Reply to DeLong smackdown

In a recent post I claimed that monetary policy failure associated with the zero bound, not financial turmoil was the cause of the Great Recession.  Brad DeLong had correctly noted that the S&L fiasco of the late 1980s involved losses similar to the subprime crisis as a share of GDP.  Where I disagreed with DeLong is that he focused on differences between the resolution of the 1980s and 2008 crises, whereas I focused on differences in monetary policy.  In particular, I argued that rapid NGDP growth in the late 1980s put us so far above the zero bound that it was never an issue in the 1990 recession, and hence there was no failure of monetary policy.  I argued that falling NGDP caused by overly tight monetary policy explains the severity of the 2008-09 recession.

I also argued that we could have had a severe recession in late 2008 even if the financial turmoil had been handled optimally.  For instance, suppose Lehman had been successfully resolved and there was no post-Lehman banking crisis.  Even in that case the tightening of lending standards would have depressed the Wicksellian equilibrium rate, perhaps below zero, and we could very well have had the same monetary policy failure. Here’s how DeLong responds:

As I have said repeatedly: I simply do not buy this. From the fourth quarter of 2005 through the fourth quarter of 2007 lending standards tightened enormously, and investment is residential construction collapsed. By the end of 2007 residential investment had fallen 2.5%-points from its peak-of-the-boom level. But the heightening of lending standards and the unwillingness of people to make further NINJA (no income, no job or assets) loans had not sent the economy into any sort of a recession. It was the spiking of risk premia in 2008 that sent us to Wicksellian natural-rate-of-interest-below-the-ZLB territory. And there is no reason to think that we would have been in such a situation but for the financial crisis–and every reason to think that the whole mishegas would have been avoided had congress simply put the too-big-to-fail banks into conservatorship in January 2008…

Let me first concede that DeLong might be correct, my claim is certainly not a necessary part of the general market monetarist worldview.  But I don’t think he is correct.  Consider the following:

1.  I agree that the long downslide in residential real estate between late 2005 and the end of 2007 was not associated with a recession.  Indeed I’ve made that argument myself on a number of occasions, as a way of pointing to the importance of monetary policy (aka NGDP growth.)

2.  Here’s how I read the events of 2008.  During calendar 2008 the Wicksellian equilibrium rate fell gradually, under the impact of both the housing slump, and feedback from sharply slowing NGDP growth, which was itself an indication of tighter monetary policy.

3.  Let me point to two important facts for people who don’t like the Bernanke-Sumner “NGDP” indicator of monetary policy, and who insist on “concrete steppes.”  The monetary base, which had been trending upward for many years at more than 5% per year, stopped growing between August 2007 and May 2008.  If you prefer interest rates as your concrete step, note that stock market responses to (timid) Fed rate cuts indicated that in late 2007 that the Fed was “behind the curve,” as even Bernanke later admitted.

4.  This accidental tightening of monetary policy tipped us into a very mild recession in early 2008. But still nothing severe, so at this point I still agree with DeLong.

5.  The inflation surge in the first half of 2008 scared the Fed, and prevented them from doing what they otherwise would have done, as it became increasing clear we were in a recession.  By May 2008 the rise in unemployment was already more than you ever observe in non-recessionary periods. And as (I seem to recall) Bernanke once observed, it’s almost impossible to be too expansionary when the economy is tipping into recession.

6.  But the Fed was not expansionary, even using the conventional interest rate indicator.  Fear of inflation led to them to keep their interest rate target on hold at 2% after April 2008; indeed they did not even cut interest rates at the first meeting after Lehman failed in September. Unemployment had reached an expansion low of 4.4% in 2006.  Here are the unemployment rates from April to August 2008, all fully known to the Fed at its September meeting:  5.0%, 5.4%, 5.6%, 5.8%, 6.1%. And there were no rates cuts at all!  Look at that data and ask yourself if a steady fed funds target represents normal Fed behavior on the edge of a recession.  Then think about the fear of inflation that is so evident in the minutes of the 2008 meetings.

7.  Because the Wicksellian equilibrium rate was falling during this period, the stable fed funds target tipped the economy from a mild recession into a severe recession.

8.  Ignore quarterly GDP numbers, which can be very misleading at turning points. The monthly GDP estimates from Macroeconomics Advisors show GDP (both real and nominal) suddenly plunging sharply between June and December 2008.  By December the plunge was almost over, even though quarterly data for 2009:1 were much lower, as the level had been falling sharply throughout the 4th quarter of 2008.

9.  My claim is that accidentally tight monetary policy caused the NGDP plunge in the second half of 2008.  Because of data lags (and later revisions in data) we didn’t know about that NGDP plunge until after the post-Lehman financial crisis broke.  So at the time it seemed like the financial crisis caused the severe recession.  And almost all economists still believe that to be the case.  But markets were already sensing problems before Lehman, and falling asset prices caused by falling NGDP almost certainly helped trigger the September to December financial crisis, which occurred in the last half of the tight money-induced June to December fall in NGDP.

Let me finish by admitting that financial crises can have real effects, and thus it’s possible that DeLong is correct.  It’s possible that I’ve underestimated the independent impact of financial distress on RGDP.  Maybe RGDP would have fallen sharply even with a monetary policy aggressive enough to boost NGDP in late 2008.  But I’d point to one observation in my favor.  FDR enacted a highly expansionary monetary policy during the spring of 1933, when much of the US banking system was closed down.  Both NGDP and RGDP rose very strongly.  The technique FDR used (dollar depreciation) has some similarities to NGDPLT, as it raises expectations of future NGDP.

PS.  I have one quibble with DeLong’s post.  His use of ellipses in a quotation of material from my earlier post somewhat mischaracterizes what I wrote:

One area where I slightly disagree with Krugman is his focus on inflation. A 5% NGDPLT target path would have been enough, we didn’t need 4% trend inflation. Nor do we need fiscal stimulus…. All stabilization policies eventually fail…. The trick is to have a modest failure like Clinton or Obama, not a serious failure like FDR or Nixon. NGDPLT would have given us just that in 2008-09.

The ellipsis right before “The trick is” makes it seem like the final sentence refers to failed stabilization policies of each President.  Not so, I was discussing their overall performance.  Here is the complete passage:

All stabilization policies eventually fail, just as all presidents are judged failures in their 6th year in office. The trick is to have a modest failure like Clinton or Obama, not a serious failure like FDR or Nixon. NGDPLT would have given us just that in 2008-09.

It’s no big deal, and my comment was probably ambiguous.  But Nixon’s big failure was Watergate, and Clinton didn’t even have a modest failure of stabilization policy, just a silly scandal.


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38 Responses to “Reply to DeLong smackdown”

  1. Gravatar of Morgan Warstler Morgan Warstler
    21. April 2014 at 08:08

    Maybe the Fed guys were thrown off their game by this:

    http://www.cnn.com/2008/POLITICS/02/13/bush.stimulus/index.html?_s=PM

    “The package also includes tax breaks for equipment purchases by businesses, as well as payments to disabled veterans and some senior citizens.

    The bipartisan measure moved through Congress at relative break-neck speed, going from initial discussions to enactment in less than four weeks.

    The package will pay $600 to most individual taxpayers and $1,200 to married taxpayers filing joint returns, so long as they are below income caps of $75,000 for individuals and $150,000 for couples. There is also a $300 per child tax credit.Video Watch Bush sign stimulus bill into law »

    The rebates will put about $120 billion in the hands of individuals in the hope that they will spend it and boost a faltering U.S. economy.”

    Which raises an interesting idea: Perhaps it isn’t just the Monetary can and does neuter Fiscal. Maybe, oddball Fiscal tricks FREAK OUT THE FED and cause them to become more wait and see.

  2. Gravatar of TravisV TravisV
    21. April 2014 at 08:39

    Re: #5 above, Clark Johnson wrote the following in his new paper:

    “Bernanke in the published lectures does not discuss the Fed’s attempt to inflate its way out of the subprime risk problem that first appeared in August 2007 – he says nothing about plunging Fed funds rates, the sinking dollar, or soaring oil prices. We can guess that Bernanke and the Fed may have been chastened by the failure of the inflation to restore counterparty confidence during much of the first year of the brewing crisis – and they may therefore have been disinclined to inflate again when the crisis hit with full fury in September and October of 2008. If so, they took the wrong lesson, as the later crisis was aggravated by a strong whiff of deflation.”

    Johnson seems to be suggesting that the high inflation of early 2008 was a result of the Fed money expansion of Fall 2007 (rightward shift of the demand curve). Is that really true? Or was the high inflation of early 2008 primarily due to a leftward shift of the supply curve (surging demand in China and India, oil shortages, etc.)?

  3. Gravatar of Major_Freedom Major_Freedom
    21. April 2014 at 09:06

    My claim is that accidentally tight monetary policy caused the NGDP plunge in the second half of 2008. Because of data lags (and later revisions in data) we didn’t know about that NGDP plunge until after the post-Lehman financial crisis broke. So at the time it seemed like the financial crisis caused the severe recession. And almost all economists still believe that to be the case. But markets were already sensing problems before Lehman, and falling asset prices caused by falling NGDP almost certainly helped trigger the September to December financial crisis, which occurred in the last half of the tight money-induced June to December fall in NGDP.

    Your claim does not have an explanation for why it is the Fed found itself in a world where it had to inflate more than it did 2007-2008, to prevent NGDP from falling the way it did.

    In other words, why did the demand for money holding rise as much as it did, and why did the aggregate money supply growth rate actually turn negative?

    The Sumner-Bernanke_comment_at_a_bar_one_night_in_2003 theory is therefore susceptible to proposing a solution that might if itself be the cause for the outcome (NGDP) changes they are witnessing.

  4. Gravatar of flow5 flow5
    21. April 2014 at 09:09

    Brad DeLong’s micro-economic analysis is flawed. Bankrupt U Bernanke was pursuing a contractionary bank credit proxy policy (a negative one at that) from the get-go.

    Bankrupt U Bernanke’s contractionary economic policy deflated the overall price level. The structural alterations & the practices previously engendered, led to a mélange of excessively destabilizing price changes, especially skewed toward those assets (commercial & residential real estate, etc.), which served as loan collateral. I.e., Alan Greenspan’s Laissez-faire regulatory environment created this mis-allocation and mal-distribution of available credit (which in turn affected the price of key asset backed securities). I.e., Bankrupt U Bernanke turned safe assets into impaired assets.

    Required reserves reflect Bankrupt U Bernanke’s policy metric. RR’s are based on transaction type deposit classifications 30 days prior. And 95 percent of all demand drafts clear thru these deposit classifications (i.e., the CB’s payment & settlement, or clearing & netting, system – see G.6 Debit & demand deposit turnover release). The (MVt) figure encompasses the total effect of all monetary flows (transactions). As such, new & existing property transactions (i.e., the housing boom-bust), would have been captured (and not overlooked).

    It is not the money stock that’s relevant per se, but the level & rate-of-change in member commercial bank legal reserves. I.e., the primary money stock began to decline in December 2004 & its volume wasn’t significantly surpassed until September 2008.

    See: http://bit.ly/yUdRIZ

    Quantitative Easing and Money Growth:
    Potential for Higher Inflation?
    Daniel L. Thornton

    Note1: “The close relationship between the growth rates of required reserves and total checkable deposits reflects the fact that reserves requirements apply only to checkable deposits.

    Note2: “This reflects the relatively low effective reserves requirement on checkable deposits, apparently about 9 percent”.

  5. Gravatar of ssumner ssumner
    21. April 2014 at 09:48

    Morgan, Good point.

    Travis, You need to focus on NGDP, not inflation. NGDP growth slowed, suggesting money was not easy in late 2007 and early 2008.

  6. Gravatar of TravisV TravisV
    21. April 2014 at 10:05

    Prof. Sumner,

    You are disagreeing with Clark Johnson, not me. He’s the one who seems to think that money was easy in late 2007.

    I wish market monetarists would write more about Johnson’s paper. I feel that you guys disagree with a lot of his theories / speculation.

  7. Gravatar of Morgan Warstler Morgan Warstler
    21. April 2014 at 10:43

    I have a new blog post:

    “Is Liberalism a Handicap”

    https://medium.com/p/b51652004e22

  8. Gravatar of Philippe Philippe
    21. April 2014 at 11:12

    Morgan,

    are you aware that your opinions are fascistic, or not?

  9. Gravatar of TravisV TravisV
    21. April 2014 at 11:17

    Morgan Warstler,

    I read your new blog post. I’m having trouble seeing where a utilitarian philosophy like Sumner’s fits in. Example: Sumner supports some redistribution, not for “fair share” reasons but for “diminishing marginal utility” reasons…..

    http://www.themoneyillusion.com/?p=998

  10. Gravatar of benjamin cole benjamin cole
    21. April 2014 at 11:44

    Excellent blogging.
    Really—if you have economy with a lot of leverage and then the central bank asphyxiates the economy…you get 2008.
    As an aside, have you ever driven coast-to-coast in the USA? You see farms, industrial parks, railways, highways etc. Days and days of it. Really, the Lehman Bros. collapse caused all that economy to turn south? A bunch of guys in some rooms on an island in NY?

  11. Gravatar of Steve Steve
    21. April 2014 at 11:46

    DeWrong wrote: “the whole mishegas would have been avoided had congress simply put the too-big-to-fail banks into conservatorship in January 2008…”

    Delong is simply full of it here. Risk premium spiked because of the uncertainty of who would take the hit for Bernanke’s deflationary policy. If you “simply” put banks into conservatorship, you would have created staggering uncertainty. Is it an unjust taking? Are property rights safe? Will the courts uphold this action? Furthermore, *someone* would take a hit. Would it be 401k and pension funds, who would scratch out the equity value and write in a zero? Would it be bondholders, too, in which case the insurance industry would “simply” need to be put into conservatorship as well? What about money market funds, which would have been shattered beyond belief if the entire bank sector “simply” went into conservatorship one weekend?

    Delong is using weasel words here. There is nothing “simple” about a bank stabilization (nationalization?) policy in the context of deflationary monetary policy.

  12. Gravatar of Dan W. Dan W.
    21. April 2014 at 12:24

    Scott,

    Concerning points 5 & 6 you infer the fear about inflation was unfounded. Yet GasBuddy provides a chart that reminds us of the HYPERINFLATION that was taking place in gasoline prices and energy prices in general. Retail gas prices increased 75% in less than 6 months in 2008. Electricity rates were also increasing rapidly.

    In such an environment what was the FED supposed to do? Tell Americans that the price increases they were seeing were not real? Even if the price increases were solely due to speculation (and the subsequent collapse in Fall 2008) suggests a lot of speculation was happening) how was the Fed supposed to incorporate that into their models.

    Scott, you say that bubbles do not exist. As such what would you have told the American people when gas prices were accelerating upward? How would you have communicated to the American people that notwithstanding the very visible energy inflation it was necessary to inflate more?

    http://www.gasbuddy.com/gb_retail_price_chart.aspx?time=96

  13. Gravatar of Steve Steve
    21. April 2014 at 12:31

    Dan W.,

    There was a real and substantial oil supply shock in 2008. This gets ignored by multiple sides of the policy debate.

    However, it is *NOT* the job of the Fed to put 10% of America out of work, so that they no longer have a job to commute to, so that gasoline demand plunges.

  14. Gravatar of Jim Scheltens Jim Scheltens
    21. April 2014 at 12:45

    The S&L fiasco of the late 1980s may have involved losses similar to the subprime crisis as a share of GDP, but I think the S&L problems were contained to one sector of the banking system. The freeze up of the shadow banking system in the Great Recession was not contained to one sector and the whole inter-banking system froze up. In any case I don’t think the magnitude of the loss is important, what is in important is how much investment and business risk is left after the loss going forward. It isn’t the size of the sunk loss that matters; it is the perception of the risk of future losses. Wide spread banking crises seems always to result in Depressions, probably because they destroy confidence more than other crises. We may have had a recession if there had not been a severe Financial Crises, but I doubt that it would have been a “Great Recession”.

  15. Gravatar of Morgan Warstler Morgan Warstler
    21. April 2014 at 12:45

    Phillipe / Travis

    I’m just going where the science leads.

    We are discovering ideology is something more engrained than just self-interest. That the underlying morals of both parties can change BUT only thru intense life experiences.

    Fortunately Libertarians have invented one! The Internet.

    It has been an incredible long and powerful lever. In a short period of time, we have capsized Conservative opinions on the lesser morals. Gay marriage. Pot. Sex Work. The Church is dying out.

    This tech you type into will also lever Liberals.

    This is Will Wilkinson on Ezra Klein:

    http://www.economist.com/blogs/democracyinamerica/2014/04/journalism-and-democracy

    “My sense is that the impulse behind Vox is a profoundly honourable one based on what Mr Klein at the outset of this piece calls the “More Information Hypothesis”. The hypothesis is that in the presence of more, better and more lucidly presented information, the democratic public will improve the performance of its signature deliberative tasks. The design of Vox, especially its innovative use of evergreen explanatory “cardstacks”, would seem to be the More Information Hypothesis embodied. Yet Mr Klein’s introductory essay at the helm of his new publication appears to debunk the hypothesis on which the entire enterprise seems to be founded. If it’s really true, as Mr Klein would have us believe, that we are basically deaf to information we’d rather not hear, no matter how clearly and colourfully conveyed, then what’s the point of Vox? ”

    My BIGGER point, which I’ll get into with a second post, is that Ezra and Matty, and Liberals in general, USED to having their “liberal gene” expressed in a time when we didn’t know WHO was lazy.

    Peeps will admit there are some lazy. But how to prove who is who?!?

    Being a liberal was about the SYSTEM, since we don’t know who is lazy, we CANNOT establish a system that punishes all of the poor. Conservatives disagreed but only a a little bit.

    This is Scott’s utilitarianism.

    I’m going bigger. I’m talking about another life changing part of technology:

    DATA DARWINISM (google it)

    It is now incredibly easy to not only find the lazy people. But to measure your own personal laziness down to the second.

    Think about it like this: Conservatives morality WANTS to help anyone who they know is trying their very hardest. Their lizard brain worries about cheaters.

    Technology can now ASSURE conservatives that the ones getting welfare ARE TRYING THEIR HARDEST.

    End cheating and end opposition to welfare.

    And just as conservatives have violently changed their thinking on certain moral foundations because of the Internet in past 15 years…

    Liberals will be growing up in a world where the lazy are known, and the vast majority of the poor are not lazy, and so a SYSTEM LIKE MINE can be deployed.

    Technology took Conservatives to a larger world. it made them deals with the reality of life. And technology is doing the same thing to Liberals.

    Liberals who do not have the dominant “moral gene” to punish cheaters will learn from life experience that doing so has positive effects on humanity.

  16. Gravatar of Philippe Philippe
    21. April 2014 at 13:38

    Morgan,

    “I’m just going where the science leads.”

    Of course that is what fascists always claim.

    Are you aware that your opinions are fascistic, or are you completely oblivious?

  17. Gravatar of Morgan Warstler Morgan Warstler
    21. April 2014 at 13:59

    Phillippe,

    Let’s start here, with Data Darwinism, do you understand this is coming?

    http://www.forbes.com/sites/anthonykosner/2013/03/29/om-maliks-data-darwinism-and-the-new-physics-of-information/

    It’s weird to me, as a passionate advocate of free market distributism, digital socialism, atomic capitalism, and an almost pathological rejection of large organizations to be called a fascist.

    Surely the trains will run on time, but only because they are run by robots.:)

    How do you square Guaranteed Income / Choose Your Boss with facscism? What the connection?

  18. Gravatar of Philippe Philippe
    21. April 2014 at 14:09

    I don’t think you are a fascist exactly, but you have fascistic opinions.

  19. Gravatar of ssumner ssumner
    21. April 2014 at 14:26

    Travis, Sorry. Yes, I knew it was Clark, I just worded that poorly.

    You said;

    “I wish market monetarists would write more about Johnson’s paper. I feel that you guys disagree with a lot of his theories / speculation.”

    Yes, but I have probably 100 posts that I have not written due to lack of time. When I get a bit of time my first priority is economic inequality. I feel my views on monetary economics are pretty well understood by everyone except MF and Cullen Roche.

    Ben, Very good point.

    Steve, I distinctly recall DeLong disagreeing with Krugman’s call for bank nationalization in 2008. Am I missing something here?

    Dan, You must be new here. I favor targeting NGDP, which will result in essentially the same long run inflation, but allows variation during supply shocks to moderate the business cycle.

    We had deflation between 2008 and 2009—so I’d say fear of hyperinflation was not a good excuse for Fed policy.

    Jim, You’ve reversed cause and effect. Depressions tend to result in lots of bank failures. In the 1930s the Depression clearly came first. This time around there was a moderate banking crisis in 2007 and early 2008, but the severe part that you mention was caused by the tight money and falling NGDP. That did not have to happen.

  20. Gravatar of Morgan Warstler Morgan Warstler
    21. April 2014 at 14:32

    Phillipe,

    Do you know what Fascism is?

    Think about a Guaranteed Income. Let’s say we both support it.

    IF you think the people who receive a GI should be employed by the state, that they should build dams and TVA and generally the government should oversee their labor.

    You might be a fascist.

    Even if you have the noble goal of wanting to give them a job. Once the state CONTROLS private interests for state purposes,

    You might be a fascist.

    Now then, I WANT to do a GI, but I won’t allow the state to control the labor resource of a single manjack.

    Because I am not a fascist.

    Capisce?

  21. Gravatar of tesc tesc
    21. April 2014 at 15:47

    Morgan,

    I thought you where just partisan, but now I see you are not. GI is the way to get rid of left and right statism (hippie and yuppie statism). Good job.

    Anyone,

    I was checking the monetary base and M1; and after the recession the monetary base got bigger then M1. Does anyone know why?

    http://research.stlouisfed.org/fred2/graph/?chart_type=line&recession_bars=on&log_scales=&bgcolor=%23e1e9f0&graph_bgcolor=%23ffffff&fo=verdana&ts=12&tts=12&txtcolor=%23444444&drp=0&cosd=1984-02-15%2C1984-02-15&coed=2014-04-16%2C2014-04-16&width=670&height=445&stacking=&range=&mode=fred&id=BASE%2CM1&transformation=lin&nd=&ost=-99999&oet=99999&scale=left&line_color=%234572a7&line_style=solid&lw=2&mark_type=&mw=3&mma=0&fml=a&fgst=lin&fq=Bi-Weekly%2C+Ending+Wednesday&fam=avg&vintage_date=&revision_date=

    I thought monetary base was part of M1 with M1 having some extra stuff. Did they stop including reserves at the FED as part of M1? If so,why?

    On another topic,

    I was listening to Fama in EconTalk and he mentioned that M2 represents business activity which is out the control of the FED.

    If he is right about M2, would not M2 and the greater money aggregates be other way to say NGDP=MV?

    That is why Friedman would give so much wait to M2 because M2 is the nominal economy or it is a strong proxy.

    Any comments or corrections?

  22. Gravatar of tesc tesc
    21. April 2014 at 15:51

    Morgan,

    By the way, it seems Philippe is just obsess with fascism and is reflecting it on you. No way you are a fascist.

  23. Gravatar of Morgan Warstler Morgan Warstler
    21. April 2014 at 15:57

    In which DeKrugman forgets that the Fed loves loose Monetary policy when Republicans are in office:

    http://krugman.blogs.nytimes.com/2014/04/20/further-notes-on-sweden/

    More seriously, this is why it is so important, to at LEAST TRY to tell the story of 4.5% NGDPLT in 2004-2006.

    C’mon Scott!

    DeLong doesn’t buy it.

    BUT, if you start with NGDPLT at 2001: 12.71 trillion (I picked 2001, to give up a little payback for the sins of 1999-2000.)

    http://www.multpl.com/us-gdp-inflation-adjusted/table

    And then you run it out to 2007, by my napkin math NGDP would have been 16.1T, instead it was $15T.

    Is this right?

    Because it looks like the issue isn’t NGDPLT would have just kept the worst housing thing from happening, it would have kept the worst of the tech collapse from happening, which would have made the need for housing boom to be less important.

    Under NGDPLT 2001-2003 would have been different. It’s questionable if banks would have even been able to do crazy ass loans in 2004, because in 2002, NGDP would have been kept on track.

    Sadowski, can you help here?

  24. Gravatar of tesc tesc
    21. April 2014 at 16:28

    I hope it is visible, but going by end of the year to end of the year this is what you get

    GDP Gross Domestic Product, Billions of Dollars, Annual, Seasonally Adjusted Annual Rate

    Frequency: Annual / End of Period
    Actual 4.5% 5%
    2000-01-01 $10,475 $10,475 $10,475
    2001-01-01 $10,703 $10,947 $10,999
    2002-01-01 $11,106 $11,439 $11,549
    2003-01-01 $11,819 $11,954 $12,126
    2004-01-01 $12,564 $12,492 $12,733
    2005-01-01 $13,383 $13,054 $13,369
    2006-01-01 $14,068 $13,642 $14,038
    2007-01-01 $14,690 $14,255 $14,740
    2008-01-01 $14,547 $14,897 $15,477
    2009-01-01 $14,564 $15,567 $16,251
    2010-01-01 $15,232 $16,268 $17,063
    2011-01-01 $15,819 $17,000 $17,916
    2012-01-01 $16,420 $17,765 $18,812
    2013-01-01 $17,090 $18,564 $19,753

  25. Gravatar of tesc tesc
    21. April 2014 at 16:42

    http://monetarypolicytesc.blogspot.com/2014/04/2000s-ngdp.html

    In that image it looks better

  26. Gravatar of tesc tesc
    21. April 2014 at 16:44

    http://research.stlouisfed.org/fred2/series/GDP#

    the data came from there.

  27. Gravatar of Steve Steve
    21. April 2014 at 16:50

    “Steve, I distinctly recall DeLong disagreeing with Krugman’s call for bank nationalization in 2008. Am I missing something here?”

    Dunno. It appears that in an attempt to be flippant toward you, Delong turned into a flip-flopper.

    But you’d have to ask him. I only respond to the very poor argument he presented in that post.

  28. Gravatar of tesc tesc
    21. April 2014 at 17:15

    By the way I thought you guys would like this :

    http://monetarypolicytesc.blogspot.com/2014/04/year-1982-01-01-3.html

    Sumnerian Phillips Curve, NGDP% change / Unemployment% change

    1982-01-01 3.8 2.3
    1983-01-01 11.4 -2.5
    1984-01-01 9.3 -1.0
    1985-01-01 7.4 -0.3
    1986-01-01 4.9 -0.4
    1987-01-01 7.6 -0.9
    1988-01-01 7.8 -0.4
    1989-01-01 6.5 0.1
    1990-01-01 4.5 0.9
    1991-01-01 4.3 1.0
    1992-01-01 6.7 0.1
    1993-01-01 5.0 -0.9
    1994-01-01 6.3 -1.0
    1995-01-01 4.3 0.1
    1996-01-01 6.3 -0.2
    1997-01-01 6.0 -0.7
    1998-01-01 6.1 -0.3
    1999-01-01 6.5 -0.4
    2000-01-01 5.5 -0.1
    2001-01-01 2.2 1.8
    2002-01-01 3.8 0.3
    2003-01-01 6.4 -0.3
    2004-01-01 6.3 -0.3
    2005-01-01 6.5 -0.5
    2006-01-01 5.1 -0.5
    2007-01-01 4.4 0.6
    2008-01-01 -1.0 2.3
    2009-01-01 0.1 2.6
    2010-01-01 4.6 -0.5
    2011-01-01 3.9 -0.9
    2012-01-01 3.8 -0.6
    2013-01-01 4.1 -1.2

  29. Gravatar of Morgan Warstler Morgan Warstler
    21. April 2014 at 18:21

    Guys please looks at tesc’s #s.

    In all the time here I’ve been asking MM to tell the NGDP story on Housing I think this makes it clear to see…

    http://monetarypolicytesc.blogspot.com/2014/04/2000s-ngdp.html

    In my mind the story to DeLong is 4.5% NGDPLT fixes 2001 and 2002, so that Fed doesn’t freak out in 2002 and stomp on the gas.

    You can see it, by 2001 they are $300B light.

    So the peddle goes down in 2002 and they almost catch up to level 4.5% in one year…

    and is like CRACK, in 2004 when they CLEARLY should have tightened, INSTEAD they add $800B!

    Looking at 4.5% and 5% – I think the real story is the Fed really starting to freak out in January 2002.

    What do the Fed minutes from then say?

    Somebody make a t-shirt that says: KEEP CALM AND NGDPLT

  30. Gravatar of dannyb2b dannyb2b
    21. April 2014 at 18:54

    Cant it be a bit of both that caused the great recesion? Housing, lending and monetary policy made a contribution and so did the financial crisis. Extremist adherence to economic ideology reminds of religion sometimes.

  31. Gravatar of Dan W. Dan W.
    22. April 2014 at 04:36

    Scott,

    I share most of your opinions on the economy and politics. My strong disagreement with you about NGDPLT is based on the observation that currency debasement should be an option of last resort and not a general routine. Your proposal of 5% NGDP growth allows for considerable currency debasement. The outcome is baked into the cake and I oppose this policy allowance.

    I also find your trust in NGDPLT to be misguided. NGDPLT would not have prevented the 2008 financial collapse. To believe so is to presume that severely dislocated markets can be fixed by macro manipulations. Specifically, you have to believe that a double digit errors in pricing can be fixed by single digit adjustments in the money supply. I find that view to be nonsensical. Broken markets need to fail, the faster the better.

    Ultimately, NGDPLT is based on the same faulty reasoning used to justify Keynesian manipulations. Elaborations to force a desired output are never equal to the real thing. This is the point of Hayek and Bastiat and so on. The unseen matters much more than what is seen. Seeing NGDP at “proper levels” does not indicate the economy is healthy. It only means that the measurement has been manipulated to reflect good health, meanwhile the patient may be dying of gangrene. While NGDP may be useful as a measurement the use of it as a control will promote economic distortion.

    The boxer says “Everybody’s got a plan until they get punched in the face.” The Federal Reserve should have a plan but it must be a plan that it can execute regardless of what the financial markets throw at it. It is all too easy to play economic arm-chair quarterback about what the central bank should have done in 2008. But such hindsight was not available while the breakdown was happening.

    In June 2008 the CPI was running at a 7.9% annualized rate. In light of this data point how can it be argued Monetary Policy was too tight? http://www.bls.gov/cpi/cpid0806.pdf

  32. Gravatar of TravisV TravisV
    22. April 2014 at 04:52

    Great stuff!

    “Rich Buy Real Estate, Poor Want Gold”

    http://www.bloombergview.com/articles/2014-04-22/rich-buy-real-estate-poor-want-gold

  33. Gravatar of Morgan Warstler Morgan Warstler
    22. April 2014 at 06:56

    Is Liberalism a Handicap? Part 2

    https://medium.com/p/801a2aacf6ce

  34. Gravatar of flow5 flow5
    22. April 2014 at 08:59

    The scientific evidence is irrefutable. The 4th qtr 2008 recession was already “baked in” as early as December 2007. I.e., the trajectory in the rate-of-change for MVt (the scientific method), already projected a recession by the 4th qtr of 2008 (without Fed intervention). The seasonal map (scientific proof), is simply the product of money flows. Money flows peaked in July.

    First column is the roc in the proxy for real-output.
    Second column is the roc in the proxy for inflation.
    ——

    POSTED: Dec 13 2007 06:55 PM |
    The Commerce Department said retail sales in Oct 2007 increased by 1.2% over Oct 2006, & up a huge 6.3% from Nov 2006.
    10/1/2007,,,,,,,-0.47,,,,,,, -0.22 * temporary bottom
    11/1/2007,,,,,,, 0.14,,,,,,, -0.18
    12/1/2007,,,,,,, 0.44,,,,,,,-0.23
    1/1/2008,,,,,,, 0.59,,,,,,, 0.06
    2/1/2008,,,,,,, 0.45,,,,,,, 0.10
    3/1/2008,,,,,,, 0.06,,,,,,, 0.04
    4/1/2008,,,,,,, 0.04,,,,,,, 0.02
    5/1/2008,,,,,,, 0.09,,,,,,, 0.04
    6/1/2008,,,,,,, 0.20,,,,,,, 0.05
    7/1/2008,,,,,,, 0.32,,,,,,, 0.10
    8/1/2008,,,,,,, 0.15,,,,,,, 0.05
    9/1/2008,,,,,,, 0.00,,,,,,, 0.13
    10/1/2008,,,,,,, -0.20,,,,,,, 0.10 * possible recession
    11/1/2008,,,,,,, -0.10,,,,,,, 0.00 * possible recession
    12/1/2008,,,,,,, 0.10,,,,,,, -0.06 * possible recession
    Trajectory as predicted:
    —–

    It was already obvious that real-gDp would peak in July (projected a 0.32% roc). It was downhill from there.

  35. Gravatar of flow5 flow5
    22. April 2014 at 09:28

    The Fed’s target must have been the PCE (not real-gDp – because real-gDp was already running above 4% for 3 quarters). The PCE began to trend above its objective one month before (May 2004), Greenspan first raised the FFR.

    But that’s the problem. Which inflation index do you depend on? The answer is that you target the roc in bank debits (which reflect both new and existing commercial & residential property transactions).

    See:

    1931 commission on Member Bank Reserve Requirements. The commission completed their recommendations on Feb. 5, 1938. The study was entitled “Member Bank Reserve Requirements — Analysis of Committee Proposal”

    It’s 2nd proposal: “Requirements against debits to deposits”

    This research paper was “declassified” on March 23, 1983. By the time this paper was “declassified”, RRs had become a “tax” [sic].

  36. Gravatar of TravisV TravisV
    22. April 2014 at 10:09

    German stocks up 2%, Spanish stocks up 1.4% today……

    http://www.bloomberg.com/news/2014-04-22/european-stock-index-futures-advance-after-easter-holiday.html

    “European shares extended gains after a European Commission report showed a gauge of consumer confidence unexpectedly increased to minus 8.7 this month from minus 9.3 in March. Economists in a Bloomberg News survey had predicted it would remain at minus 9.3.”

  37. Gravatar of TravisV TravisV
    22. April 2014 at 11:35

    Remarkable!

    “Moving in with parents becomes more common for the middle-aged”

    http://www.latimes.com/business/la-fi-adults-in-parents-home-20140421,0,2293806.story#axzz2ze6e6kjR

  38. Gravatar of flow5 flow5
    23. April 2014 at 11:40

    “the S&L fiasco of the late 1980s involved losses similar to the subprime crisis as a share of GDP”

    Both were policy induced errors. The late 80′s & early 90′s error resulted from turning 38,000 financial intermediaries into 38,000 commercial banks (principally due to the elimination of Reg Q ceilings). The Great-Recessions error (dis-intermediation among just the non-banks), stemmed from the Fed’s introduction of the payment of interest on excess reserve balances along with following a contractionary monetary policy.

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