Let’s play 1960s-era Fed

Marcus Nunes has a nice post comparing the views of Janet Yellen and Martin Feldstein.  I noticed that Feldstein is worried that we are going to repeat the mistakes of the 1960s.

Experience shows that inflation can rise very rapidly. The current consumer-price-index inflation rate of 1.1% is similar to the 1.2% average inflation rate in the first half of the 1960s. Inflation then rose quickly to 5.5% at the end of that decade and to 9% five years later.

Before we consider whether we are likely to repeat the mistakes of the 1960s era Fed, let’s review precisely what those mistakes actually were. Here’s the data as of November 1966:

Unemployment rate = 3.6%, and falling.

Inflation = 3.6% over previous 12 months.  That’s a big increase from the 1.7% of the 12 months before that, and the 1.3% inflation rate two years previous.  The “Great Inflation” began here.

The fed funds rate was 5.76%.

Hmm, what should the Fed do in a situation like this?  Inflation is beginning to accelerate.  Unemployment is near all time lows for peacetime.  Decisions, decisions.  You’ve taken EC101, what do we do next?

The answer is easy.  The Fed decided the economy needed a massive emergency jolt of easy money.  By December 1966 the fed funds rate was cut to 5.40%.  By January 1967 the rate was cut to 4.94%.  By April it was cut to 4.05%.  By October 1967 it’s at 3.88%.  Keep in mind NGDP was rising at 6% to 8% throughout the late 1960s.  If you prefer the monetary base as your “concrete steppe”, that indicator started growing much faster as the 1960s progressed.

Now read the minutes of September 2008, when the Fed refused to cut rates in the midst of the mother of all financial panics because of inflation worries, despite TIPS spreads showing 1.23% inflation over the next 5 years, and commodity prices plunging.  Does this seem like a Fed that would slash interest rates much lower when inflation is soaring above target and unemployment is 3.6%?

PS.  Keep this data in mind when some fool tells you that the Great Inflation was caused by oil shocks or the Vietnam War or budget deficits or unions, or some other nonsense.

PPS.  The economics profession (with a few exceptions) was complicit in the crime of 1966.  The Fed generally does what the consensus thinks it should do.  The “best and the brightest,” the VSPs.  Still think it’s impossible that the entire profession could have been as crazy in 2008-09 as I claim they were?  How will the Fed’s behavior in 2008 look 50 years later?  I’d say about like the 1966-67 Fed looks today. Out of their ******* minds.  And then there’s the ECB . . .

PPPS.  One economist that did understand what was going on was Friedman.  I find this (from an Edward Nelson paper) to be amusing:

From April 1966 to the end of the year, the evidence of monetary policy tightening started appearing uniformly across monetary aggregates; the “credit crunch” of 1966 is also evident in other financial indicators and is widely recognized as a period of monetary tightness (Romer and Romer, 1993, pp. 76−78). The Federal Reserve would shift to ease in 1967, and that easing marked a dividing point for Friedman. He would classify 1967 as the beginning of an extended departure from price stability, one in which monetary policy fitted the pattern he had laid out in 1954: an inflation roller-coaster around a rising trend, with the occasional deviations below that trend reflecting shifts to monetary restraint that were abandoned once recessions developed (M. Friedman, 1980, p. 82; Friedman, 1984, p. 26).

The FOMC did not, however, appreciate the scale of its easing during 1967. By explicitly associating high nominal interest rates with tight policy, Committee members and other Federal Reserve officials neglected the distinction between real and nominal interest rates. Friedman, in contrast, was pressing this distinction on policymakers. Chairman Martin could not ignore the criticism, not least because Friedman had attracted the interest of Martin’s Congressional interlocutors. Friedman’s revival of the Fisher effect was referred to when Martin appeared at a February 14, 1968, hearing of the Joint Economic Committee (1968, p. 1980):

Senator SYMINGTON. A famous economist has developed the theory that easy money creates higher interest rates. If you have not examined that concept, would you have someone on your staff do so? It is an interesting theory. I discussed it with the economist in question only last week. Would you have somebody look into it?

Mr. MARTIN. I will be very glad to. 

The “famous economist” was, of course, Friedman.

In 2008 no senator asked Bernanke to look into the theory of an obscure Bentley economist that low interest rates are often a sign that money has been tight.


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54 Responses to “Let’s play 1960s-era Fed”

  1. Gravatar of TravisV TravisV
    2. April 2014 at 18:49

    CLASSIC punchline!

    By the way, everyone should visit Bonnie Carr’s blog:

    http://dajeeps.wordpress.com

    She’s a market monetarist, and, more importantly, a HUGE inspiration!

  2. Gravatar of dannyb2b dannyb2b
    2. April 2014 at 18:51

    “If you prefer the monetary base as your “concrete steppe””.

    Under NGDP targeting is the base also a concrete steppe? Why is the base expanded or contracted under NGDP targeting? If its not a “concrete steppe” why bother with it?

  3. Gravatar of TravisV TravisV
    2. April 2014 at 19:06

    Unfortunately, Edward Nelson doesn’t know how to judge the stance of monetary policy either. From the paper:

    “Committee members and other Federal Reserve officials neglected the distinction between real and nominal interest rates. Friedman, in contrast, was pressing this distinction on policymakers.”

    In 1968, how did Friedman judge the stance of monetary policy? By looking at M2 growth? Was he really pressing a distinction between real and nominal interest rates?

    Monetary policy was always so complicated (until Sumner came along)…..

  4. Gravatar of Major_Freedom Major_Freedom
    2. April 2014 at 19:35

    NGDP growth peaked in 1966 at 11% YoY.

    Then it fell, and after another rise to 10% in 1968, it hit 5% by end of 1970.

    So from 1966 to end of 1970, and using NGDP as the metric, the Fed “tightened” monetary policy.

    How then can Sumner claim:

    “The Fed decided the economy needed a massive emergency jolt of easy money.”

    Money wasn’t easing, according to NGDP. It was tightening.

    So reasoning from a monetary base change is now OK again?

  5. Gravatar of Philip George Philip George
    2. April 2014 at 20:49

    The first graph of Corrected Money Supply (Mc) on http://www.philipji.com/M1-and-Mc/ for the period 1961 to 1970 shows that there was indeed a tightening in 1966 with the really sharp increase in money occurring in 1968-69. The contraction of Mc in 1969-70 coincides with the recession in those years.

  6. Gravatar of Jason Jason
    2. April 2014 at 21:10

    Here’s a model of the price level (via the monetary base) that says that the high inflation in the 1960s was actually low compared to what we should have gotten:

    http://informationtransfereconomics.blogspot.com/2013/10/revealing-true-business-cycles.html

  7. Gravatar of Tom Brown Tom Brown
    2. April 2014 at 23:01

    Mark Sadowski, what do you think of Jason’s blog above? I looked around a bit and I’m in no position to judge, but I like all the fancy charts and new (for me) lingo. It looks fascinating actually… but my level of understanding is very low at this point.

  8. Gravatar of Ralph Musgrave Ralph Musgrave
    3. April 2014 at 03:29

    Scott is correct assuming inflation ACCELERATES given excess demand (a la NAIRU). On the other hand if you think the Phillips curve has a bit of validity, i.e. that given excess demand inflation simply rises to some fixed and higher level, then Scott is wrong or at least not 100% right.

    That is, the remarkable thing about the 1970s was STAGFLATION: the combination of high unemployment and high inflation. For those who believe in the Phillips curve, stagflation is inexplicable, or at least to explain it, one has to find other causes for the inflation, like the oil shock or trade unions to which Scott refers.

    Personally I think the truth lies somewhere between NAIRU and Phillips. Thus I think Scott makes a good point, but he is not 100% right. Of course I certainly cannot prove I’m right!!!!! I’m only going on hunch.

  9. Gravatar of Daniel Daniel
    3. April 2014 at 03:37

    Not to side with the likes of Major_Moron, but seeing how the Fed is a single point of failure (either they inflate too much, or not enough) – and seeing how public choice theory says they’d never accept being put on auto-pilot (as proof, we have the cryptic statements they make after their meetings) – maybe WE SHOULD do away with central banks ?

  10. Gravatar of Brian Donohue Brian Donohue
    3. April 2014 at 03:56

    Excellent blogging. It’s tempting to look at the last 60 years as one big interest rate cycle. Maybe it’s more like 1955 now. Short term rates were 1% then, 10-year was 2.6%.

    One big confounder is the very different demographics now. I’d sort of expect high real rates in a young 1960 demographic versus an old 2014 demographic.

  11. Gravatar of Vince Cate Vince Cate
    3. April 2014 at 03:57

    I think I can just about prove we are headed for high inflation:

    http://howfiatdies.blogspot.com/2014/01/how-we-know-inflation-is-coming.html

  12. Gravatar of Mark A. Sadowski Mark A. Sadowski
    3. April 2014 at 04:06

    Tom Brown,
    There are actually a lot of physicists who dither in economics. I myself started as a physics major in college but switched to mathematics for my major and ended up minoring in physics. Unlike most physicists Jason seems to approach the subject out of pure curiousity rather than the usual declared crusade of fixing economics with better quantitative analysis (e.g. Mark Buchanan), something I don’t think economics really needs. So among physicists who do that sort of thing, Jason’s website strikes me as one of the better ones. Noah Smith has an undergraduate degree in physics and has written much about the phenomenon of physicists doing amateur economics or switching to economics.

  13. Gravatar of Mark A. Sadowski Mark A. Sadowski
    3. April 2014 at 04:20

    Ralph Musgrave,
    “That is, the remarkable thing about the 1970s was STAGFLATION: the combination of high unemployment and high inflation. For those who believe in the Phillips curve, stagflation is inexplicable, or at least to explain it, one has to find other causes for the inflation, like the oil shock or trade unions to which Scott refers.”

    Scott doesn’t like the Phillips Curve because he doesn’t really like focusing on inflation, and the Phillips Curve is really only useful if your policy goal is Inflation Targeting.

    I’ve estimated a lot of single equation Phillips Curves using both the Robert Gordon and the New Keynesian approaches and I have to say the old Robert Gordon Triangle Phillips Curve, which uses the NROU gap, lagged inflation and the food energy effect (something which Robert Gordon introduced) as independent variables, works incredibly well at explaining the relationship between unemployment and inflation, including and especially the Great Inflation.

    Most central banks use both versions of the Phillips Curve in some form or another, precisely because the Phillips Curve *does work*. Only schools of economics that don’t do math (such as ABCT and MMT) seem to think that it doesn’t.

  14. Gravatar of Major_Freedom Major_Freedom
    3. April 2014 at 04:25

    Daniel:

    Don’t look now but you are indeed siding with me, or rather, with what is right, at least on the particular issue of money and banking.

    Now all you have to do is apply those same principles to everything else that is centralized to a single point of failure and subject to public choice. Healthcare, education, even protection, security, and adjudication/arbitration.

    You don’t have to hate yourself, by the way.

  15. Gravatar of ssumner ssumner
    3. April 2014 at 04:39

    Danny, Base supply and/or demand are adjusted as needed to keep expected future NGDP on target.

    Ralph, Real growth in the 1970s was normal, around 3%, the problem was double digit NGDP growth. No staflation. It’s true that the natural rate of unemployment rose a bit in the 1970s, but that had nothing to do with oil shocks.

  16. Gravatar of Daniel Daniel
    3. April 2014 at 05:17

    I see Vince Cate and Major_Moron are still peddling their bullsh*t.

    Some things never change.

  17. Gravatar of dannyb2b dannyb2b
    3. April 2014 at 05:54

    “Danny, Base supply and/or demand are adjusted as needed to keep expected future NGDP on target.”

    I understand. But does this mean adjusting the base is a “concrete steppe”.

  18. Gravatar of Mark A. Sadowski Mark A. Sadowski
    3. April 2014 at 06:19

    Scott,
    Off Topic.

    In the recent brouhaha following the BOE’s release of its paper on money creation, I made the following claim:

    “Every textbook that presents the simple model of multiple deposit creation follows this with a critique clearly stating its “serious deficiencies”. In Mishkin’s intermediate level textbook (I have the 7th edition), not only is there such a section, the chapter in which it is taught is followed by a whole other chapter that makes it abundantly clear that the currency and reserve ratios are variables.”

    http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/03/one-general-theory-of-money-creation-to-rule-them-all.html?cid=6a00d83451688169e201a73d908bb3970d#comment-6a00d83451688169e201a73d908bb3970d

    If you read the comments section you’ll find Philip Pilkington making the following claim:

    “Paul Samuelson & William Nordhaus ‘Economics’: “We can see that there is a new kind of multiplier operating on reserves. FOR EVERY ADDITIONAL DOLLAR IN RESERVES PROVIDED TO THE BANKING SYSTEM, BANKS EVENTUALLY CREATE $10 OF ADDITIONAL DEPOSITS OR BANK MONEY.” (p493 – My Emphasis)”

    To which I responded:

    “I have the 16th edition (1998) of Samuelson and Nordhaus and that sentence can be found on page 480 of my copy. On the very following page it states: “THE ACTUAL FINANCIAL SYSTEM IS MORE COMPLICATED THAN OUR SIMPLE EXAMPLE.”(My Emphasis.) It then goes on to state that in actuality depositors may choose to hold currency and that banks may choose to hold reserves above the reserve requirement.”

    Well, the reason why I bring this up is this is routine behavior among that portion of the econblogosphere population which manifests a bizarre pathological rage against a simple accounting identity. Sometimes, however, they quote from a textbook I’m not familiar with so there’s no way for me to show that if they turn the page and read the subsequent text all is right with the world.

    One such example is Unlearning Economics, who for several years now has been reflexively quoting the following passage:

    “Models of the money supply multiplier link the money supply to the monetary base in a relationship of the following form:

    M = mB

    where

    M = the money supply;
    m = the money supply multiplier;
    B = the monetary base.

    In models such as this, m tells us how many times the money supply will rise following an increase in the monetary base.”

    Most recently Unlearning Economics posted a snapshot of this passage in a Twitter in response to Noah Smith, which stopped Noah dead in his tracks, seemingly because Noah, like me, didn’t know where this passage came from.

    Well, now, I have the answer.

    It’s from “Applied Economics” by Alan Griffiths and Stuart Wall:

    http://www.amazon.co.uk/Applied-Economics-Mr-Alan-Griffiths/dp/0273708228

    This appears to be a textbook that’s common only to the UK, so you’ll excuse Noah and myself if we haven’t heard of this textbook until now.

    But the point is, I can finally turn the page to find the following written:

    “But what determines the value of m? In fact, there are two factors: the decisions of depositors about their holdings of currency and deposits, and the level of reserves the banks hold to meet customer demands for currency…Whether the money supply multiplier is an adequate explanation of the money supply process depends partly on the stability of the ratios c and r [currency and reserve ratios]…Certainly for the UK the general view is that the money supply multiplier is unstable in the short run.”

    So just remember, anytime the “rage against a simple accounting identity” crowd starts quoting what any economics textbook says about the money multiplier, be sure and ask them to turn the page.

  19. Gravatar of Ilya Ilya
    3. April 2014 at 06:50

    Scott,

    I guess this is a silly question, but as a student I have to ask. What empirical evidence led you to conclude that the inflation of the 70s was caused by money growth and not the oil shocks, as many believe?

  20. Gravatar of TravisV TravisV
    3. April 2014 at 06:56

    Spanish stocks up 1.6%!

    “Europe Stocks Rise Eighth Day as Draghi Reiterates Pledge”

    http://www.bloomberg.com/news/2014-04-03/europe-stock-index-futures-are-little-changed-before-ecb.html

  21. Gravatar of TravisV TravisV
    3. April 2014 at 07:00

    Shanghai Composite down 0.74%.

    Chinese stocks want monetary easing rather than fiscal stimulus?

    http://seekingalpha.com/news/1658013-china-announces-mini-stimulus-to-keep-economy-on-even-keel

    “The State Council didn’t say whether monetary policy would be loosened – the dilemma for the government is that it’s also trying to rein in soaring lending.”

  22. Gravatar of TravisV TravisV
    3. April 2014 at 07:18

    Jeremy Stein to step down from FOMC on May 28!

    http://blogs.wsj.com/economics/2014/04/03/feds-stein-board-hawk-to-step-down-may-28

  23. Gravatar of Michael Byrnes Michael Byrnes
    3. April 2014 at 07:37

    Romer, please.

  24. Gravatar of TravisV TravisV
    3. April 2014 at 07:45

    John Aziz’s columns continue to frustrate:

    http://theweek.com/article/index/258449/how-can-we-unleash-positive-animal-spirits-into-the-economy-change-the-narrative

    http://theweek.com/article/index/256856/did-the-fed-undercut-obamas-stimulus

    http://theweek.com/article/index/256525/obamas-stimulus-succeeded-mdash-even-if-it-was-too-small

  25. Gravatar of Mark A. Sadowski Mark A. Sadowski
    3. April 2014 at 07:47

    TravisV,
    “Jeremy Stein to step down from FOMC on May 28!”

    Very good news indeed:

    http://www.kathylien.com/site/federal-reserve/fomc-voters-2014-dove-hawk-scale

    Incidentally, note that three out of four of the most hawkish current FOMC members are Democrats (the only exception is Plosser).

  26. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    3. April 2014 at 07:57

    ‘One such example is Unlearning Economics’

    Unlearning Economics is Robert Vienneau. Who has dedicated his life to getting Pierro Sraffa declared a Saint of Economics. He’s lost in the quicksand of the Cambridge Capital Controversy.

  27. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    3. April 2014 at 07:57

    Oh yeah, Vienneau is also a big fan of Steve Keen.

  28. Gravatar of Morgan Warstler Morgan Warstler
    3. April 2014 at 08:03

    Sadowski, I think turn the page would probably be an interesting study.

    In my experience from debate, the evidence quoters who are least likely to have read charitably (turned the page), are also the ones most likely to debate uncharitably: they assume the absolute worst interpretation of their opponents statement.

  29. Gravatar of Mark A. Sadowski Mark A. Sadowski
    3. April 2014 at 08:04

    TravisV
    “John Aziz’s columns continue to frustrate:…”

    Aziz used to be a pseudo-Austrian. His current incarnation, as a born-again-Keynesian, is an improvement, but not by much. Now all of his articles seem to expound on a “the economy is highly irrational and unpredictable” theme which isn’t particularly helpful.

  30. Gravatar of flow5 flow5
    3. April 2014 at 08:20

    “think it’s impossible that the entire profession could have been as crazy in 2008-09 as I claim they were?”

    No, Keynes’ “optical illusion” today is much more obtuse (the Gurley-Shaw thesis).

    The credit crisis of 1966 was induced by increases in Reg. Q ceilings for just the commercial banking sector (the only financial institutions that had ceilings). I.e., CB dis-intermediation was the result of the big money-center (NYC banks) not being able to roll-over their large CDs as they matured. This did not result in the CB system shrinking, but in the thrift’s size shrinking (the CBs just pay for what they already own).

    Then this was repeated as Reg. Q ceilings were phased out in the late 1980′s, early 1990′s, (which again induced dis-intermediation among just the non-banks – i.e., the 1990 S&L crisis where the FSLIC & RTC closed down 1/3 of all the S&L’s).

    The same error was repeated in Oct 2008, with the intro of the payment of interest on excess reserve balances at the CBs (in which Bankrupt you Bernanke destroyed the NBs).

  31. Gravatar of TravisV TravisV
    3. April 2014 at 08:28

    Mark Sadowski,

    Have you seen this?

    http://noahpinionblog.blogspot.com/2014/01/heroes-of-blogging.html

    “John Aziz – The most open-minded person on the internet”

    “My favourite female bloggers on econ at the moment are Frances Coppola and Izabella Kaminska. In fact they’d possible take the top 2 places on my heroes of blogging list, if I ever made one!”

    I sense that Noah Smith is grateful to Krugman for promoting him. Plus he agrees with his politics. Now Aziz is grateful to Smith for promoting him. Thus, they’re all (probably) committed to Team Krugman (and fiscal stimulus?)

    As an aside, two people who are genuinely open-minded: Matt Yglesias (huge hero of mine) and David Glasner.

    It’s hard for me to say whether Glasner or Sumner is more open-minded. I think Glasner is unsure about fiscal stimulus and thinks it might be helpful……

  32. Gravatar of ssumner ssumner
    3. April 2014 at 08:32

    Danny, Yes.

    Mark, I’m stunned that there is a school of thought out there claiming that mainstream economists think the money multiplier is constant. They should be shunned, and everything they say on any other issue should be ignored. You can’t be a student of monetary economics and hold such an absurd view.

    Ilya, Annual RGDP growth during the 1970s was roughly 3%, which is normal. Oil shocks don’t impact NGDP, rather they reduce RGDP and thus raise inflation for a given NGDP. But the problem wasn’t slow RGDP growth in the 1970s, it was double digit NGDP growth caused by the Fed printing money like crazy when interest rates were positive and thus banks weren’t willing to hold ERs in large quantities. That’s all monetary policy.

    I’d add that for people of the concrete steppes, there are plenty of specific examples of totally insane Fed decisions with their interest rate target, the monetary base, or any other policy indicator you choose.

    I would be absolutely stunned if even Keynesians like Paul Krugman disagreed with me on this point. The data is crystal clear.

    Michael, Yes, Romer please.

    Mark, How confident are we about Stanley Fischer being a hawk? Is he likely to disagree with Yellen?

  33. Gravatar of TravisV TravisV
    3. April 2014 at 08:44

    In February 2010, Ryan Avent and Matt Yglesias resisted Scott Sumner’s arguments:

    http://www.economist.com/blogs/freeexchange/2010/02/monetary_policy

    Back then, Avent sounded a lot like…..John Aziz!

    Eventually Avent and Yglesias started coming around. March 2010:

    http://www.economist.com/blogs/freeexchange/2010/03/monetary_policy

    July 2010:

    http://thinkprogress.org/yglesias/2010/07/09/197828/james-bullard-should-act-right-now

  34. Gravatar of Tom Brown Tom Brown
    3. April 2014 at 09:14

    Scott, your statement here seems a bit extreme given David Glasner’s recent post on this subject:

    “Mark, I’m stunned that there is a school of thought out there claiming that mainstream economists think the money multiplier is constant. They should be shunned, and everything they say on any other issue should be ignored. You can’t be a student of monetary economics and hold such an absurd view.”

    Here’s David Glasner:
    “So in Nick’s world, the money multiplier is just the reciprocal of the market share. In other words, the money multiplier simply reflects the relative quantities demanded of different monies. That’s not the money multiplier that I was taught in econ 2, and that’s not the money multiplier propounded by Monetarists for the past century.”

    I won’t bother to quote the rest (since you did a post on it, and I’m sure you’re familiar with it!), but immediately after the above he goes on to characterize money multiplier education in a way not much different than what Unlearned Econ is purporting to demonstrate (based on Mark’s post above). As you know, he goes on to demonstrate how he thinks “monetarists” have been presenting it all these years including a similar causal relationship from B to M because of a fixed k (he writes it “M = k*B”).

    I’m not arguing the Glasner is correct, just that I don’t see a big difference between his argument about how the money multiplier has been presented “for the past century” and the way Unlearned Econ was claiming the money multiplier has been presented.

    http://uneasymoney.com/2014/03/27/the-uselessness-of-the-money-multiplier-as-brilliantly-elucidated-by-nick-rowe/

  35. Gravatar of Mark A. Sadowski Mark A. Sadowski
    3. April 2014 at 09:21

    TravisV,
    Yes, that was not one of my favorite Noahpinion blog posts. I have big problems with anyone who thinks interest on reserves is expansionary and QE causes deflation. (I’m not naming names, because the last time I said something negative about one of these people, Noah Smith tweeted it into the econblogosphere, so you figure it out.) But the thing about Noah Smith is that most of his posts are tongue-in-cheek so you can’t really be sure that post wasn’t as well.

    What is Matt Yglesias doing since he left Slate? I used to read him everyday. The other day I read at Mike Norman that he had converted to MMT, but if you listen to the MMT blogs, everybody has already converted to MMT. (It’s only in comments in those blogs where you read them fretting over what they need to do in order to be taken more seriously, things like overcoming their fear of math.)

    Glasner doesn’t seem too open minded about the money multiplier, does he?

  36. Gravatar of Mark A. Sadowski Mark A. Sadowski
    3. April 2014 at 09:24

    Tom Brown,
    Actually he (Vienneau?) calls himself “Unlearning Economics”, although “Unlearned Econ” somehow seems more apt. :)

  37. Gravatar of Tom Brown Tom Brown
    3. April 2014 at 09:31

    “Unlearned Econ” … yeah, I realized after I pushed submit. Oh well. Lol

    The other day I asked “Too Much Fed” if he wouldn’t mind going by his other moniker “Fed Up” (I think that’s true) at Rowe’s because TMF is confused with “The Market Fiscalist,” and then we could all just type “FU” to address him. :D

  38. Gravatar of TravisV TravisV
    3. April 2014 at 09:36

    Mark Sadowski,

    Yglesias will be “executive editor” of Ezra Klein’s new group when it gets going (hopefully soon).

    http://www.mediabistro.com/fishbowlny/matt-yglesias-named-executive-editor-of-ezra-kleins-new-vox-media-venture_b200941

    I seriously doubt Yglesias has embraced MMT. And I’m pretty sure he still has far far far far far more confidence in monetary stimulus than fiscal stimulus.

    As for David Glasner, I don’t care what he says about the money multiplier, I will always be a HUGE fan of his. I LOVE absorbing his wisdom accumulated from studying the history of economic thought.

  39. Gravatar of Mark A. Sadowski Mark A. Sadowski
    3. April 2014 at 09:41

    Scott,
    “How confident are we about Stanley Fischer being a hawk? Is he likely to disagree with Yellen?”

    Not very. That’s Kathy Lien’s opinion, and she doesn’t provide any evidence.

    The Alphaville dove-hawk scale puts him on the center-left:

    http://ftalphaville.ft.com/2014/01/15/1742132/the-updated-fomc-dove-hawk-spectrum/

    James Pethokoukis has the following provocatively titled post:

    http://www.aei-ideas.org/2013/12/of-course-stanley-fischer-is-a-hawk/

    But it’s actually rather nuanced if you read it.

  40. Gravatar of TravisV TravisV
    3. April 2014 at 09:42

    I had an epiphany after reading this old paragraph by Yglesias:

    http://www.theatlantic.com/politics/archive/2008/06/am-i-the-establishment/45191

    “My ideas really are basically the ideas that were at the core of the bipartisan, establishment consensus throughout the Cold War years. And they’re ideas that could and should have been the key ideas of center-left think tanks in the post-9/11 world. But that’s not what actually happened. Instead, a set of ideas that originally existed as a fringe right-wing position wound up being espoused not only by nearly the entire Republican Party but by a huge swathe of the broader establishment. The kind of institutions that you would expect to try to put the country back on an even keel — The New York Times’s foreign affairs columnist, The Washington Post’s editorial page, the top foreign policy officials from the second Clinton administration, the Brookings Institution, etc. — instead hopped aboard George W. Bush’s madcap adventure.”

    Similarly, during the 1990′s, Alan Greenspan accepted Janet Yellen, Greg Mankiw, Mishkin and Bernanke’s arguments. A bipartisan consensus was established that a small amount of positive and steady inflation (say 2%) is a very good and desirable thing. Now the consensus has blown up, the right has gone insane endorsing deflation and the left has lost its moorings…..

    P.S.: Tyler Cowen wrote a review of that old book by Yglesias:

    http://marginalrevolution.com/marginalrevolution/2008/04/heads-in-the-sa.html

  41. Gravatar of Mark A. Sadowski Mark A. Sadowski
    3. April 2014 at 09:45

    Tom Brown,
    “The other day I asked “Too Much Fed” if he wouldn’t mind going by his other moniker “Fed Up” (I think that’s true) at Rowe’s because TMF is confused with “The Market Fiscalist,” and then we could all just type “FU” to address him.”

    I’ve always been of the opinion we should refer to Major Freedom as MF. :)

  42. Gravatar of TravisV TravisV
    3. April 2014 at 10:04

    Mark Sadowski,

    The more I think about it, Yglesias would LOVE LOVE LOVE LOVE working with you!

    I’m sure he knows who you are, you should look into whether Vox Media still has any job openings…..

    http://www.theverge.com/2014/1/26/5348212/ezra-klein-vox-is-our-next

  43. Gravatar of Tom Brown Tom Brown
    3. April 2014 at 10:17

    Mark, re: MF, I had the same thought!

    TravisV,

    “As for David Glasner, I don’t care what he says about the money multiplier, I will always be a HUGE fan of his. I LOVE absorbing his wisdom accumulated from studying the history of economic thought.”

    Take that down about three levels of enthusiasm (still enthusiastic mind you!), and I agree. That was my point.

  44. Gravatar of TravisV TravisV
    3. April 2014 at 11:32

    Uh-oh!

    Yglesias on MMT (January 2014):

    “I think MMT proponents have a lot of excellent points to make and that an awful lot of people in Washington, D.C., would do well to expand their intellectual horizons and conceptual diet with a bit more MMT reading. At the same time, decades of unwarranted marginalization in the economics profession have instilled in Team MMT a certain spirit of sectarian dogmatism that I think sometimes impedes clear thinking.”

    http://www.slate.com/blogs/moneybox/2014/01/16/jobs_guarantee_more_trouble_than_it_s_worth.html

  45. Gravatar of TravisV TravisV
    3. April 2014 at 11:39

    The key difference between MMT and market monetarism is “what drives AD,” correct?

    MMTers think government spending and the deficit drive AD. So in some sense, there is no such thing as “monetary policy.” There’s just increasing the deficit and reducing it? And in general, we should LOVE fiscal deficits, the bigger the better, even at full employment?

  46. Gravatar of Tom Brown Tom Brown
    3. April 2014 at 11:54

    TravisV, I am by no means an expert, but I *thought* the idea was bigger deficits for stimulus, and reign it in to control inflation. Perhaps even a surplus for inflation control? Not sure.

  47. Gravatar of ssumner ssumner
    3. April 2014 at 12:12

    Travis, You give me way too much credit. They still don’t agree with me on fiscal policy.

    Tom, Yes, probably a bit extreme. But look, Mark’s right that it’s simply not true that textbooks claimed it was a constant. What more is there to say?

    I took David as claiming that the view was that the multiplier would remain stable in response to a change in the money supply. I don’t even think that claim is right, but it’s far more defensible.

    I would add that I was referring to there being a whole school of thought claiming the profession believed the multiplier was constant. If so, that school of thought would have to be impervious to reality.

    For instance, the standard view is that the big fall in the money supply in the early 1930s was due to a fall in the multiplier. As far as I know all mainstream monetary economists believe that. I don’t think it’s even debated. So what are we talking about?

    My comment wasn’t aimed at Unlearnedecon, which I have not read. Rather it was simply a general statement that the idea of a fixed multiplier is nonsense, and it’s not believed by anyone of importance.

    Mark, Even Jim’s post says he’s a dove when inflation is below target—which means now.

  48. Gravatar of ssumner ssumner
    3. April 2014 at 12:17

    Tom, Rereading that Glasner post he was clearly not referring to what I call the money multiplier, which is simply the ratio of M to B. He said that quite clearly. So my comments did not apply to anything he said. He was referring to the monetarist claim that changes in B had a predictable impact on M.

  49. Gravatar of Tom Brown Tom Brown
    3. April 2014 at 12:17

    Scott, OK, I misunderstood what your comment was aimed at.

  50. Gravatar of Ralph Musgrave Ralph Musgrave
    4. April 2014 at 00:54

    Mark Sadowski,

    You obviously know much more about the Phillips curve than I do. My only quarrel with your comment is where you accuse MMTers of opposing the Phillips curve. As an MMTer, my impression is that most MMTers don’t have much to say on the NAIRU versus Phillips curve debate: except for Bill Mitchell and his followers. They have an extreme and I think totally irrational phobia about NAIRU. If you Google “Billyblog” (Bill Mitchell’s site) and NAIRU, you’ll see what I mean.

  51. Gravatar of benjamin cole benjamin cole
    4. April 2014 at 02:25

    Great blogging. Reading Martin Feldstein was just sad…it was as if any inflation rate above 1 percent is TEOTWAWKI.

  52. Gravatar of Tom Brown Tom Brown
    4. April 2014 at 05:50

    benjamin cole: you made me look up another one! Congratulations. :D

  53. Gravatar of Jacob A. Geller Jacob A. Geller
    4. April 2014 at 09:00

    I know it’s not funny, but I literally LOL’d so hard at the sentence after “The answer is easy” that I woke up my fiance from two rooms over.

  54. Gravatar of Andrew C. Andrew C.
    9. April 2014 at 16:39

    Something Scott doesn’t mention is that when rates were cut in 1966, there coincided a FALL in inflation, with the unemployment rate staying constant. I’m not sure exactly what was going on that year, but it seems like an odd example to argue that money was too easy that year. It wasn’t until May of ’67 that inflation started to rise again, and when it did rates rose right along with it. I put together some relevant data here:

    http://research.stlouisfed.org/fred2/graph/?g=wFL

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