Oh, so it’s stimulus you need
I am viewed as being an opponent of fiscal stimulus, but I’ve always argued that an employer-side payroll tax cut would “work.” It just seems kind of pointless. If it’s a lower W/NGDP ratio that you need, just boost NGDP! Christina Romer has also advocated this sort of payroll tax cut. It lowers a country’s labor costs in much the same way as a currency devaluation. If you add on a VAT increase it can even be revenue neutral, which keeps the Very Serious People on board. Since it’s supply-side, no monetary offset problem. What’s not to like? Larry sent me the following.
When French President Francois Hollande unveiled a plan in November for a business tax credit and higher sales taxes as a way to revive the economy, he was implementing an idea championed by economist Gita Gopinath.
Gopinath, 41, a professor at Harvard University in Cambridge, Massachusetts, has pushed for tax intervention as a way forward for euro-area countries that cannot devalue their exchange rates. “Fiscal devaluation” is helping France turn the corner during a period of extreme budget constraints, former Airbus SAS chief Louis Gallois said in a business-competitiveness report Hollande commissioned. . . .
“Gita is already a major star, at the top of her cohort in international macroeconomics and still rapidly growing as a scholar,” Rogoff said in an e-mail. “Her empirical work on price rigidities is simply stunning and has had everyone going back to the drawing boards. Her theoretical work on international debt and default defines the state of the art in the field,” he said, calling her strategies for the euro zone to achieve internal devaluations “very influential.” . . .
The paper examines a “remarkably simple alternative” that doesn’t require countries to abandon the euro and devalue their currencies, Gopinath said. By increasing value-added taxes while cutting payroll taxes, a government can create very similar effects on gross domestic product, consumption, employment and inflation.
The higher VAT raises the price of imported goods as foreign companies pay the levy. The lower payroll tax helps offset the extra sales tax for domestic companies, reducing the need for them to raise prices. Since exports are VAT exempt, the payroll-cost saving allows producers to sell goods cheaper overseas, simulating the effect of a weaker currency, according to the paper.
The policy also can help on the fiscal front, as increased competitiveness can lead to higher tax revenue, Gopinath said.
I’m glad her ideas are getting attention, but I can’t help wondering why this took so long. If it’s higher inflation they want why not just do monetary stimulus? The ECB was raising interest rates as late as 2011 in an attempt to reduce inflation. When I recommended easy money for the eurozone all sorts of European commenters would come over here an insist that Europe doesn’t need inflation, their problem are “structural.” “Mind your own business.” Now we learn that they do need higher inflation.
Unless I’m mistaken this is the sort of policy that only makes sense if you have a dysfunctional central bank that refuses to do the right thing, and hence you must do an end run around that institution.
PS. I suppose some will cite the “one-size-fits-all problem,” but that doesn’t apply to the eurozone, as even German inflation is down to 1.0%. They all need higher inflation. (Actually higher NGDP growth.)
PPS. The article might be difficult for non-economists. Just to be clear, the higher VAT approach doesn’t give you any permanent boost to trade, just a boost until nominal wages adjust. VAT does NOT favor exports over imports.
PPPS. I see Krugman’s going from Princeton to CUNY. Bernanke’s joining Brookings. Woodford left Princeton for Columbia. I’d say losing Woodford, Bernanke, and Krugman slightly weakens their monetary econ program. But they still have Lars Svensson. And Svensson is still writing great posts. I love the way Britmouse describes the Svensson post:
Via Mr. Svensson, still methodically attacking the madness.
Tags:
28. February 2014 at 16:35
“If it’s higher inflation they want why not just do monetary stimulus?”
My best answer to that is that France can more easily influence the France’s tax policy than it can the ECB’s monetary policy.
Now, since the ECB sees VAT increases as inflationary, are they going to tighten policy to offset French inflation?
28. February 2014 at 17:27
I wonder how popular “monetary stimulus” would be if it were instead called “printing money for the benefit of the banks”.
Not very.
Which is exactly why we have to listen to the Orwellian “Stimulus”, and “Policy”, and other verbiage.
28. February 2014 at 17:50
“When I recommended easy money for the eurozone all sorts of European commenters would come over here an insist that Europe doesn’t need inflation, their problem are “structural.” “Mind your own business.” Now we learn that they do need higher inflation.”
No, we can’t possibly learn that because it’s false. Europe’s structural problems remain because of too much inflation (which is perceived by MM to be too small because of some arbitrary price or NGDP statistic), and too much hampering of corrections through subsidies, regulations, and taxation.
28. February 2014 at 17:52
Claiming that because price inflation is below some arbitrary number, more money printing is needed, is reasoning from a price change. One ought not reason from a price change, even those who make use of the term, initially or subsequently.
28. February 2014 at 18:08
Doug, Only slightly, as France is one of 18 members of the eurozone. But all the countries need higher inflation.
28. February 2014 at 21:22
“I’d say losing Woodford, Bernanke, and Krugman slightly weakens their monetary econ program.”
This is a huge complement for Woodford, since you are arguing that he added more than Bernanke and Krugman subtracted.
28. February 2014 at 23:03
Maybe higher VATs and lower payroll taxes work, but this strikes me as a good idea in any event. I believe in higher VATs and lower payroll taxes anyway.
But what do you do in the next recession caused by weak demand and tight money? How many times can you go back to the well, and raise VAT taxes and lower payroll taxes?
Also, I am suspect of any macroeconomic stimulus plan that relies on the administration of multiple changes in the tax code, not only that but in Europe, within in a welter of existing taxes and regulation and special laws and loopholes.
While the ECB suffocates everyone.
Egads, how hard is it to know what to do? Print more money, and keep printing more money and buy bonds, and keep buying more bonds, until we see some years of robust aggregate demand, and maybe inflation north of 3 or 4 percent.
Then, maybe then, think about tightening up the money supply.
28. February 2014 at 23:10
I like the idea of Krugman going to CUNY, and I will tell you why.
I can remember the 1970s, in particular the 1978 World Series, Dodgers vs. Yanks, on TV. There was a screen shot of fires, and native New Yorker and announcer Howard Cosell said with gloomy resignation, “There you have it. Brooklyn is burning.”
“Ford to New York: Drop Dead.” that was the famous headlines. The city went bankrupt, or nearly. Abe Beame.
Crime, business flight.
Our greatest city seemed a goner.
Today? Booming! Krugman signing on with a city university to live in Manhattan (or Brooklyn).
Many other cities have revival stories too.
Bring on more prosperity. It is good.
I like the boom times. I like Fat City.
28. February 2014 at 23:30
Yes, I agree with Ben Cole.
A $600 check mailed to every adult is deficit neutral if it is financed by a permanent expansion of the monetary base. Remember that esteemed Keynesian, George Bush? The stimulus checks were sabotaged by the Fed.
1. March 2014 at 05:21
Q:
Assume adopting digital services (eschewing atoms) reduces capital (bricks&mortar) costs and reduces labor costs for firms and and also reduces prices for consumers (towards free).
Now consider 1% NGDPLT vs. 5% NGDPLT – which level target more encourages a race towards digital cost savings on the demand side?
I’m going to argue whichever target increases demand of low cost digital is BETTER regardless of pain felt marginally.
So can anyone explain why the higher 5% NGDPLT causes us to adopt digital faster?
1. March 2014 at 06:13
This post is, as usual, correct – so are the comments by Doug M and Ben Cole. Lowering payroll taxes is a good idea. But this is so frustrating. The ECB crushes all its owners (member states own the ECB) with tight money and then the owners scramble to do find ways to deal with the pain.
If some people have a shortage of cash, then it could be a structural problem. If everyone has a shortage of cash, then by definition, you are not printing enough cash. Print more money!
What an absurdity! And where is the outrage?
1. March 2014 at 06:29
Ben, You said;
“But what do you do in the next recession caused by weak demand and tight money? How many times can you go back to the well, and raise VAT taxes and lower payroll taxes?”
Very good point.
Morgan, I don’t see how the low target causes firms to digitalize faster. They respond to micro forces of costs and benefits.
1. March 2014 at 08:16
Scott,
Isn’t an employer-side payroll tax cut desirable mostly for labor supply side reasons rather than boosting NGDP. In other words, it’s good because it actually boosts production regardless of how much inflation is out there. After all, the goal of an economy is to produce things people want not be an NGDP factory right?
1. March 2014 at 08:37
John, Don’t say things like “NGDP factory”. It doesn’t mean what you think it means, and you’ll just look uninformed.
Not only should we not cut the payroll tax, it should be increased sharply, especially on the rich. At the same time the income tax should be abolished.
The business cycle should be stabilized with monetary policy, not payroll tax changes.
1. March 2014 at 08:59
Scott we saw a big productivity burst when NGDP fell, no?
In darkest days, firms cut the least productive labor, and fought to not raise prices even as commodity prices increased.
Productivity gains even when driven by negative shocks, are still real growth.
1. March 2014 at 09:48
Morgan,
Let me explain it to you in terms you can understand.
Say you have 100 marbles – of varying quality.
A bully comes along and takes away some of them – luckily for you, the poorest quality ones.
How mentally defective do you have to be to call that “real growth” ?
1. March 2014 at 11:41
=== ===
Sumner: If it’s higher inflation they want why not just do monetary stimulus?
The ECB was raising interest rates as late as 2011 in an attempt to reduce inflation.
When I recommended easy money for the eurozone, European commenters insisted that Europe doesn’t need inflation.
=== ===
You recommend inflation through “easy money” and “monetary stimulus”. Banks borrow from the central bank at very low or zero rates. This avoids getting funding voluntarily from savers. The banks in turn buy government bonds, enabling more spending. In short, central bank actions fund more government spending. The result is price inflation as the public slowly experiences higer prices to ration the available resources. This is reallocation, not production.
The reduction of the real value of government debt is a nice side effect, if not the main one wanted by politicians.
The cost is to reduce the real value of all savings and monetary assets. The entire scheme is funded by taking real value from savers and bond owners.
This is immoral. What is your justification for taking from some to help others, especially when those helped are governments (ie politicians)?
Do I have this wrong? Does everyone benefit, including the savers? What is the evidence?
1. March 2014 at 11:49
Daniel, you have some kind of mental defect.
Humans are not marbles.
Jobs are not marbles.
To try and work in your small IQ analogy, our BUSINESS is MAKING MARBLES.
Making X # of marbles for LESS MONEY is a PRODUCTIVITY GAIN.
OVERALL MACRO producing more more of X for less money (even with fired workers) is REAL GROWTH.
There’s no economist alive who won’t admit that’s what growth is.
NOW THEN, what do we do with the fired workers?
That’s easy, we put them to work for what they are worth:
http://www.morganwarstler.com/post/44789487956/guaranteed-income-choose-your-boss-the-market-based
Look Danny, the REALITY is it is SUPER NICE that we as a people have agreed that people deserve a normative lifestyle of X.
ONLY A HALFWIT however, tries to use WAGES to give it to them.
That we are willing to give 50%+ of our population MORE value than they are able to produce, well that speaks well of us.
So, again, pls get out of the way, I have a real question to Scott,
We saw productivity spikes occur during the dip in NGDP, and I want to know why we shouldn’t expect more productivity gains in a system that routinely culls the weakest firms, the weakest employees from the herd.
1. March 2014 at 12:18
It takes a special brand of idiocy to argue that involuntary unemployment (even if it affects the least productive) is somehow a good thing.
Lo and behold – Morgan Warstler.
1. March 2014 at 13:07
It takes even more idiocy to view employment as more important than the goals of employment.
1. March 2014 at 13:10
Sumner:
“The business cycle should be stabilized with monetary policy, not payroll tax changes.”
Saying that makes you look uninformed.
Monetary policy CAUSES the business cycle. It cannot be a means to stabilize it.
John, you’re right. MM wants the US to be an NGDP factory, not a real goods producing factory.
1. March 2014 at 13:17
Major_Freedom – because retarded autists are people, too.
John Becker – When M_F agrees with you, you should be asking yourself where you went wrong.
1. March 2014 at 13:19
Daniel:
Because truth is established by the unintelligent and afraid on the basis of consensus.
You have a tribal mentality, not a rational one.
1. March 2014 at 13:27
M_F – you do realize you’re a poster child for the Dunning-Krueger effect, don’t you ?
Wait, you’re too stupid to realize that. My bad.
1. March 2014 at 13:52
Daniel,
You need to be able to keep two competing goals in your mind at same time:
http://usatoday30.usatoday.com/money/economy/2011-04-04-us-economy-jobs.htm
AGAIN, I have a kick ass, best in breed, solution to unemployment in US.
One that benefits the poorest and weakest far more than anything you can hope to happen for them in your lifetime.
But it starts by recognizing that PRODUCTIVITY CANNOT BE SACRIFICED, because it reduces the overall amount of things to be consumed. We cannot eat what we do not grow.
Once you hold tight to that fact of physics, and don’t let your emotions get int he way, your desire to see everyone working will lead you to GI/CYB.
1. March 2014 at 14:09
PRODUCTIVITY CANNOT BE SACRIFICED, because it reduces the overall amount of things to be consumed.
We saw productivity spikes occur during the dip in NGDP
a system that routinely culls the weakest firms, the weakest employees from the herd
I fail to see how keeping resources (even if said resources are the least productive people) idle is a good thing. But then again, I’m not Morgan Warstler.
1. March 2014 at 14:26
Daniel, keep resources idle is a terribly thing.
And only minimum wages and regulations can keep them from working.
GET THIS THRU YOUR HEAD:
MORE AND MORE people are not going to be able to earn enough to take care of themselves. We will 1) require them to work for something even $1 per hour. 2) We will make sure they have direct subsidies to care of their expenses.
Have you even read GI/CYB:
http://www.morganwarstler.com/post/44789487956/guaranteed-income-choose-your-boss-the-market-based
1. March 2014 at 15:02
Daniel:
“PRODUCTIVITY CANNOT BE SACRIFICED, because it reduces the overall amount of things to be consumed.”
Can’t speak for Morgan, but the goal I was thinking about is individual happiness, not real goods production.
We work to achieve goals that make us happier.
I know it’s difficult to try to wrap your head around this, but when I say that it is absurd to sacrifice the goals of employment, for the sake of the employment itself, is not a call to sacrifice human life to production. It is a call not to sacrifice individual humans ends for the sake of employment.
Dunning-Krueger? You sound like a 16 year old who picked up some silly “BURN!” on 4chan.
1. March 2014 at 15:14
The government does not know better than the owners regarding the disposition of resources.
It is immoral to initiate force against people into monopolizing money.
It is inefficient to mislead owners into wasting resources and calling it increased output.
1. March 2014 at 15:25
Daniel:
You want to sacrifice some humans for the sake of other humans. You call that “compassionate”? You’re not compassionate. You’re anti-social.
1. March 2014 at 15:50
Morgan
And only minimum wages and regulations can keep them from working.
So basically everybody decided to go on vacation in the 1930s (and 2008, to a lesser degree) ?
Major_Freedom
Has your brand of retarded rethoric ever made anyone change his/her mind ?
My guess would be “no”. So why do you do it ? (other than your autistic retardation, of course)
1. March 2014 at 16:03
Daniel:
That is not what Morgan said. Minimum wage laws and regulations causing unemployment is not “basically” vacation desires causing workers to become unemployed.
It’s “basically” the exact opposite.
Yes, my rhetoric has made people changed their minds. And better, I’m changing the minds of those who used to have views very different from mine.
My rhetoric is changing your mind for example. It’s why you have such hatred for me.
1. March 2014 at 16:20
You are one deluded idiot, M_F
1. March 2014 at 17:50
Dan,
It’s not what I said. And you obvs haven’t taken time to READ MY PLAN.
ALL the econ literature on MW and new regs also looks at the marginal (read small) changes, and then focuses on “we need more demand”
NONE of the econ literature argues with GIANT HUGE PRICE DISCOUNTS CLEARING A MARKET.
Literally NONE of it argues that at a low enough price, we can’t put all humans to work.
LET ME EXPLAIN YOUR MISTAKE.
You are thinking about workers are hungry and desperate (like the GD) and still seeing unemployment and think it must somehow be a fact of life.
I’m looking at this:
We spend $750B on welfare / safety net annually.
My plan takes half of that money $375 B and gives it to 30M people who raise their hand and say “YES I WANT TO WORK”
It’s about $10K apiece.
The Internet is used to let buyers offer 30M with their hands up for the GUARANTEED INCOME, jobs for a minimum of $40 per week.
This clears the market.
And Dan IT IS KEYNESIAN .
I repeat my plan is KEYNESIAN.
My plan is FDR’s plan to use the government to give people jobs, but my plan is smarter – because:
1. my plan USES THE INTERNET to solve search matching overnight.
2. my plan solves the “shovel ready” jobs problem Obama had – bc at $40 a week, 50% of America will offer jobs to the 30M who raise their hand.
3. my plan mainlines Keynes’ ANIMAL SPIRITS into the jugular of the economy.
4. My plan cuts prices in poor areas via Purchasing Power Parity (where the cheap labor lives and works) – the CONSUMPTION FOR TH EPOOR GOES UP 30% ABOVE what the GI buys without a work requirement.
At $1 per hour – we have a GIANT DEMAND SHOCK. Remember, if any of the 30M don’t get offered jobs – they still get their GI.
So Dan, use your brain, say I have out-thought the other Keynesians and say thank you.
2. March 2014 at 01:49
Morgan,
And I never contradicted you on your pet project. All I pointed out was that your “recessions increase productivity, which is a good thing” was a dumb thing to say.
2. March 2014 at 05:13
“recessions increase productivity, which is a good thing”
No its not a dumb thing to say.
A dumb thing is minimum wage and labor regulations (mostly licensing). That is a provable dumb thing – see GI/CYB.
Dan, here is a Law of God: Increasing Productivity is ALWAYS GROWTH. And real growth is always a good thing.
You know what boring growth is? Growth that comes from population.
Another dumb thing is things like measuring happiness, but I digress.
Suffice to say that unemployment is a NONISSUE bc GI/CYB is the correct policy stance.
I’m also stipulating that Nominal Deflation (NGDP being an actual smaller number YOY) is bad.
So, Dan (and Scott who I still need an answer from)
There’s a real question here, its not about recessions, it is about NGDP at 1% vs. NGDP at 5%. And it gets to my bugaboo issue of Digital DEFLATION not being measured as RGDP. I “think” Real Digital Growth is a negative # in classic Real GDP.
I think there is something deeply broken in the way NGDP is measured because we are experiencing GREAT JOBLESS GROWTH (major productivity gains), which are creating FREE THINGS, and FREE THINGS DO NOT ADD TO GDP.
WhatsApp now sends more messages than SMS globally. SMS was headed to $300B globally annually, that revenues is being replaces by a model will will instead generate $3B. The margins on SMS were indeed over 98%.
And consumption, again this the real number god cares about, is going up, up, up.
——
So, whichever target causes the most PRODUCTIVITY GANS is the best target.
During a recession (which is on its face bad, but not bad like war) necessity is the mother of invention.
At 1% NGDPLT it seems intuitive to me that we routinely have more consumers adopting WhatsApp, more large firms adopting VOIP, more startups in both.
Because generally more startups you have, the more you’ll see atomic consumption shrink and be replaced by nearly free digital consumption.
Telepresence is real. Virtual reality is real. Not flying to a meeting, not driving to an office, not building an office, not building a new airport, not building more planes, these are all REALLY HAPPENING.
And Scott says there shouldn’t be more productivity gains at 5% vs 1%, and thats not what I think the data might suggest.
2. March 2014 at 06:00
Morgan, No, there was no burst of productivity.
Andrew, You assume a zero sum game, but the ECB’s tight money made the pie much smaller–so almost everyone is worse off, savers and borrowers. That’s what zero sum thinking misses.
The ECB should have allowed the GDP deflator (excluding taxes) to rise by 1.9%/year. If they had done so the recession would have been far milder. Of course an even better policy would change the target to NGDPLT.
2. March 2014 at 06:10
Increasing Productivity is ALWAYS GROWTH
Output (O) = Productivity (P) X Hours_Worked (H)
P1 = P0 * 1.05
H1 = H0 * .9
P1 * H1 = P0 * H0 * .945 – that means you’re WORSE OFF than before
In other words – spare me your pompous rhetoric and get back to Earth.
2. March 2014 at 07:53
Morgan Warstler,
I’m a HUGE fan of yours and you often say brilliant things. But I sure am glad that Prof. Sumner is here to bring you back to reality (occasionally).
2. March 2014 at 08:06
Scott,
“The United States has proved the exception. U.S. productivity growth doubled from 2008 to 2009, then doubled again in 2010, according to the Organisation for Economic Co-operation and Development.”
http://usatoday30.usatoday.com/money/economy/2011-04-04-us-economy-jobs.htm
Why are you sure productivity doesn’t grow faster at lower NGDP? Doesn’t the recent rapid replacement of the atomic with digital SUGGEST that lower NGDP leads to more conscious cost cutting which speeds up this change?
Why isn’t running “lean” without much fat to trim part of the recent lower NGDP story?
Daniel,
Hours work have nothing to do with it. I ALSO support working long hours, in fact, the more productive a man is, the more hours I think he should work.
I think it’s healthy society to assume that making it into the top 20% of earners is likely a 50-60 hour commitment YOY, so the 80% working 40 or less KNOW the trade they are making.
ANYWAY, for any given H, we still want P to be as big as possible . I’m not being pompous. It’s a fact. One I think you agree with.
Look man,
I’m not in favor of recessions.
But something new (digital) is afoot, and when I look at the spending categories of US households I can see people spending no more money (in basically EVERY category save housing) and consuming 5-10% more EVERY YEAR.
I think $5K custom fitted bespoke suits are about to cost $300.
I think one car is going to replace two.
Eyeglasses are now $40. Not $400.
Essentially raw calorie and energy costs will stay about the same, the price of placing atoms in a given order – is going DOWN FAST.
—-
So if households no longer need to make and spend more money to consume more stuff….
1. Why shouldn’t our NGDP target be lower?
2. Why doesn’t a lower target ENCOURAGE the move to digital?
2. March 2014 at 08:21
I think it’s healthy society to assume that making it into the top 20% of earners is likely a 50-60 hour commitment YOY, so the 80% working 40 or less KNOW the trade they are making.
That’s just you and your puritanical delusions.
1. Why shouldn’t our NGDP target be lower?
http://en.wikipedia.org/wiki/Nominal_rigidity
2. Why doesn’t a lower target ENCOURAGE the move to digital?
First, I’d like you to disprove the fact that I have an invisible gnome resting on my left shoulder.
2. March 2014 at 09:06
Morgan Warstler,
As far as the short-run goes, productivity is PRO-cyclical, and I’ve never seen any evidence that the rate of change of NGDP has real effects on productivity, except (of course) in that a country with hyperinflation or hyperdeflation will have various secular real problems insofar as society cannot adapt to them.
2. March 2014 at 09:50
Daniel:
That isn’t an argument on substance.
“Output (O) = Productivity (P) X Hours_Worked (H)
P1 = P0 * 1.05
H1 = H0 * .9
P1 * H1 = P0 * H0 * .945 – that means you’re WORSE OFF than before”
You’re not taking into account time, how correcting errors takes time, and how people are better off in the longer run if there is a temporary reduction in output due to a rise in savings and investment and decline in consumption.
A shift from a less capital intensive economy to a more capital intensive economy will experience a reduction in output, since it takes time for new production methods to be ready for sustainable output.
Your equation is constrained to an equilibrium state, that is blind to the market process.
You are uninformed and unfortunately you have a horrible attitude to go along with it.
2. March 2014 at 11:17
W. Peden / Scott, ok let’s go back in time: (Dan if you want to come too that’s ok)
http://www.themoneyillusion.com/?p=3059
Now with the benefit of hindsight, we know some things:
1. Scott has learned what a smartphone is and does.
2. We have seen Tyler’s GS made fun of by third world people and kids today both choosing the smartphone over toilets and cars.
I’m not really jesting here, my point is over the last 4 years, I would expect that Scott and other non-technologists, are starting to recognize how BADLY GDP does at handling DIGITAL CONSUMPTION.
That smartphone is able to reduce government workforce and government buildings by 50%+.
Now back in 2009, Scott understood Selgin’s part of this argument, and said this:
“I think this problem could be eliminated with a futures-oriented NGDP target, level targeting (or indeed the same level targeting approach concept applied to Selgin’s productivity norm.) But we haven’t gotten there yet. So right now I oppose mild deflation. Here is the order in which things need to be fixed:
1. First, we need level targeting of a nominal aggregate.
2. Then let’s target the forecast of that aggregate.
3. Then let’s adopt a near zero inflation productivity norm.
4. Then we can go to a mild deflation productivity norm.”
My point here is that 4 years later, is that we don’t NEED a mild deflationary target, to solve for Scott’s concerns.
We can have a MILD NGDPLT target say 1%.
This will be:
1. Real Prices on consumption falling as the cost of goods and services falls. Most of this is technology, some of this is pricing labor properly (GI/CYB instead of MW). Basically for the same amount of money you get 5-10% more every year.
2. Using MP to keep NGDP growing at 1%, just so we don’t every get nominal deflation.
This is my thesis:
WE ALL KNOW next year we will be getting MORE STUFF for our saved money next yea, BUT we also know next year it will takes us less atoms to be happy….
So we are choosing to SPEND IT NOW ANYWAY, bc it comes with so much FREE DIGITAL STUFF DIGITAL RIGHT NOW that is unmeasured.
Even odder,
We have recently passed the ability to mainly measure our economic growth, bc our model is based on economists who still think toilets and cars and houses are the basis of our economy.
And it’s not.
We expect 50% MORE FREE DIGITAL STUFF next year, not in 20 years, and since digital stuff is mostly what we are concerned with, we are less and less concerned with “money illusion” – we are now bathing if digital fact.
There is today and in long run, everyone is EXPECTING TO just goggle in like this:
2. March 2014 at 11:21
http://youtu.be/7bytIGCeGxo
You consume electricity and calories, and thats it.
My point is Selgin ALMOST had Sumner, and that was before scott was able to grok digital deflation being “almost” unescapable.
I don’t mean we can’t print enough money, I mean the money we print to hit the target could be KEEPING US FOR THIS GLORIOUS FUTURE.
And since the money only effects the atomic side of economy, having a higher NGDPLT target could in Scott words;
“Suppose you had n industries, and there was a sudden increase in productivity in one of those industries, say computers. The increase in productivity in the computer industry would lower the relative price of computers. Under a price level target, you would have to inject enough money to slightly raise the price of all other goods, in order to offset the fall in the price of computers. That seems unnecessarily cumbersome.”
And what we have now is different.
DIGITAL is bringing MASSIVE productivity gains to many industries, and the only thing that Scott can raise prices on is ATOMS.
But digital also makes us need LESS ATOMS to build the same things – see 3D printing and miniaturization.
2. March 2014 at 14:33
“They all need higher inflation.”
Why would anyone need a reduced value of their money earnings and holdings?
2. March 2014 at 14:40
Mr. Sumner (March 2014 at 06:00):
If inflation is not a zero sum game, then tell me how savers and bondholders derive a net benefit? The government spends new money to consume real resources. Savers later find higher prices, so real resources have been taken from them. Bond holders specifically trusted the government to pay them back in money which the government has not intentionally made less valuable.
You recommend policies which intentionally makes money less valuable. Those policies conveniently make government promises easier to avoid.
If inflationary policy really “expanded the pie” for everyone, then later prices would be lower after the inflation and after a later miraculous economic boom in production. Where is the boom?
The “expanded pie” analogy usually explains how business owners can acquire wealth without stealing it from others. They receive their wealth from a larger pie which their business creates.
How does transferring wealth, from savers to government spending, make the pie bigger, and how do those savers later receive their bigger slices?
If government is saving us all from disaster, then why not proudly take more resources from everyone in order to save everyone. It is politically convenient that the only people who lose under inflation are the savers and lenders, especially lenders to the government.
At secong glance, inflation reduces the total pie because it discourages saving and investment and disrupts business operation and planning.
I don’t say saving is without risk. One of those risks is inflation from whatever cause. Intentionally causing inflation is immoral. Investment carries a risk of loss. Intentionally causing losses is immoral.
You say that the tight money policies of the ECB (whatever that means) caused lower investment and production. OK, then advocate “right money” policies. Why and how is inflation the cure?
If you give me a method for taking wealth from some people, then I can make other people happier, give them make-work, and pay myself a nice salary for doing the taking and spending. Why should I be allowed to ignore the theft underlying that generosity?
2. March 2014 at 14:50
Andrew_M_Garland
http://en.wikipedia.org/wiki/Nominal_rigidity
Edumacate yourself, bro
5. March 2014 at 09:24
Scott,
I was arguing that cutting employer side payroll taxes is good regardless of the state of the business cycle because it makes it cheaper for businesses to hire workers without raising real wages and hence the demand for jobs. I was not arguing that for using it as a tool to fight the business cycle. I believe in implementing the best economic policies possible at any given point regardless of market cycle. If the only time you can cut taxes is during a boom, you should do it. If the only time you can cut spending is during a bust, you should do it.
5. March 2014 at 09:27
I you the term NGDP factory to make the point that the specific types of outputs the economy produces are just as important as the total amount of goods produced in terms of consumer satisfaction. I feel that looking at an economy through the NGDP lens aggregates away all the interesting stuff. It reminds me of how the Soviets bragged about how much concrete they were producing when people didn’t have toilet paper, condoms, or soap. You can disagree with me on this point, but how am I being ignorant?
5. March 2014 at 17:37
John Becker, NGDP is not about types of output, it’s about money. Zimbabwe’s NGDP rose to the quadrillions of dollars, what did that tell us about their “types of output.” NGDP is a monetary issue, and if people criticize me with “NGDP factory” comments it shows they don’t understand it’s a monetary issue.
Apply that critique to China, which targets RGDP.
Morgan, You need to focus on wages, which need to grow over time. Price can fall for all I care, but wages are what is correlated with NGDP.
Andrew, You said:
“You recommend policies which intentionally makes money less valuable.”
So do the Germans. I really don’t think you understand my argument. It’s fine if you disagree, but first you need to understand what you are criticizing.
You said:
“Why and how is inflation the cure?”
I strongly oppose inflation targeting, I’ve consistently said inflation is not the issue, they need to target NGDP growth.
5. March 2014 at 17:38
Andrew, I should clarify my last comment. The ECB has a 1.9% inflation target, and are falling well short. They should target NGDP, not inflation. But if they target inflation, they should at least try to hit the target.