Archive for the Category Monetarism

 
 

Multiplier mischief

Multipliers are ratios. That’s really all they are. There is the money multiplier (M2/MB), the fiscal multiplier (1/MPS) and the velocity of circulation (NGDP/MB, or NGDP/M2). If you assume these ratios are stable, you can derive some very interesting policy results. Of course the ratios are not completely stable, but may be stable enough to be of some value. Sometimes. My own view is that multipliers aren’t particularly useful, but today I’d like to assume the opposite, and show that the implications are not necessarily what you might assume.  (And please, no comments from MMT zombies “explaining” to me that multipliers don’t exist.)

Milton Friedman faced a quandary when trying to explain how bad government policies led to the Great Depression. If he defined the money supply as “the monetary base” (as I prefer), people would have pointed out that the base increased sharply during the Great Depression. Alternatively, he could have adopted the market monetarist practice of defining the stance of monetary policy in terms of changes in NGDP. Thus falling NGDP during 1929-33 was, ipso facto, tight money. His critics would have objected that this begged the question of how could the Fed have prevented NGDP from falling.

So he split the difference, and settled on M2 as both the definition of money, and the indicator of the stance of monetary policy. He suggested that, “What is money?” was essentially an empirical question, not to be determined on theoretical first principles. His statistical analysis led him to conclude that M2 (which unlike the base did fall during the early 1930s) was the preferred definition of money. And also that growth in M2 should be kept stable at roughly 4%/year.

In my view M2 no longer represents a good definition of money, using Friedman’s pragmatic criterion. Look at M2 growth in recent years:

Screen Shot 2015-10-05 at 3.38.24 PMI don’t know about you, but I see almost no correlation with the business cycle. Indeed M2 growth soared in the first half of 2009, making money look “easy”, which is obviously crazy. So if Friedman were alive today, how would he define money? The base still doesn’t work, as reserves also soared in 2008-09. Nor does M2. I don’t have a good answer, but I suspect that coins might be the best definition. Unlike the base and M1, periods of illiquidity probably don’t lead to massive hoarding of coins.  They are primarily useful for making transactions (although a sizable stock is held in piggy banks.)

Unfortunately, I could not find any data for the stock of coins in circulation. (Which is a disgrace, when you think about the 100,000s of data series the St Louis Fred does carry. As I recall, back in the 1990s coins were almost as important a part of the base as bank reserves.) But I did find data on annual coin output. For simplicity, I chose unit output, but value of output (which counts quarters 5 times more than nickels) would almost certainly lead to broadly similar results. In the list below I will show the change in annual coin output, compared to the year before, and also the change in the unemployment rate at mid-year (June) compared to the year before. The unemployment rate change is in absolute terms:

Year  * Coin Output  * delta Un

2000:   +28.1%           -0.3%
2001:    -30.9%          +0.5%
2002:    -25.7%          +1.3%
2003:    -16.5%          +0.5%
2004:    +9.5%          -0.7%
2005:   +16.1%          -0.6%
2006:    +1.4%           -0.3%
2007:    -6.9%             0.0%
2008:    -29.8%        +1.0%
2009:   -65.0%          +3.9%
2010:   +79.6%          -0.1%
2011:    +28.7%         -0.3%
2012:   +13.9%          -0.9%

Unfortunately my data ends at 2012, but that’s a really interesting pattern. Especially given that I don’t have the data I’d actually prefer.  I’d like the change in the size of the coin stock; instead I have the change in the flow of new coins (but not data on old coins withdrawn.)  It’s more like a second derivative.

In any case, it’s an amazing correlation. The signs are opposite in every case except the one where unemployment doesn’t change at all.  Coin output falls during years when unemployment is rising, even years like 2003 when unemployment is rising during a non-recession year.  And even better, the biggest change by far in coin output (proportionally) is in 2009, which also saw the biggest change by far in unemployment.

If you are not good at math then you’ll have to take my word for 2010 being a smaller change in proportional terms.  Indeed if you look at actual coin output in levels, 2010 was the second smallest in the sample, 2011 the third smallest, and 2012 the 4th smallest.  The decline in 2009 was so great that we never really climbed out of the hole.

Now let me emphasize that there’s an element of luck here.  If we had coin data for 2013 and 2014 I doubt the relationship would hold up.  Coin output seems to be in a steep secular decline.  So it’s partly coincidence that the signs are reversed in virtually every case.  But not entirely coincidence.  Perhaps someone could do a regression (using first differences of logs of coin output—so that the 2009 change will be larger than 2010) and confirm my suspicion that this relationship does show something real.  Falling coin output is associated with recessions.

But does it cause recessions?  If only you knew how tricky the term ’cause’ really is!  Krugman basically called Friedman a liar (soon after Friedman died) for claiming that tight money caused the Great Depression, whereas in Krugman’s view Friedman’s data pointed to the real problem being a non-activist Fed—they didn’t do enough to prevent M2 from falling. But they didn’t cause it to fall with concrete steppes.  The base didn’t fall.

I’ve always believed we should think of “causation” in terms of policy counterfactuals.  Suppose the Fed had acted in such a way that M2 didn’t fall.  And suppose that in that case there would have been no Great Depression.  Then if the Fed was capable of preventing M2 from falling (which is itself a highly debatable claim) then there is a sense in which Friedman was right, the Fed did cause the Great Depression.  Again, that’s if they could have prevented M2 from falling, and if stable M2 would have prevented a depression–both debatable (but plausible) claims.

My claim is that if we use Friedman’s pragmatic criterion for defining money, then coins might possibly be the best definition of money for the 21st century.  If the Fed had acted in such a way that coin output was stable in 2007-09, or at worst declined along its long run downward trend, then there would have been no Great Recession.  So in that sense the fall in coin output “caused” the Great Recession. But I could also find a 1000 other “causes,” such as plunging auto sales.

Can the Fed control the coin stock?  I’d say they could in exactly the same way they can control M2 (or nominal auto sales), via a multiplier.  The baseline assumption is that both the coin stock and M2 move in proportion to the base.  That would be the case if the M2 and coin multipliers were stable.  If the multipliers change, then the Fed simply adjusts the base to offset the effect of any change in the coin multiplier.

No let me quickly emphasize that I view the preceding as an extremely unhelpful way of thinking about monetary policy and the Great Recession.  I still prefer to define money as the base, as the base is directly controlled by the Fed.  And I prefer to define the stance of monetary policy as NGDP growth expectations.  And I prefer to think of tight money as setting the monetary base at a level where NGDP growth expectations fall below target, as in 2008-09.  I’d just as soon leave coins to children with piggy banks and nerdy collectors.  But if you insist on defining money using Friedman’s pragmatic criterion, then coins are my definition of the money stock.

A penny for your thoughts?

PS.  I have a new post on the Phillips Curve at Econlog.

Why is aggregate demand so confusing?

It’s possible that I’m the one that’s confused.  But since it’s my blog, I’ll write the post as if others are confused.

Picture the AS/AD diagram.  Now shift AS to the right, due to population growth, capital accumulation, resource discovery, or technological developments.  What happens to AD?  I guess it depends what you mean by “AD.”  I’d say nothing happens, although the quantity demanded rises at a lower price level.  When I read others I often get the impression they have in mind some sort of “real AD” concept, which would drain AD of all meaning.  After all, if it’s quantity demanded, then any and all changes in output are changes in aggregate demand.   This would allow no debate as to whether recessions were caused by AD shocks, as a recession is defined as a significant fall in output.  It becomes a tautology!   Yet I get the feeling reading people like Stiglitz that he views AD is a real concept, not a nominal concept.

Or consider an increase in AD when the economy is at capacity.  The textbooks say you just get inflation in that case.  But if you used a “real AD” concept, then there would have been no increase in AD in the first place.  That’s right, even in Zimbabwe AD did not rise, because output didn’t rise.

Why does this confusion exist?  Perhaps because we have two radically different ways of thinking about AD; the monetary approach (M*V) which is obviously a nominal concept, and the Keynesian approach (C+I+G+NX) , which could be visualized in either nominal or real terms.  Most people are Keynesians, and think in terms of actual purchases of goods and services.  To take a micro analogy, most people views the terms ‘consumer purchases’ and the term ‘demand’ as being synonymous.   Even though purchases are also sales, and could just as well be termed “quantity supplied.”    (Remember those graphs of “oil demand” over the next 50 years?)  When I read popular writers on macroeconomics I see them break the economy down into sectors, and talk about things like “December demand for US made cars,” what they really mean is “quantity demanded.”

The deeper problem is that the Keynesian and monetarist worldviews are nearly incommensurable.  It’s very hard to mentally toggle back and forth between the two approaches, because they are so radically different.

When I read the following quotation from Tyler Cowen, I initially wondered whether he was confusing AD with real quantity demanded:

Weak job creation remains at the heart of America’s unemployment problem.  Accepting this hypothesis does not require the rejection of Keynesian economics; for instance you can think of weak job and start-up creation as one reason why AD is not recovering so well on its own, with causation running both ways of course.

(BTW, commenters should not complain that his first sentence is tautological, he’s talking about gross job creation, not net job creation.)

I see economic dynamism, creative destruction, as something that affects AS, not AD.  Yet in the very next line he shows that he’s not confused.  Like me, he views AD as a nominal concept:

Remember “” monetary velocity is endogenous to perceived gains from trade.

But I’m still not happy, because I don’t agree with his implicit assumption that velocity shocks affect AD.  They do under Friedman’s 4% money growth rule, and they do under a gold standard.  But velocity shocks have no impact on AD under the following monetary regimes:

1.  Inflation targeting.

2.  NGDP targeting.

3.  A Taylor Rule.

4.  A hybrid policy where the central bank does just enough QE to prevent inflation from falling below 1%, but no more.

I’m not quite sure what sort of regime we have today, but my hunch is that it’s closer to the 4 items on that list, then it is to either a 4% money rule or a gold standard.  If I had to guess I’d assume Tyler might have made the following error:

1.  He developed a real theory of unemployment (no problem there.)

2.  Saw market monetarists looking over his shoulder, or perhaps felt uncomfortable with empirical evidence that AD matters too, and decided that the theory was in some way compatible with AD theories of the recession.  But I don’t think you can do that.  An AD theory must be 100% nominal.  That means it must move the monetary policy process front and center into any explanation.

This doesn’t mean that real shocks can’t matter.  For instance, I speculated that in 2008 and 2011 the oil price shocks made monetary policy more contractionary, which reduced AD.  In both cases the Fed saw high headline inflation rates, and became squeamish about monetary stimulus.  In both cases they tightened enough to reduce NGDP growth, even as inflation was still above target.  The slower NGDP growth slowed the economy.  It’s possible that a similar explanation could be developed with Tyler’s job creation story.  But I don’t think it’s enough to tack on a “velocity might fall” explanation.  To me, that seems too much like someone working out a real theory of AD, and then assuming nominal AD must move in the right way to make it work.  As when Keynesians convince themselves that fiscal policy must affect AD, and then offhandedly suggest that velocity will move in the right direction to make it happen.  Maybe so, but the theory needs to be developed in terms of actual central bank practice, i.e. changes in M*V, not just a add on assumption about velocity.

PS.  A whole different issue is the question of how nominal AD shocks get translated into real changes in quantity demanded (those December car sales.)  For that you need wage/price stickiness, and Tyler Cowen has a new post that discusses fascinating evidence on wage stickiness in rural India (where you might expect wages to be flexible.)

PPS.  Here’s how I’d make the argument if a gun was pointed at my head.  A more dynamic job creation process would somehow raise the Wicksellian equilibrium real interest rate.  This would allow the Fed to do less of the “unconventional monetary stimulus” that is it squeamish about doing, and more conventional stimulus, for any given inflation rate.  Do I believe that?  I’m not sure.

Ed Dolan on why monetarists should favor NGDP targeting

Here’s Ed Dolan:

I see NGDP targeting as the natural heir to monetarist policy prescriptions of the 1960s and 70s.

If we look at the textbook version of monetarism, the point is almost trivial. Textbook monetarism begins from the equation of exchange, MV=PQ, where M is money (M1, back in the day), V is velocity, P is the price level, Q is real GDP, and PQ is NGDP. Next it adds the simplifying assumption that velocity is constant. It follows that targeting a steady rate of money growth is identical to targeting a steady rate of NGDP growth.

Why the left and right now agree on monetary policy

There is a rapidly developing consensus among economists of both the left and the right that NGDP targeting is the way to go.  How did this consensus develop, given their wildly different views on other important issues?

The original push for NGDP targeting seemed to come mostly from economists on the right.  It was seen as a good post-monetarist policy rule.  Recall that the monetarists had favored a stable rate of increase in a monetary aggregate, usually M1 or M2.  The hope was that velocity would be stable.  Unfortunately, fluctuations in velocity during the early 1980s seemed to discredit monetarism (although in fairness Friedman seems to have erred in focusing on M1 at the time.) So conservatives began to look for alternatives.  Bennett McCallum advocated a NGDP targeting rule, where the monetary base would be adjusted to offset changes in velocity.  And I think it’s fair to say that most market monetarists have vaguely libertarian leanings.

This basic approach got a lot of attention from economists like Greg Mankiw, Robert Hall, and John Taylor, although they didn’t end up in exactly the same place.  Matt Yglesias linked to a Tim Lee tweet that reminds us that the late William Niskanen had NGDP targeting enshrined in the Cato Handbook for Policymakers:

The intent of Congress would be better served and monetary policy would be more effective if Congress instructed the Federal Reserve to establish a monetary policy that reflects both their concerns in a single target. The best such target, I suggest, would be the nominal final sales to domestic purchasers””the sum of nominal gross domestic product plus imports minus exports minus the change in private inventories.

[Slightly different from my version, I believe Beckworth and Woolsey prefer nominal final sales, but I am not certain.]

So how about the left?  Why has Matt Yglesias, Brad DeLong, Paul Krugman, Christina Romer, et al, become interested in NGDP targeting?  In my view they have recognized the advantage of NGDP targeting over inflation targeting, which in its simplest version pays no attention to unemployment.  In fairness, most central banks, including the Fed, do pay some attention to unemployment.  This is called flexible inflation targeting.  But in the US that flexibility allows a lot of wiggle room.  The Fed seems to be reluctant to focus aggressively on the growth side of their mandate, especially when all they have to work with are unconventional policy tools.  As a result they have ended up not even hitting their inflation target over the past three years (on average), despite very high unemployment.  No wonder the left is frustrated.  NGDP targeting would make it very clear to the Fed that inflation and growth are equally important in the short run (while assuring low inflation in the long run.)  So the left is on board.  Indeed I’d even put Goldman Sachs into that category, if “left” means “Keynesian approach,” rather than “wild-eyed radical.”

So we have finally achieved agreement between the left and right on a critical issue to policymakers.  Now we just need to convince that moderate who’s in charge of the Fed.  Glad to hear that he found yesterday’s discussion “interesting.”  When the left and right agree, what’s there not to like for moderates?  Time for a David Brooks column?

Krugman and DeLong mount a chivalrous defense of IS-LM

I’ve posted a bunch of critiques of IS-LM, but naturally Tyler Cowen’s criticism (which I agree with) got more attention.  Brad DeLong had this to say:

The right thing for Tyler to have said, from my perspective at least, would have been that IS-LM does not provide us with enough insights to satisfy us, and here is a slightly more complicated model–a four-good or a three-good two-period model–that actually helps us think coherently about (some of) the issues of nominal versus real interest rates, short-term versus long-term interest rates, safe versus risky interest rates, moral hazard and adverse selection in the bond market, non-interest bearing and interest bearing assets, liquidity and means of payment, flows and stocks, expectations, government reaction functions, and so forth.

Both DeLong and Krugman insist that macro needs to start with simple models.  I agree.  And that those models must at a minimum include money, bonds and output.  Here I don’t entirely agree.  I think a model with money and goods, plus sticky prices, can get at many of the key features of the business cycle.  BTW, I am not envisioning a model with constant velocity; I agree that would be almost entirely useless.  But I’m willing to provisionally go along with the three market minimum for reasons that DeLong lays out here:

But the mechanical quantity theory is simply wrong for us today: the Fed has tripled the monetary base since 2007, and yet the flow of nominal spending has not tripled: not at all. IS-LM at least starts you thinking about the issues around the concept that has been called the “liquidity trap” which the mechanical quantity theory does not.

A quantity theoretic monetary model need not be the mechanical quantity theory.  So I see DeLong making a pragmatic argument here.  He’s saying that thinking in quantity theoretic terms is likely to lead us astray.  We know that V might change, but we are likely to forget that problem when thinking about policy options at the zero bound.  Fair enough.  But this criticism applies equally to IS-LM, which is also likely to lead one astray, especially at the zero bound.

The IS-LM model led economic historians to argue money was easy in 1929-30, because rates fell sharply.  It led modern Keynesians to assume that money was easy in 2008, because rates fell sharply.  And IS-LM proponents underestimated the importance of monetary stimulus in late 2008, because they thought the IS-LM model told them that monetary policy is ineffective at the zero bound.  Brad DeLong himself was one of those IS-LM proponents who underestimated the importance of monetary stimulus in late 2008.  Now he’s bashing the Fed almost every day.

Some IS-LM defenders argue that there is nothing wrong with the IS-LM approach; it’s just that the model is misused by its supporters.  After all, there has to be some sort of general equilibrium in the goods, money, and bond markets.  The markets all interact with each other.  And the IS and LM lines merely depict that general equilibrium.  Yes, but a model that general would be pretty useless.  IS-LM proponents also tend to argue that the IS curve is downward sloping.  Nick Rowe recently argued that it is upward sloping.  I think Nick’s right, at least if we use the yield on T-securities as “the interest rate,” and use a time frame that is relevant for business cycle analysis (a few months or years.)  The problem is that most Keynesians identify changes in monetary policy by changes in interest rates, and hence misidentify monetary shocks.

So has Nick “fixed” the problem with IS-LM?  Not really, because it’s a mistake to think of their being a “true” IS-LM model, untainted by the misuse of its adherents.  Models aren’t out there in some Platonic realm, they are tools created by humans.  The value of any model is instrumental, not intrinsic.  If IS-LM is misused by almost everyone, then ipso facto, it’s not a good model.

Paul Krugman makes an anti-elitist argument in favor of IS-LM:

Here’s the problem: Macro I (that’s 14.451 in MIT lingo) is a quarter course, which is supposed to cover the “workhorse” models of the field – the standard approaches that everyone is supposed to know, the models that underlie discussion at, say, the Fed, Treasury, and the IMF. In particular, it is supposed to provide an overview of such items as the IS-LM model of monetary and fiscal policy, the AS-AD approach to short-run versus long-run analysis, and so on. By the standards of modern macro theory, this is crude and simplistic stuff, so you might think that any trained macroeconomist could teach it. But it turns out that that isn’t true.

.   .   .

Now you might say, if this stuff is so out of fashion, shouldn’t it be dropped from the curriculum? But the funny thing is that while old-fashioned macro has increasingly been pushed out of graduate programs– it takes up only a few pages in either the Blanchard-Fischer or Romer textbooks that I am assigning, and none at all in many other tracts – out there in the real world it continues to be the main basis for serious discussion. After 25 years of rational expectations, equilibrium business cycles, growth and new growth, and so on, when the talk turns to Greenspan’s next move, or the prospects for EMU, or the risks to the Brazilian rescue plan, it is always informed – explicitly or implicitly – by something not too different from the old-fashioned macro that I am supposed to teach in February.

I think Krugman’s right that real world policymakers use IS-LM to frame the issues.  And to me that’s precisely the problem.  The policymakers understand the basic IS-LM model, but not its weaknesses.  They think there is “a” fiscal multiplier, ignoring monetary policy feedback.  They think that low rates mean easy money.  That’s why when I started arguing that money became ultra-contractionary in late 2008 I was regarded as something of a kook.  Policymakers also tend to assume the Fed is out of ammo at zero rates.  Where does this crazy idea come from?  Krugman constantly like to praise Hick’s 1937 model, but in that paper Hicks said that the liquidity trap was the only revolutionary idea in the entire General Theory.  The rest was putting already understood concepts (i.e. money demand depends on interest rates, or wages and prices are sticky) into a different language.  There’s no question that the liquidity trap view comes from IS-LM, even its supporters admit that.  And the liquidity trap view that is out there in the real world is the main reason we are letting central banks off the hook, the reason Obama thinks the Fed has “shot its wad.”

We don’t need policymakers that rely on IS-LM; we need policymakers that rely on cutting edge macro.  Who rely on arguments for why level targeting is an extremely powerful tool at the zero bound.  Those should be the standard model, if we insist on teaching our policymakers a standard model.  We need useful models, not models that fulfill our urge map out a 3 market general equilibrium framework.

Here Krugman trashes Tyler Cowen:

Brad DeLong comes down hard on Tyler Cowen over his attempt to critique the IS-LM model “” but not hard enough.

.  .  .

In macro “” or at least macro that tries to get at monetary and fiscal issues “” what you need, at minimum, is to understand an economy in which there are three goods: money, bonds, and economic output.

.  .  .

There’s something about macro that seems to invite this sort of thing: more even than the rest of economics, macro seems afflicted with people who mistake confusion for insight, who think their own failure to understand basic ideas reflects a failure of those ideas rather than their own limitations.

Tyler shouldn’t feel too bad about this.  After all, Krugman doesn’t identify a single flaw in Tyler’s critique.  The post is just a string of personal insults.  And recall that Michael Woodford creates models without money, so he’s also “confused.”  And of course Milton Friedman was no fan of IS-LM—so he’s another guy who just doesn’t get it.

I favor an ad hoc approach to models–use the simplest model that gets at the issues you are interested in.  Start with a simple economy with money and goods, no bonds.  The supply and demand for money determines the price level and/or NGDP.  That’s most of human history.  Add wage price stickiness and you get demand-side business cycles.  Add interest rates and you get . . . well it’s not clear what you get.  Interest rates almost certainly have an influence on the demand for money.  Do they play a major role in the transmission mechanism between money and aggregate demand?  Hard to say.  Short term Treasury yields probably don’t have much impact.  Other asset prices might, but then there is generally no zero bound for other asset prices.  On the other hand monetary policy often operates through purchase of short term T-securities.  Bottom line, it’s complicated.

Now let’s add another asset, NGDP futures contracts.  Now the modeling process gets much easier.  We model monetary policy as changes in the price of NGDP futures contracts (accomplished through central bank purchases of financial assets in order of safety and liquidity, as much as it takes.)  Then we have a Philips Curve or SRAS curve to translate NGDP shocks in fluctuations in real output.  Since NGDP futures prices are monetary policy, fiscal policy is 100% classical.

Some will object that we don’t have NGDP futures contracts, so we are currently forced to stop at the money/bonds/goods stage of human progress.  Not so, we can construct a pseudo-NGDP futures price by modeling expected NGDP as a function of lots of variables (past NGDP, current asset prices, TIPS spreads, consensus forecast of economists, etc.)  That pseudo-NGDP futures price is available to Fed officials in real time.  They can peg it if they want to.  The policy has flaws related to the circularity problem (which NGDP index futures convertibility does not have), but it’s workable.

Of course you’ve probably noticed that this is also my model.  I think it’s also in the tradition of Milton Friedman, although obviously it differs in certain respects.  Friedman thought it was more useful to take a partial equilibrium approach to macro.  By doing so he was able to avoid the mistakes of those who looked at the Depression from an IS-LM perspective.  He was interested in how monetary policy determined NGDP, and then used a separate Phillips Curve approach with a natural rate to explain output fluctuations, to partition NGDP into RGDP and P.  He viewed interest rate movements as a sort of epiphenomenon.  Monetary policy affected rates in a complex way, which made interest rates an unreliable indicator of the stance of monetary policy.

Of course the indicator Friedman choose, M2, also turned out to be somewhat unreliable, which is why I replaced it with NGDP futures.  Expected NGDP (or something similar that incorporates the Fed’s dual mandate–like the Taylor Rule) is the goal of monetary policy.  There’s quite a bit of slack between changes in M2 and changes in expected NGDP.  In contrast, changes in the price of NGDP futures contracts ought to track changes in expected NGDP (the policy goal) pretty closely.  I find the NGDP perspective to be much more useful than the interest rate perspective.

BTW, I think this might have been what Tyler Cowen had in mind here (first Tyler, then Brad):

“The most important points… one can derive from a… nominal gdp perspective…”

What is this “nominal GDP perspective”? The Google reports that as of this writing the phrase “nominal GDP perspective” appears only once on the internet–in Tyler’s post.

I want all 5000 of my readers to Google “Scott Sumner nominal GDP perspective” 100 times.  Each time, please link to my blog if it appears on the list.

I think DeLong and Krugman need to lighten up a bit.  They are defending the IS-LM model like it’s some sort of bride whose virginity has been challenged.  Models are only valuable if they are useful.  We critics are convinced that other approaches are much more useful.  Contrary to DeLong, there is nothing “tribal” about all this.  I’ve discarded the old monetarist preference for M2 targeting, and accepted the Krugman argument that temporary monetary injections are ineffective at the zero bound.  I’m not tribal, I’m eclectic.  When we see people use models in ways that we think are wrong, indeed that we think helped cause the Great Recession, we are naturally going to be critical of those models.  Especially if we find alternative approaches that seem more fruitful—like viewing monetary policy through the lens of changes in NGDP expectations, and viewing fiscal policy in essentially classical terms (except where a bizarrely perverse central bank allows fiscal decisions to alter its inflation or NGDP target.)

PS.  Yes, I do understand that the strongest criticism of my approach is that we do live in a world with bizarrely perverse central banks.  We’ll fight that issue another day.