Italians, Germans and others. (Hence London finance being in Lombard Street.) It was the Northern Italian “super-companies” who were centre of the financial crash of the 1340s.
    http://assets.cambridge.org/97805214/61566/sample/9780521461566ws.pdf

    Jews in monetary economics is likely just an instance of general Jewish intellectual achievement since the C19th (i.e. since Jewish emancipation).

  22. Gravatar of Lorenzo from Oz Lorenzo from Oz
    12. December 2013 at 14:41

    I changed my email address, and got stuck in moderation. It is me, promise.

  23. Gravatar of Philippe Philippe
    12. December 2013 at 14:50

    Mark,

    I think the confusion may have to do with David Beckworth’s prior “helicopter drop” proposals:

    http://macromarketmusings.blogspot.co.uk/2013/06/a-foolproof-approach-to-monetary-policy.html

    http://macromarketmusings.blogspot.co.uk/2013/08/helicopter-drops-as-insurance-against.html

  24. Gravatar of Lorenzo from Oz Lorenzo from Oz
    12. December 2013 at 14:58

    BTW, assuming an IQ of 150+ for Supreme Court Justices, there should be 3 Jewish Justices.
    http://secularright.org/SR/wordpress/are-there-enough-jews-on-the-supreme-court/

  25. Gravatar of ssumner ssumner
    12. December 2013 at 15:09

    LK, And that’s one of the better central banks.

    Patrick, Interesting.

    jknarr and Mark, Krugman certainly doesn’t accept MMT. If they think he does they are delusional. At best he agrees with some of their points when at the zero bound.

    Lorenzo, Yes, I didn’t know whether there was any special significance of monetary economics. I’ve certainly never made a systematic study and was relying on a sort of general impression. Monetary economics is actually somewhat different from banking in any case.

    Philippe, Yes, I think David either changed his mind, or perhaps at least changed his emphasis. Now he seems to put more weight on NGDPLT.

  26. Gravatar of Mark A. Sadowski Mark A. Sadowski
    12. December 2013 at 15:12

    Phillippe,
    Yes, but the original impetus for a policy intersection between Fiscalists and Monetarists came from Cardiff Garcia:

    http://ftalphaville.ft.com/2013/06/13/1533782/a-blogospheric-taxonomy-of-the-fiscalist-vs-monetarist-debate/

    And my understanding is that Cullen Roche and Monetary Realists (MR) were urging Beckworth towards endorsing such a policy (someone please correct me if this is incorrect). And ironically, MMT considers MR to be an inferior copy of MMT:

    http://www.economonitor.com/lrwray/2013/12/11/mmt-often-imitated-never-duplicated/

  27. Gravatar of benjamin cole benjamin cole
    12. December 2013 at 15:53

    Scott–You perhaps made my point for me. Have we not all pulled out our hair as Bernanke the academic (Japan, Great Recession) became a irrecognizable as Fed Chief?
    I would say Bernanke was captured by Fed culture and norms…that are now heavily weighted to price stability, evidently soon to mean inflation at one percent…or less
    Read Fed literature…the bogeyman is ever inflation…promoting growth not a recurrent theme…

  28. Gravatar of Philippe Philippe
    12. December 2013 at 15:57

    Mark,

    Scott Fullwiler and Stephanie Kelton have been writing about these things for years. For example:

    http://neweconomicperspectives.org/2010/01/helicopter-drops-are-fiscal-operations.html

    I believe it was Adair Turner who started talking a lot about ‘overt monetary financing’ (i.e. helicopter drops), turning it into a bit of a hot topic for a while.

    http://blogs.reuters.com/anatole-kaletsky/2013/02/07/a-breakthrough-speech-on-monetary-policy/

  29. Gravatar of Philippe Philippe
    12. December 2013 at 16:19

    Mark,

    regarding MR and MMT, here’s a post from Michael Sankowski which explains:

    http://traderscrucible.com/2012/01/25/monetary-realism-and-mmt/

  30. Gravatar of Mark A. Sadowski Mark A. Sadowski
    12. December 2013 at 16:20

    Philippe,
    “Scott Fullwiler and Stephanie Kelton have been writing about these things for years.”

    Well, I’m sure. And I obviously was only joking when I implied that MMT was endorsing an MM position.

    Incidentally, in was in 1967 that Milton Friedman coined the parable in which price deflation is fought by “dropping money out of a helicopter” to people in “The Optimum Quantity of Money”.

    Pages 4-5:
    “Let us suppose now that one day a helicopter flies over this community and drops an additional $1000 in bills from the sky,…”

    http://books.google.com/books/about/The_Optimum_Quantity_Of_Money.html?id=DZ9OTS6LbEcC

  31. Gravatar of Philippe Philippe
    12. December 2013 at 16:48

    yah, I know Milton was on it long ago.

  32. Gravatar of Geoff Geoff
    12. December 2013 at 18:07

    “In any case, Israel came closer to NGDP level targeting that anyone else that I am aware of, with the possible exception of Australia. So if Fischer is a discretionary policymaker, at least he’s a talented discretionary policymaker.”

    It’s hilarious watching Sumner equate NGDP targeting, a political control measure, with “intelligence”, “talent”, etc.

    It’s almost as if the standard of excellence to Sumner is how to best control people by violence.

  33. Gravatar of ssumner ssumner
    12. December 2013 at 19:27

    Ben, Yes, that’s a valid argument.

  34. Gravatar of Ricardo Ricardo
    12. December 2013 at 20:56

    Stanley Fischer was on Charlie Rose (Aug 20, 2013):

    http://www.bloomberg.com/video/fischer-on-global-economy-charlie-rose-8-20-ieCPW7RoRMmlXKGrSe1U1A.html

    – The most relevant point for this crowd:

    Starting at around just before the 7:30 mark of the video, talking about fiscal austerity, Fischer says “… fiscal policy really mattered, you can do a lot with monetary policy but you couldn’t get the economy growing fast again [without fiscal policy]”

  35. Gravatar of paul Einzig paul Einzig
    12. December 2013 at 22:32

    Alice Rivlin, vice chair under Greenspan in the late 90s was on the radio today about Fischer. Her most interesting point was that there is really no statutory job description for the vice chair, this leaves the chair and her number 2 complete freedom to develop a mutually beneficial devision of labor. In Rivlins case she took over a lot of the admin work which Greenspan hated, for this she was rewarded with frequent overseas travel representing the fed at various conferences which she really loved.

    Also, on the topic of jews and money, I just happen to be reading Niall Fergusons 2 volume book on the Rothschilds. I know that Niall Ferguson is despised in some corners of the econ blogosphere but I have always loved his history books and this one is really fascinating.

    One anecdote: the first big break that took the Rothchilds out of the local business of peddling rare coins in Frankfurt and into International finance was when one of their coin clients, a Prussian prince asked them to be his bond buyer in various european capitols. The source of this princes wealth: commisions paid to the prince by the British governement for the Prussian mercenaries sent to fight in our revolutionary war! He recieved 7 pounds a head, which according to measuringworth.com would be over a thousand today.

    I am a jew, and I come from a long line of trade bill discounters in europe and then NYC. My elders always said that because of property ownership restrictions and frequent waves brutal anti-semitism a jew had to have a profession that he could carry with him…literally.

    One last thing, promise. I thought it was very classy on your part to give a such a big public pat on the back to Mark Sadowski the other day. He is so bright and so passionate about economics. The acknowledgement showed great generosity of spirit on your part.

  36. Gravatar of Brian Donohue Brian Donohue
    13. December 2013 at 06:51

    Travis,

    Great link to Lars Christensen. Excerpt:

    “What has happened rather is that stocks became extremely cheap relative to “fundamentals” in early 2009, and what we have seen in the past five years is a closing of this “valuation gap”.”

    I totally agree. In early 2009, I was putting every dollar I could put my hands on into the stock market. If a ‘bubble’ is a situation where ‘the consensus’ is being led astray, 2009 qualfified as the most obvious bubble of my lifetime to me – a ‘bubble in fear’ if you will. Expansionary Fed policy can be seen as treating this bubble. Scott, what do you think?

  37. Gravatar of Vivian Darkbloom Vivian Darkbloom
    13. December 2013 at 07:18

    “If a ‘bubble’ is a situation where ‘the consensus’ is being led astray, 2009 qualfified as the most obvious bubble of my lifetime to me – a ‘bubble in fear’ if you will.”

    You could perhaps call that an “antibubble”.

    http://www.antibubble.org/

  38. Gravatar of Brian Donohue Brian Donohue
    13. December 2013 at 07:34

    I also wonder what Fama and Shiller think of this. Me, Brian Donohue, I called it in 2009- the stock market was out of whack, I acted on my belief, and I have been vindicated. Or have I just been lucky?

  39. Gravatar of Vivian Darkbloom Vivian Darkbloom
    13. December 2013 at 08:03

    I acted on Warren Buffet’s belief. Does that make me lucky or smart?

  40. Gravatar of ssumner ssumner
    14. December 2013 at 07:36

    Ricardo and Paul, Thanks, I used that info in a more recent post.

  41. Gravatar of Sina Motamedi Sina Motamedi
    18. December 2013 at 17:40

    Why do you think Australia is close to targeting NGDP? Other than looking at NGDP data of course.

  42. Gravatar of 2018: The Year of Nominal GDP Targeting? – Alt-M 2018: The Year of Nominal GDP Targeting? - Alt-M
    7. March 2018 at 06:30

    […] are any indicator, 2018 may see a breakthrough for nominal GDP level targeting. As Scott Sumner likes to say, the Fed often follows the economics profession. The Fed is already discussing research on […]

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