Plumbers, Hawaiian community bankers, and the FOMC

Imagine President Obama appointing a plumber to the committee that determines the growth path for NGDP for the United States (which of course also impacts the global economy.)  Then read this:

(Reuters) – President Barack Obama on Tuesday nominated former community banker Allan Landon to a seat on the U.S. Federal Reserve’s board, responding to calls for a greater voice for Main Street in the central bank’s deliberations.

Landon, a partner at private investment fund Community BanCapital, was chief executive of the Bank of Hawaii from 2004 until 2010. Previously, he had worked as the bank’s chief financial officer and as CFO at First American in Tennessee.

Several lawmakers on Capitol Hill had urged the White House to name someone with community banking experience to one of the two open seats on the central bank’s board, concerned that Wall Street holds too much sway.

And don’t say, “how do you know he doesn’t read Friedman and Schwartz’s Monetary History and Woodford’s Prices and Interest in his spare time?”  I don’t know that, but reread my post.  How do you know your plumber doesn’t read those two books?

Here’s Matt Yglesias back in 2010:

The Great Recession has revealed [a] lack of capacity for engaging with monetary issues to be a major institutional weakness of the progressive movement.

Has anything changed in the past 5 years?

PS.  What’s more appalling—the pick itself, or the fact that the mainstream press won’t treat it as a scandal?

HT: bklyn77


Tags:

 
 
 

116 Responses to “Plumbers, Hawaiian community bankers, and the FOMC”

  1. Gravatar of Ken Adams Ken Adams
    7. January 2015 at 17:30

    By law, the appointments must yield a “fair representation of the financial, agricultural, industrial, and commercial interests and geographical divisions of the country”. What you don’t like is the law, not the appointment.

  2. Gravatar of E. Harding E. Harding
    7. January 2015 at 17:39

    The question is not his experience. The question is “what are his views on monetary and interest rate policy”?

  3. Gravatar of John John
    7. January 2015 at 17:45

    Not as bad is this:
    http://www.bloombergview.com/articles/2015-01-07/brazil-puts-denier-aldo-rebelo-in-charge-of-climate-change

  4. Gravatar of Michael Byrnes Michael Byrnes
    7. January 2015 at 17:46

    Sure, EHarding, but one could say the same thing if Obama had nominated a bus driver.

  5. Gravatar of Major.Freedom Major.Freedom
    7. January 2015 at 18:20

    As if the track record of PhD technocrats has been something better than an abject embarrassment.

    Socialism does not work, not even the “only money” variety.

  6. Gravatar of Philippe Philippe
    7. January 2015 at 18:24

    not really socialism though, is it.

  7. Gravatar of Philippe Philippe
    7. January 2015 at 18:29

    Scott,

    as far as I tell, you think the current crop of Fedistas aren’t doing very well, or don’t know what they are doing, or whatever. Who would you choose?

  8. Gravatar of ssumner ssumner
    7. January 2015 at 19:39

    Ken, Yup. (BTW, previous Presidents have ignored the law, and the press was silent.)

    E. Harding, Experience is certainly a factor in having thoughtful views, although obviously it doesn’t correlate perfectly. The Supreme Court in a good analogy. A plumber with no experience will make superior decisions to at least 4 out of 9 justices in roughly 50% of the 5-4 decisions. But I still don’t want a plumber on the Court.

    John, Ouch, that’s embarrassing.

    Philippe, I’d choose people like Lars Svensson, Mark Carney, Christy Romer, Bennett McCallum, Michael Woodford, etc., all very qualified (even if they don’t always agree with me, or each other.) Paul Krugman would be far better than what they have now. I might put him there to get him out of blogging. :)

    I’d add that my big problem with Fed policy was in previous years—right now is more debatable.

  9. Gravatar of Roxy Roxy
    7. January 2015 at 19:54

    Man this blog is weird sometimes …

    They appointed a banker to the fed board! What will they think of next?

  10. Gravatar of Ray Lopez Ray Lopez
    7. January 2015 at 20:04

    If anything the nomination by Obama is good because this man, a wild card, might adopt Sumner’s targeting NGDP framework. And as Simon Johnson would say, Wall Street indeed is over-represented. I would think this is a step in the right direction. Anyway, it’s well known the Fed only relies on a handful, starting with the chair, as to who really sets policy, so this appointment is more symbolic than practical.

    OT: Sumner wants to target NGDP but with a peg. Pegged to what? To prevent wild swings in NGDP targets presumably. But pegs don’t work (historically), but let’s leave this aside for now. Also as a bonus what parts of Sumner’s pegged target NGDP framework affects or relates to the three legs in the Trilemma? (http://en.wikipedia.org/wiki/Impossible_trinity)

  11. Gravatar of Don Geddis Don Geddis
    7. January 2015 at 20:04

    Roxy’s sarcasm is misguided … but understandable. The real problem is not that the Fed has a dual mandate, but that it has a dual charter. It is in charge of both monetary policy, and also banking regulation.

    Sumner’s monetary theory suggests that these two things have nothing to do with each other. But I suspect that’s still a minority view. So, as Roxy is probably thinking, having an experienced banker in charge of regulating banks, sure seems like a reasonable idea.

    What they really need, is to split the Fed into those two parts. Have one organization (which the banker can join), that oversees the banks, and is responsible for the stability of the financial sector. And have a completely different organization, which is filled with experts on monetary policy, and which manages the money supply for the benefit of the entire US economy.

    It can’t help Obama’s lack of monetary understanding, that the Fed itself conflates these two jobs.

  12. Gravatar of Don Geddis Don Geddis
    7. January 2015 at 20:08

    Ray Lopez: I know I shouldn’t feed the troll, but your “bonus question” is pretty easy. The answer is obviously (b). Nobody cares about maintaining fixed exchange rates (it isn’t a goal), so it’s the easy one of the three to discard.

    Do I win a prize?

  13. Gravatar of Philippe Philippe
    7. January 2015 at 21:00

    Scott,

    wrong thread, but I wanted to respond to your comment that capital income taxation = taxing future consumption more than present consumption.

    That view seems to depend upon seeing future income from capital as something which you already have today. As such it seems like a false analogy.

    If I have $1 today, and spend it today, I get x amount of goods.

    For simplicity, say that if I spend the $1 a year from now, I still get x amount of goods for my money.

    However, in the meantime I have received some interest on my $1 savings, as a result of real returns from investment. That interest is then subject to capital income tax. I can then spend the remaining amount on goods.

    I don’t see why this additional consumption is taxed more than my initial consumption in the present.

  14. Gravatar of Rajat Rajat
    7. January 2015 at 21:01

    Aren’t most FOMC members ‘plumbers’? They’re not really experts in monetary economics or policy.

  15. Gravatar of Major.Freedom Major.Freedom
    7. January 2015 at 21:53

    Philippe:

    “not really socialism though, is it.”

    I’m not really interested in reading redefinitions.

    Abolishing private ownership and control of the means of production in any commodity or service requires a powerful force which must claim final legitimacy, and thus be a territorial monopoly. Abolishing private property is the goal of socialism of all varieties. Since a territorial monopolist in force, i.e. a state, is required to abolish private property for allegedly everyone, it follows that regardless of the Utopian visions or claims that abolishing private property by way of a state, which puts control in the hands of a select few statesmen, is not “true” socialism, it is what socialism must and can only be, given the existence of homesteaders who do not consent to give up what they created and came to own naturally, to the socialists for them to control.

    Central banks are institutions that inevitably arise by way of socialist abolition of private ownership and control over the means of producing money. In the version that exists in the open range farm you call the US, some of the socialist power is delegated to some “private” bankers, which are usually called commercial banks, who require a license from and are regulated by more inner circle of power of the state. The illusion of “legitimacy” ultimately backs the value of the deposits created by these “private” banks. The ideology among the populace has to be constantly “managed” by the state and their court intellectuals, such as “market” monetarist bloggers, or else the power will become decentralized and market driven.

    The Fed is one version, among many possible versions, of socialism in money. It could have been like the USSR where no power was delegated to any “private” member banker, where even deposit control was fully controled by the same group of statesmen. But in the US some vestiges of individualism among the populace remained, which turn of the 20th century progressivism sought to all but destroy, and so the result was the so-called hybrid institution that exists today. Not fully state, not fully private, but a mixture.

    But make no mistake, it was not capitalist ideology that created the modern day central bank. It was socialist ideology through and through. At root, a disdain for and physical hostility towards fully private money.

    It would be ludicrous to believe that if tomorrow the state started to enforce a law that says every citizen is henceforth part owner of the central bank, that this would finally be “true” socialist money. Not just because citizens of other countries would be “excluded” just the same, but more importantly, any given citizen would have zero control over what happens if he or she happens to have a “minority” desire or plan, exactly like an individual in a “social democracy” has zero control over what happens if they happen to have a minority desire or plan.

    All democracy is, is a watered down version of communism. No individual is safe with any absolute individual rights protections. The majority can do anything they want to the individual and it is legal by definition of democracy. If in any so-called democratic society the individual is safeguarded by certain rights and freedom of self-rule, then that is a movement away from democracy and towards republicanism, which by the way the fonding fathers wanted instead of democracy (but they too wanted to aggress against the individual in certain other ways).

    Ask yourself why there is a virtual moratorium against calls to abolish “state capitalist” central banks from today’s iteration of self-professed “true” socialists, and yet persistent calls for the state to reduce the control they delegate to “private” bankers, or, in other words, calls to “increase regulation”. It is not a coincidence. Even in the most libertarian country the world has ever seen, socialists bring about more state control and ownership.

  16. Gravatar of Philippe Philippe
    7. January 2015 at 22:13

    “reading redefinitions”

    You’ve redefined socialism to mean whatever you want. So I guess you’re not really interested in reading your own comments.

  17. Gravatar of Philippe Philippe
    7. January 2015 at 22:15

    “Abolishing private ownership and control of the means of production in any commodity or service requires a powerful force which must claim final legitimacy, and thus be a territorial monopoly.”

    But private ownership, as you see it, is a territorial monopoly backed by powerful force.

  18. Gravatar of Philippe Philippe
    7. January 2015 at 22:26

    p.s. your first paragraph doesn’t make sense. Given that it is crucial to understanding the rest of your diatribe, you might want to correct it.

  19. Gravatar of Philippe Philippe
    7. January 2015 at 22:32

    “Central banks are institutions that inevitably arise by way of socialist abolition of private ownership and control over the means of producing money.”

    Do you think these guys were socialists?:

    http://en.wikipedia.org/wiki/Bank_of_England#mediaviewer/File:Bank_of_England_Charter_sealing_1694.jpg

  20. Gravatar of Don Geddis Don Geddis
    7. January 2015 at 22:36

    Philippe: Please don’t engage the troll. (Yes, I know, I did it myself to the other troll earlier. My bad.) It provides him the energy to take over any thread, no matter what the original subject, and produce the same huge irrational wall of words, that he’s posted here for years. You’re acting as though you’re having a rational discussion, but he isn’t.

  21. Gravatar of Philippe Philippe
    7. January 2015 at 22:42

    Ok, I won’t respond further.

  22. Gravatar of Major.Freedom Major.Freedom
    7. January 2015 at 22:59

    Philippe:

    “You’ve redefined socialism to mean whatever you want. So I guess you’re not really interested in reading your own comments.”

    You’ve redefined socialism to mean whatever you want. I am not interested in reading YOUR redefinition.

    I am more interested in reading other redefinitions, because I’ve already learned your redefinition contains flawed assumptions about the world.

    “Abolishing private ownership and control of the means of production in any commodity or service requires a powerful force which must claim final legitimacy, and thus be a territorial monopoly.”

    “But private ownership, as you see it, is a territorial monopoly backed by powerful force.”

    I am also not interested in reading your redefinition of “territorial monopolies backed by powerful force”, because in your redefinition, it includes 90 year old frail widows who live in the family home that has been passed down through the generations from original homesteading.

    No, I do not choose to use your definition. I use the definition of one or more private property owners claiming and acting upon a territorial monopoly that includes OTHER people’s property.

    I find it absurd to define a pure anarcho-capitalist world that would have millions of self-rule only lands, to be a world of millions of “territorial monopolies backed by force”.

    You should know, if you had ever bothered to read anarchist literature, which you have not of course, that we define “territorial monopoly” to refer to protection and security for everyone’s property. A territorial monopolist is one who prevents others on lands the monopolist has neither homesteaded nor freely traded for, by force, from contracting with other protection and security providers and not the monopolist.

    A territorial monopoly in anarchist language typically means a territorial monopoly in security and protection, or final arbitration and judicial activity, unless otherwise stated.

    If you have absolute control over your own person and homesteaded/traded property only, and you either choose to legislate laws and protect yourself and only your land directly, or cast a single vote for another to do it for you (where your single vote is both necessary and sufficient for someone else to protect you from aggression), then I do not define that person to be enforcing a territorial MONOPOLY of protection, because he is not claiming to be the sole provider of ultimate arbitration for others regarding other lands.

    I define a monopoly as a singular concept. The root of the word is “mono” which means one. One single provider of security and protection for everyone is a territorial monopolist, in which the “territory” consists of separate, independently owned lands.

    If you want to redefine territorial monopoly to mean millions of monopolies, go ahead, it’s your choice, as all definitions arez just don’t expect me to pretend or believe that I am somehow obligated to accept it as well. I am not interested in your redefinitions.

    “p.s. your first paragraph doesn’t make sense. Given that it is crucial to understanding the rest of your diatribe, you might want to correct it.”

    It makes sense, it just contains a rather lengthy sentence to end it, and it is likely you are just unable to retain more than one or two ideas at once.

    In your next diatribe that concerns more of the same linguistic prescriptivism, which you believe is merely a push back against my alleged linguistic prescriptivism, then guess what? You won’t be making an argument that shows I am wrong about anything.

  23. Gravatar of Philippe Philippe
    7. January 2015 at 23:05

    one last comment, sorry.

    mf, you’re conflating democracy with voting. Democracy is actually a political system of equal rights. Capitalist property is a contentious topic in that context because it gives power to some over others, and so rubs up against the idea of equal rights. A capitalist democracy is constantly trying to find a decent solution to this basic conflict.

  24. Gravatar of benjamin cole benjamin cole
    7. January 2015 at 23:08

    I have to take friendly disagreement with Scott Sumner on this one. Really, would a John Cochrane be better? He wants deflation and has credentials to the moon. Was Charles Plosser a winner?
    Frankly, macroeconomics has become politics in drag. Give me some industrial and property guys who want growth and figure moderate inflation is annoying, but not enough to warrant throttling prosperity.
    This community banker may be a pro-business guy…I hope so…

  25. Gravatar of Major.Freedom Major.Freedom
    7. January 2015 at 23:13

    Philippe:

    “Do you think these guys were socialists?:”

    I define a socialist individual as someone who promotes or acts upon bringing about, abolition of private ownership and control of the means of production. The more activity an indivodual promotes or brings about as centralized, the more socialist that person is.

    Don Geddis:

    “Philippe: Please don’t engage the troll. (Yes, I know, I did it myself to the other troll earlier. My bad.)”

    I am not a troll for pointing out the flaws in your arguments. The only reason you”re trying to convince Philippe that I am a troll is because you’re scared of what I write, and scared of being corrected again on this blog.

    I do not write what I write to get an emotional rise out of you or anyone else here. I write what I write because I am interested in ideas and only ideas here. If you remain rational and calm, or if you have these “don’t feed the trolls” fear based affirmations, it makes no difference to me.

    “It provides him the energy to take over any thread, no matter what the original subject, and produce the same huge irrational wall of words, that he’s posted here for years. You’re acting as though you’re having a rational discussion, but he isn’t.”

    You’re wrong. I am having a rational discussion. That is the reason you perceive my posts to be “taking over the discussion.” If I were doing what you are doing, which is seek validation from others here, and play this game of Survivor where you attempt to pit some against others as a personal attack, then THAT would not be a rational discussion.

    If you’re still feeling stung by our initial debate, then you can always apologize to me, and to yourself, for not taking ideas more seriously.

  26. Gravatar of Daniel Daniel
    7. January 2015 at 23:20

    Major_Moron does have a point – a central bank is a single point of failure. And, as public choice theory tell us, it will pursue its own interests, rather than attempting to maximize overall welfare.

    This is a classical principal-agent problem, yet nobody seems to recognize as such, let alone fix it.

    Think of all the harm Richard Fisher has done, and how he’s been punished for it. Oh, wait.

  27. Gravatar of Philippe Philippe
    7. January 2015 at 23:34

    I think mf might be drunk.

    mf, you’re not an anarchist.

  28. Gravatar of Philippe Philippe
    7. January 2015 at 23:36

    Daniel,

    right, but so-called ‘anarcho-capitalism’ provides absolutely no real solutions to such problems.

    Anyway…

  29. Gravatar of Major.Freedom Major.Freedom
    7. January 2015 at 23:55

    Philippe:

    “One last comment, sorry.”

    You don’t have to apologize to Don. He is not on the moral high ground over you.

    “you’re conflating democracy with voting.”

    Where exactly did I conflate democracy and voting?

    “Democracy is actually a political system of equal rights.”

    Equal rights is how I define as anarchy. If equal rights is defined as every individual having the exact same rights, then in a world divorced into two groups, one with state rights, the other without those state rights, such as legislating and enforcing rules of conduct, then that is not equal rights by definition.

    I define equal rights as necessarily either everyone having state powers, or nobody having state powers, by rights. If state powers are exercised, by rights, by less than the totality of every last individual on Earth, then there is by definition UNequal rights.

    Democracy is the right of the majority rule over and above individual self-rule. Equal rights demands self-rule. Self-rule demands an individual having absolute control over his own person, and that requires absolute control over material means of life. But since material means of life are scarce, the only way to prevent aggressions among people’s bodies, is for there to be private property, or, in other words, the uninhibited practice of individuals seeking to gain control over as much material means of life as they want, without infringing upon the equal by rights acquired method of acquired property of others.

    “Capitalist property is a contentious topic in that context because it gives power to some over others, and so rubs up against the idea of equal rights.”

    Equal rights requires the individual to have absolute domination over his own person and material means of life. In order to prevent you from bringing about unequal rights, I must have the power over my own person and property, and that power must be over and above your power over my person and property.

    Capitalist ownership is merely one outcome of equal rights.

    When you envision a fat cat capitalist barking orders at those he contracted with for a fixed income in exchange for labor, he is not bringing about unequal rights. He is bringing about unequal influence.

    States, even democratic ones, not only “rub up against” equal rights, but they absolutely destroy equal rights. In fact, you might even call unequal rights codified into law as statism.

    You do not have the same rights as say those in the CIA or NSA. They have different rights than you under the prevailing laws.

    But you would have the same rights as the most wealthy capitalist in anarcho-capitalism. You would have the same absolute rights over your person and material means of life, as does he. Just because the size of the pies are different, it doesn’t mean you have different rights. Equal rights is NOT equal wealth. Indeed, equal wealth as a goal wou!d require unequal rights, namely, those who have a right to loot and redistribute, ultimately at gunpoint, and those who do not have that right…because they are the ones to get looted.

    “A capitalist democracy is constantly trying to find a decent solution to this basic conflict.”

    There is no compatibility between contradictory concepts. Capitalism is individual control over property. Democracy is majority control over property. Property is scarce, and it is physically impossible to bring about both individual plans and central plans.

    You must choose violence or peace. I will ask you: If I disagree with you aboit who I am to allow to protect me, and you want Obama and his cronies to be my protector whom I must pay, then would you think you would have the right, not asking whether you actually would do the following, but would you think you personally have the right to threaten me with physical force if I act on my disagreement with you and solicit the protection from someone else and ignored what him or his cronies said to me?

    Please note that no matter how you answer this, you’ll notice some problems in your worldview. If you answer no, then you would learn that democracy is all about unequal rights. If you say yes, then you would be not only considered a criminal by the very same people you support, but even apart from that, you would be an initiator of violence against me, and I did not aggress against you at all. Here, you would have to rely upon the assumption that you are in some way part owner over my house and my belongings, and that my implementation of a plan for that property is something you disagree with and consider yourself having a right to initiate violence against my person.

    Either way, I know what I think is far better than what you think. But you always have a choice. You are not chained to your past mistakes. You don’t have to keep believing in the same myths in the state religion in order to save face. I used to be a Marxist, but I changed my mind. So can you.

  30. Gravatar of Philippe Philippe
    8. January 2015 at 00:06

    mf, you don’t believe in equal rights.

    Real anarchists are opposed to the state because they think it violates the equality/ no power hierarchy/ no ruler concept, i.e. Anarchy.

    You’re not opposed to inequality, power or rulers, so you’re not an anarchist. You just want a different type of statism, most accurately described as a modern (or maybe post-modern) form of feudalism.

  31. Gravatar of Philippe Philippe
    8. January 2015 at 00:08

    F@ck. Troll baited.

    No more responses from me, mf. Sorry.

  32. Gravatar of Major.Freedom Major.Freedom
    8. January 2015 at 00:09

    Daniel”

    “Major_Moron does have a point – a central bank is a single point of failure. And, as public choice theory tell us, it will pursue its own interests, rather than attempting to maximize overall welfare.”

    I do not advocate for anarchism because of the idea that humans are failures. I do so because it is the best method of cooperation consistent with who we are.

    “This is a classical principal-agent problem, yet nobody seems to recognize as such, let alone fix it.”

    So you’re a nobody then?

    See that everyone? In Daniel’s way of thinking, the only somebody’s are others, perhaps the state, or the majority of people.

    “Think of all the harm Richard Fisher has done, and how he’s been punished for it.”

    States are ultimate arbitrators over their own malfeasences. The incentive for states is to introduce conflict into society and then rule in favor of itself as its own judge.

    If you think monopolies in money have bad outcomes due to public choice and moral hazard, just imagine how important it is to understand this in the juridical protection of life itself. If there is one thing that should not be a single point of failure, it is the protection of life and property. Just consider how many millions of people have been killed in state conflicts.

    I need anarchy now.

    Philippe:

    “I think mf might be drunk.”

    “mf, you’re not an anarchist.”

    I am not interested in your redefinition of anarchism either.

    I define myself as an anarchist, because I am anti-state, and anti-aggression against peaceful homesteading and free trade.

    The left wing anarchists I define as socialists.

    “Daniel,”

    “Right, but so-called ‘anarcho-capitalism’ provides absolutely no real solutions to such problems.”

    Sure it does. It solves the problem of single points of failure in money, because it does not impose them by law.

    “Anyway…”

    All you are doing with that comment above is trying to convince yourself and others that no matter its unique flaws, for some reason we’re all supposed to believe that those same unique to state flaws will also exist in private property.

    You’re wrong about that. Single points of failure in money do not exist in private property societies that admit to multiple competitors and issuers.

  33. Gravatar of Major.Freedom Major.Freedom
    8. January 2015 at 00:22

    Philippe:

    “mf, you don’t believe in equal rights.”

    I am not interested in your redefinitions of equal rights that are actual!y unequal rights in practice.

    “Real anarchists are opposed to the state because they think it violates the equality/ no power hierarchy/ no ruler concept, i.e. Anarchy.”

    No, that is the left wing definition of anarchism. There is no “real” definition of anything. Definitions are subjective.

    At any rate, they oppose capitalism because they incorrectly believe that an individual exercising absolute rule over his own person and homesteaded/traded property constitutes unequal rights to property as such, if there arises fixed income contracts, regardless if they are consensual.

    You are just referring to a certain group of Proudhonists and other “possession equals ownership” anti-anarcho-capitalists. They keep calling themselves “real” anarchists as if such a thing even existed.

    “You’re not opposed to inequality, power or rulers, so you’re not an anarchist.”

    It is impossible to eradicate inequality, power, and (self) rulers. I am a real world non-utopian anarchist.

    Abolishing inequality requires unequal rights under the law of some over others.

    Abolishing power is itself an act of power of some over others.

    Abolishing self-rulers requires rule of some over others.

    “You just want a different type of statism, most accurately described as a modern (or maybe post-modern) form of feudalism.”

    I am not interested in your redefinitions of statism, or one of its varieties feudalism.

    You can name call all you want. You are not going to get me to accept your redefinitions.

    “F@ck. Troll baited.”

    “No more responses from me, mf. Sorry.”

    It is amazing how much you care about what people here think of you. Honestly, why care what Don thinks of you?

    You were not troll baited, so you don’t have to communicate that to others here so as to deflect any potential belief that you are corrupted for debating me.

    You guys are so weak minded, it is really sad.

  34. Gravatar of James in London James in London
    8. January 2015 at 00:37

    Phillipe: mf ray lopez etc, they are very clever computer generate algos designed to waste people’s time. i think in some wierd way they might even generate income via increasing the hits on the website. their persistence makes it seem like a commercial operation.

    OT but very interesting for history of monetary policy are the minutes from the Court of the Bank of England engaging with the interest rate setters of its Monetary Policy Committee.

    http://www.bankofengland.co.uk/archive/Pages/digitalcontent/archivedocs/codm/20072009.aspx

    Not read them all yet, but from the Emergency Meeting of 13th September 2007 to consider the bail out of Northern Rock is this gem of total confusion about the role of monetary policy:
    “There was a clear distinction to be drawn between the moral hazard of a general bail out to banks, eg by relaxing interest rates to try to influence inter-bank lending rates and the type of collateralised assistance [for Northern Rock alone] considered here.”
    (p.55 of the 2007 minutes)

  35. Gravatar of Philippe Philippe
    8. January 2015 at 00:42

    “very clever computer generate algos designed to waste people’s time”

    yes.

  36. Gravatar of Major.Freedom Major.Freedom
    8. January 2015 at 00:57

    James In London:

    Ah, another poster of whom I have shown to have made errors in the distant past. How have you been? Still sore I see.

    Bad idea to ignore what improves your knowledge. Just sayin’

    Persistence? If you sense persistence, it is because you yourself are persistent against it. Do you think about the persistent air? No, because you yourself are not thinking persistent thoughts against the air.

    Self-reflection may help you.

  37. Gravatar of Luis Pedro Coelho Luis Pedro Coelho
    8. January 2015 at 01:13

    Harriet Miers.

  38. Gravatar of cassander cassander
    8. January 2015 at 01:47

    At the very least, can we all agree that having the central bank and main bank regulator as the same organization is a terrible idea?

  39. Gravatar of James in London James in London
    8. January 2015 at 02:07

    cassander, it isn’t so simple. sadly.

    the two roles have to be inside the same body as the key role of the regulator is to be the lender of last resort, or rather try and prevent that from needing to happen, of course. but … only the central bank can be the lender of last resort.

    a sort of catch-22. for which i have no easy answer.

  40. Gravatar of Daniel Daniel
    8. January 2015 at 02:39

    James,

    Yes, central banking requires a lender-of-last-resort – and this is a bug, not a feature :-)

  41. Gravatar of Lorenzo from Oz Lorenzo from Oz
    8. January 2015 at 02:50

    The central bank can be the regulator of last resort while another body handles prudential regulation: that’s how we do it Downunder.

  42. Gravatar of James in London James in London
    8. January 2015 at 03:31

    things are just much better downunder: flexible inflation targeting, a very floating currency, and decent bank regulation (no investment banks), sunshine … it’s not fair!

  43. Gravatar of Ray Lopez Ray Lopez
    8. January 2015 at 04:14

    @Don G – I’m not sure if your answer is right or not (also you should lighten up about MF, he’s one of the more interesting posters here. We don’t want an echo chamber, but a rational debate). Really my question was open. You claim “Independent Monetary Policy and Free Capital Flow” of the Trilemma is the answer, but I am not sure how Sumner’s PEGGED Target NGDP works (I am waiting to hear from him), and whether his mechanical framework is really “independent” or not (especially if other countries adopt it, then what happens?). Sumner blasted me in another thread when I suggested a peg is discretionary. So I await Sumner’s one liner: how is your target NGDP ‘pegged’? Is it a discretionary peg or not? Is it akin to a ‘fixed’ exchange rate or not? How does your pegged NGDP framework fit within the Trilemma? What if every country adopts targeting NGDP–does it then become like fixed exchange rates? http://en.wikipedia.org/wiki/Impossible_trinity

    For a guy who wants to upset the existing world order in central banks, his pegged target NGDP proposal is disarmingly ambiguous. It’s not in his FAQ for example. But I bet ambiguity is not a bug, it’s a feature for Sumner. Smoke and mirrors? That’s my hunch.

  44. Gravatar of Jesse Jesse
    8. January 2015 at 05:59

    The problem is less the appointment and more the fact that the Federal Reserve has two enormously important but totally uncorrelated responsibilities. It would be like if the FDA was also responsible for analyzing the federal budget.

  45. Gravatar of Ben J Ben J
    8. January 2015 at 06:09

    Classic Ray Lopez: accuse someone of obfuscating through intentional ambiguity, then ask if a peg is discretionary. Good question Ray, maybe you should also ask if war is peace, and if we’ve always been at war with Eurasia.

    Also, you know how poor someone’s understanding of NGDP targeting must be if they think something terrible magically happens if all countries adopt it at once (maybe Ray is worried the planet will explode?)

  46. Gravatar of TravisV TravisV
    8. January 2015 at 06:32

    Yglesias: “Monetary policy matters! Obama keeps repeating his administration’s biggest economic policy mistake”

    http://www.vox.com/2015/1/8/7510257/obama-allan-landon

  47. Gravatar of Tom M Tom M
    8. January 2015 at 07:23

    @ Ray Lopez

    It is not necessarily that NGDP Level Targeting is the optimal policy, but the policy that is both easily adopted and offers a better alternative to the current stance of monetary policy.

    Remember, if you are thinking about the economy in terms of a basic AS/AD model, the central bank can influence AD. If the central banks job is to stabilize output and employment in the context of price stability, and AD shocks are the primary drivers of price instability or employment problems, then I would argue the policy of the central bank should be to stabilize AD.

    Current policy is clearly not good at stabilizing AD- even with forward guidance from the Fed, the markets are consistently playing a guessing game about future growth based on information and minutes released from the Fed.

    With NGDPLT, the uncertainty may still persist, but as long as the Fed retains credibility, the degree to which AD shocks will affect output and unemployment should be medicated.
    If the Fed announced tomorrow they were going to shoot for a 3% inflation target, TIPS spreads and inflation expectations would immediately increase. Imagine a policy now that says:
    “We (the Fed) will hit a trend line consistent with 5% NGDP growth”. AD shocks would be far less destabilizing because the policy in itself would act as the “tool” to adjust market performance.

    Scenario 2008: suppose instead of the tools and policy currently and in place in 2008, the Fed had instead announced they would continue expansionary policy until NGDP growth was consistent with that 5% target- would market participants bet against the Fed? I find it unlikely, and as long as the Fed is credible, I would imagine many of the problems that resulted from 2008 would not have occurred and the recovery would have been far more swift.

    But I would say what really is attractive about the NGDPLT idea is that it takes power away from Fed policy makers. The goals right now are vague, there is far more room for error. With a 5% target being the goal- if would be well known when you were not doing your job at the Fed…

  48. Gravatar of Tom M Tom M
    8. January 2015 at 07:29

    P.S.

    I would agree with MF to a degree that Central Banking is a Socialist concept. Again, the idea of NGDPLT would to a degree, would reduce the power of the state by at least giving the populace a way to hold them accountable.

    It’s not perfect, but its a move in the right direction.

    Ideally, if a market could be created to completely remove the Fed from the equation (such as the NGDP futures market Prof. Sumner has suggested and is working on) that would be an even more productive move. Then, the market would set the future path of NGDP policy and replace Fed “discretion”.

  49. Gravatar of ssumner ssumner
    8. January 2015 at 07:41

    Roxy, Even worse, a community banker. BTW, the Fed was set up to deal with banking, but has evolved into an institution that determines the path of NGDP.

    Don, Your first comment is correct, and thanks for doing the dirty work of responding to Ray in your second.

    Philippe, My claim is not at all controversial. It’s public finance 101. Google my post where I use a blueberries and watermelon analogy.

    Rajat, To some extent, but this is an extreme case.

    Ben, I see your point, but isn’t that the sort of reasoning that led to President George W. Bush?

    Cassander, That’s right.

    James, Why does the central bank have to be the lender of last resort? I thought Congress provided the TARP bailout?

    Lorenzo, Good point.

    Ray, In the right column of my blog is a link to my paper on NGDP futures targeting. It will answer all your questions.

  50. Gravatar of Jim Glass Jim Glass
    8. January 2015 at 07:45

    A plumber with no experience will make superior decisions to at least 4 out of 9 justices in roughly 50% of the 5-4 decisions.

    You wouldn’t think that after reading them.

  51. Gravatar of Njnnja Njnnja
    8. January 2015 at 07:50

    You have to remember that the current Fed is a compromise between two schools of thought 100 years ago. One the one side you had advocates of hard money, basically Eastern creditors, versus advocates of inflation, basically indebted Western farmers. They obviously didn’t have QE back then, so an inflation policy basically meant to increase the dollar value of gold (through say bimetallism) while hard money meant to stay inflexible on the price of gold. Hard money in that world was easy to implement and didn’t need a central bank. But America being a democracy, since there were many people in favor of inflation, we got a central bank that can do inflation.

    In the same way, if Americans, through their elected representatives, want to have a community banker make monetary policy, then we are going to have community bankers making decisions at the central bank.

  52. Gravatar of Roxy Roxy
    8. January 2015 at 08:15

    “BTW, the Fed was set up to deal with banking, but has evolved into an institution that determines the path of NGDP.”

    BTW, the Fed still deals with banking…

  53. Gravatar of Tom M Tom M
    8. January 2015 at 08:41

    Unrelated: PK most recent blog post-

    http://krugman.blogs.nytimes.com/?module=BlogMain&action=Click&region=Header&pgtype=Blogs&version=Blog%20Post&contentCollection=Opinion

    I have to admit, I have no higher degree outside of an undergraduate degree so I can not really claim to know too much of what I’m talking about. But wouldn’t this transition occur naturally?

    Ex. Government spending naturally increases as economies tend to grow (as economies grow, all else equal, the government would take in more tax revenue and continue to increase expenditures?).

    I don’t think he’s graph shows anything exciting at all, in fact its exactly what I would expect. But it absolutely does not show anything relevant when dealing with whether or not the “fiscal multiplier” is more effective at driving higher growth.

  54. Gravatar of Doug M Doug M
    8. January 2015 at 08:49

    I am okay with a plumber. Might be an improvement.

    But, more to the point, the Fed has 2 big jobs. Regulating the money supply and regulating the banks. A community banker might not have so much insight with the former, but a lot with the latter.

  55. Gravatar of TravisV TravisV
    8. January 2015 at 08:49

    This doesn’t make sense! Irrational exuberance? Animal spirits?

    http://seekingalpha.com/news/2212745-alarm-bells-ring-on-china-a-shares

    “Alarm bells ring on China A-shares”

  56. Gravatar of Brian Donohue Brian Donohue
    8. January 2015 at 10:26

    @ benjamin cole. I agree, maybe this guy will be ok. Let’s wait and see. The idea that monetary accommodation favors Wall Street over Main Street is pretty widespread. See Richard Fisher’s comments on the benefits of QE here:

    http://usbudget.blogspot.com/2014/02/ben-bernanke-and-federal-reserve.html

    What would William Jennings Bryan think?

    @TravisV, good Iglesias link, as usual.

    Ray, here’s a good orientation to the topic of what monetary policy can and can’t do from Milton Freidman:

    https://www.aeaweb.org/aer/top20/58.1.1-17.pdf

  57. Gravatar of Don Geddis Don Geddis
    8. January 2015 at 10:58

    @MF: “I am not a troll for pointing out the flaws in your arguments.” I agree with you! That is not the part of your behavior that makes you a troll. It’s the rest of your behavior that puts you clearly in the “troll” category.

    I do not write what I write to get an emotional rise out of you or anyone else here.” I see that introspection is not a strength of yours either. It’s ok, you’re not alone; lots of people don’t understand why they act they way they do.

    @Ray Lopez: “[Sumner’s] pegged target NGDP proposal is disarmingly ambiguous” It’s clear that you don’t understand it. Have you ever considered that maybe it’s you, rather that some objective feature of the presentation?

    I bet ambiguity is not a bug, it’s a feature for Sumner. Smoke and mirrors? That’s my hunch.” This is how you cross over into MF troll territory. Ignorance is not shameful; we all start there, and it can be cured with effort. But you charmingly combine ignorance with strong opinions and insults. If you were honestly trying to learn something, and asking people for help, you could go a long way with a little more humility, and giving others the benefit of the doubt.

    But I suspect that you’re actually here, like MF, for your personal entertainment, not for gaining knowledge and understanding.

  58. Gravatar of eric eric
    8. January 2015 at 11:30

    Are you implying intelligence on the part of the MSP? If so,
    why?

  59. Gravatar of Charlie Jamieson Charlie Jamieson
    8. January 2015 at 12:16

    This is a great idea.
    Most times a qualified person from outside a field can approach the subject with the biases and preconceptions that insiders bring. Probably the first thing a smart man would realize is, ‘Hey, you guys are full of crap.’
    If you put a banker in charge of the banking system, he can’t help but believe that his job is to protect the banking system and not those who use it. Give an outside some power and he will approach the issues from the points of view of the users of the banking system.
    I believe in civilian control of the military and civilian control of the Fed.
    One example: Lots of our best Supreme Court justices went to the bench without judicial experience.

  60. Gravatar of Charlie Jamieson Charlie Jamieson
    8. January 2015 at 12:24

    What they really need, is to split the Fed into those two parts. Have one organization (which the banker can join), that oversees the banks, and is responsible for the stability of the financial sector. And have a completely different organization, which is filled with experts on monetary policy, and which manages the money supply for the benefit of the entire US economy.

    Don– But the banks create the money. Managing the money supply means managing the banks and vice versa.

  61. Gravatar of Daniel Daniel
    8. January 2015 at 12:31

    Charlie,

    But the banks create the money.

    No they don’t. PERIOD.

    Now go troll somewhere else.

  62. Gravatar of Charlie Jamieson Charlie Jamieson
    8. January 2015 at 12:40

    Hi, Daniel
    Boy, you think that’s a troll?! That’s the new orthodoxy, although not everybody has come around to see the implications of this.
    Banks create money by making loans.
    The central banks support them in this.

  63. Gravatar of Don Geddis Don Geddis
    8. January 2015 at 13:39

    Charlie Jamieson: “Managing the money supply means managing the banks and vice versa.

    Not true. It seems that you haven’t grasped monetary offset. You could say the same thing about fiscal stimulus: it “affects” NGDP. But the point is that, whatever minor influences those outside entities have, the central bank can easily offset any such changes, so — without denying that (banks create money, fiscal stimulus) affects things — at the same time, none of that prevents the central bank’s control over nominal variables.

    Give me a monopoly over the monetary base (like the Fed has), and I can hit any nominal target you want (e.g. NGDP). It doesn’t matter what the banks choose to do, or what the Congress (fiscal stimulus) chooses to do. Monopoly control of the monetary base is overwhelmingly more powerful than any of those other influences.

  64. Gravatar of W. Peden W. Peden
    8. January 2015 at 13:40

    “I’d choose people like Lars Svensson, Mark Carney…”

    You can’t have Mark Carney, he’s OUR Canadian import.

  65. Gravatar of TallDave TallDave
    8. January 2015 at 14:43

    This is really more like appointing Mother Theresa to the Joint Chiefs of Staff of the armed forces.

  66. Gravatar of TallDave TallDave
    8. January 2015 at 14:44

    The Great Recession has revealed [a] lack of capacity for engaging with monetary issues to be a major institutional weakness of the progressive movement.

    TBH, conservatives are largely worse.

  67. Gravatar of TravisV TravisV
    8. January 2015 at 15:07

    Germany’s stock market increased 3.2% today…..

    “European stocks climb, fueled by QE expectations”

    http://www.marketwatch.com/story/european-stocks-climb-fueled-by-qe-expectations-2015-01-08

    http://www.telegraph.co.uk/finance/markets/11334221/Stock-markets-surge-on-stimulus-hopes.html

  68. Gravatar of James in London James in London
    8. January 2015 at 15:09

    Scott
    Sure TARP was done by the Treasury. But LOLR is something else. It’s all the emergency liquidity support. It dwarfed TARP. A somewhat sensationalist version is reported here:
    http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html

  69. Gravatar of James in London James in London
    8. January 2015 at 15:12

    And better here:
    http://www.bloomberg.com/data-visualization/federal-reserve-emergency-lending/

  70. Gravatar of Negation of Ideology Negation of Ideology
    8. January 2015 at 15:20

    Daniel –

    To be fair, Charlie is expressing Milton Friedman’s view:

    http://video.search.yahoo.com/video/play;?p=milton+friedman+money+creation+by+banks

    Friedman defined money as M2 – I think Scott defines money as the monetary base. Either view is defensible. But the point is, Don Geddis is correct. The Fed can offset any action by the banks. That would basically be Friedman’s proposal for a steady growth of M2. If the Fed offsets the money multiplier and velocity, that would basically be Scott’s proposal of a steady growth of NGDP.

  71. Gravatar of dtoh dtoh
    8. January 2015 at 15:25

    Scott,
    They should just replace the FOMC with an iPhone app.

  72. Gravatar of Jim S. Jim S.
    8. January 2015 at 16:12

    I hope you are reading Noahpinion. His post today struck me as funny as your post on beavers.

  73. Gravatar of Ashton Ashton
    8. January 2015 at 16:58

    Talking of the FOMC, I’m currently reading Greenspan’s memoirs. He talks about how the FOMC ordered traders to buy securities in order to push more money into circulation and lower the short-term interest rate. Obviously, it seems Greenspan is implying that lowering the interest rate would help to facilitate lending between banks and keep economic activity going.

    However, this also reminded me of your post on Bernanke’s “disintermediation” article he wrong in 1983, which saw reduced lending as a sort of “real shock”. However, as you point out, this is probably wrong. In light of this, would the Market Monetarist line be that Greenspan’s stimulus worked *not* because it facilitated intermediation between banks, but because accomodative monetary policy maintained aggregate demand?

  74. Gravatar of ssumner ssumner
    8. January 2015 at 17:25

    Njnnja, We didn’t really get a central bank capable of creating inflation until 1933.

    Roxy and Doug, Yes, but its role in banking regulation is trivial compared to its role in monetary policy.

    Tom, We’ve pointed out many, many times why that graph is meaningless, but Krugman never responds.

    Don, There’s no point in explaining to someone why they are a fool. If they understood, they wouldn’t be a fool.

    Charlie, You said:

    “Most times a qualified person from outside a field can approach the subject with the biases and preconceptions that insiders bring. Probably the first thing a smart man would realize is, ‘Hey, you guys are full of crap.'”

    More likely the “qualified” outsider will read some kook on the internet claiming banks never lend out reserves.

    W. Peden, With all due respect, you guys stole him from a country with 35 million people, and we can steal him from a country with 65 million people. :)

    TallDave, Yes, but in late 2008 (as I recall) only “conservatives” (i.e. also libertarians) were pointing to the catastrophic mistakes being made by the Fed.

    Jim, Oh he’s much funnier than me.

    Ashton, Yes, AD is the key.

  75. Gravatar of ssumner ssumner
    8. January 2015 at 17:31

    James, If the problem was liquidity, why not just rely of discount loans or OMOs?

  76. Gravatar of Robert Robert
    8. January 2015 at 17:47

    If Diamond was not qualified, I suspect Mr Landon won’t make it either. But then, who would?

  77. Gravatar of Major.Freedom Major.Freedom
    8. January 2015 at 17:59

    Tom M:

    “I would agree with MF to a degree that Central Banking is a Socialist concept. Again, the idea of NGDPLT would to a degree, would reduce the power of the state by at least giving the populace a way to hold them accountable.”

    Given the central bank is not accountable to the public for failing to achieve a price level target, why would an NGDPLT target be any different?

    Merely changing the target is not sufficient to making a central banker any more or less accountable.

    ————-

    Don’t Geddis:

    “MF: “I am not a troll for pointing out the flaws in your arguments.” I agree with you! That is not the part of your behavior that makes you a troll. It’s the rest of your behavior that puts you clearly in the “troll” category.”

    What behavior are you talking about? I see that proof of accusations is not a strength of yours. The fact that you’re not alone in that respect doesn’t make it OK. You don’t seem to understand why you act the way you do. You’re clearly not here to learn from what I write, so obviously you’re just posting comments to me to entertain yourself. You’re a troll by your own definition.

  78. Gravatar of ssumner ssumner
    8. January 2015 at 18:24

    Robert, Given that their decisions can result in social losses of hundreds of billions, if not trillions of dollars, you’d want to get the very best. Thus I’d say only the top 50 to 100 monetary economists in the world are qualified.

  79. Gravatar of TravisV TravisV
    8. January 2015 at 19:42

    Brad DeLong on 1920-21:

    “I do not think it has any lessons at all for us today. It came just after the World War I inflation had boosted the price level and eroded the economy’s debt levels. Thus there was no chance of Fisherman debt-deflation or Koovian balance-sheet recession forces taking hold. And the fact that the run up in wages has been so recent meant that downward wage stickiness was effectively nil. Thus that nominal rigidity that turns a fall in nominal demand into a fall in real production and then to the flight of the Confidence Fairy in the face of general depression was simply absent.”

    http://equitablegrowth.org/2015/01/06/1920-1921-relevant-worth-much-attention

  80. Gravatar of James in London James in London
    8. January 2015 at 22:44

    Scott
    You need secret assistance in a liquidity squeeze as their is a huge fear of being tainted with central bank help. In a world where the LOLR is faint hearted, or worse, anti-bank, the market will sniff out both the aid and the faint-heartedness and run from the bank or banks being assisted. Hence, secrecy is very helpful. The fear in the US (and the UK) was partly due to politics, “bailing out the banks”. It was one motivation for TARP, to get “something back” for that massive semi-secret assistance.

    We have a case study in the UK of how it didn’t work. The assistance was made more public, or sniffed out by the market, who also sniffed out the anti-bank mentality of the BoE. The result was disaster. The FRBNY is controlled by the banks, a good thing in such a situation, a bad thing in terms of regulation. Everything you read about the FRBNY smacks of that tension.

    Of course, you are right that moneteary policy was really poor both in countries, you’ve fully convinced me about that, but both handling the consequences, and trying to prevent the bad stuff in banks happening in the first place is far from trivial. You are just a bit naive on this issue, and always have been 😉

    Reading the minutes of the Court of the BoE illustrate both these issues well: the awful disconnect between the liquidity squeeze and the monetary policy people; and the bad stuff that the liquidity squeeze revealed the banks had been getting up to.

  81. Gravatar of James in London James in London
    8. January 2015 at 22:50

    The Progressives at BetterMarkets or Simon Johnson (especially) make very good points, like here:
    http://baselinescenario.com/2015/01/07/the-republican-strategy-to-repeal-dodd-frank/

    It’s just that they are very poor, as you say, about tackling monetary policy. You can see why by the prominent place PK gets on their blogroll.

  82. Gravatar of Kyle Kyle
    8. January 2015 at 22:51

    Scott, while I agree with you in part (only the top 50-100 monetary economists in the world comment), that gets us in a bit if a dilemma. You’d kind of have to say the same about most large economies and their central banks (Japan, China, The Euro, Canada, Sweden, etc). That leaves very few top monetary minds doing any research.

  83. Gravatar of James in London James in London
    9. January 2015 at 04:13

    And what is PK’s new best friend on about? Internecine spats are bewildering sometimes.
    At mainlymacro in “Heterodox laziness (or worse)”

  84. Gravatar of TallDave TallDave
    9. January 2015 at 04:38

    Scott — that’s true but also a bit paradoxical: conservatives and libertarians were mostly the ones making those arguments (while progressives were mostly arguing for fiscal stimulus), but otoh most conservatives and libertarians seem to think monetary policy was and is too loose.

    Spend any time talking about monetary policy on a conservative or libertarian site (regrettably, I have) and seemingly everyone is a “sound money” advocate.

    That said, I can’t recall Reason taking a position on monetary policy, perhaps I should Google a bit.

  85. Gravatar of Daniel Daniel
    9. January 2015 at 04:59

    TallDave,

    Reason has a raging hard-on for the gold standard and Austrian economics. It’s why I stopped reading it.

  86. Gravatar of Njnnja Njnnja
    9. January 2015 at 05:27

    While it is true that the Fed didn’t have the monopoly power of monetary creation until 2 decades after its founding, I think it is an unfair reading to say that they were powerless before then. The history of the modern Fed, from the response to the 1907 panic to the national monetary commission, was all about taking the power of money and credit creation away from private banks and giving it to “the people”.

    Seen in that light, a nomination that puts monetary policy in the hands of the great unwashed instead of the priests of the temple should come as no big surprise. And it might not be such a bad thing – as you have pointed out many times, the 2008 Fed just did what “mainstream economists” were saying they should do. Maybe a more motley bunch of governors would have listened to more dissident voices.

  87. Gravatar of Tom M Tom M
    9. January 2015 at 05:40

    @ MF

    “Given the central bank is not accountable to the public for failing to achieve a price level target, why would an NGDPLT target be any different?

    Merely changing the target is not sufficient to making a central banker any more or less accountable.”

    There is no explicit target the Fed is required to hit. At no point do they say “our goal is to hit x target”… They always keep it ambiguous to avoid losing credibility. But I would argue this is a mistake, a level target would act as a permanent forward guidance measure rather than the current policy which is more variable.

    With an explicit target- if the Fed was not doing its job (ex. 2008), everyone would know and therefore there would be more pressure to hit there target.

    *Obviously this is contingent on the idea that smoothing NGDP growth would be a good, which I absolutely believe to be true.

  88. Gravatar of Dan W. Dan W.
    9. January 2015 at 06:21

    I think our problem has less to do with who is appointed to the Federal Reserve and a whole lot more to do with the person doing the appointing.

    Scott bemoans the idea of a “plumber” being appointed to the central bank. It escapes him that the person who is responsible for making such appointments is in fact a “plumber” per Scott’s definition.

    The elite always imagine there exists perfect people to run their perfect systems. What is curious is not that they believe this the first time. It is that they continue to believe it after so many failed attempts.

  89. Gravatar of Dan W. Dan W.
    9. January 2015 at 06:51

    How can it be argued that the US economy is experiencing deflation in light of the following facts?

    (1) The US equity markets are at all-time highs and 200% higher than the lows experienced in 2009.

    (2) US corporate profits are at all-time highs and 200% higher than the lows experienced in 2009.

    (3) US home prices, via the Case-Shiller index, are up 10% from 2009 and more than 20% from the low in 2012.

    (4) Food prices are up 20% since 2009 and up 5% in the past year.

  90. Gravatar of Charlie Jamieson Charlie Jamieson
    9. January 2015 at 07:02

    Dan W nail it. For better or worse, we elected a president with no executive or military or management experience to be the top executive/manager/chief of the military.
    And that’s fine. Sometimes a ‘plumber’ turns out to have those qualifications.
    It seems to me that Scott is making a case for a economic priesthood that will made decisions for us. Actually, he’s making an even more narrow case — saying that a priesthood made up of certain believers should lead us.

    I think our problem has less to do with who is appointed to the Federal Reserve and a whole lot more to do with the person doing the appointing.

    Scott bemoans the idea of a “plumber” being appointed to the central bank. It escapes him that the person who is responsible for making such appointments is in fact a “plumber” per Scott’s definition.

    The elite always imagine there exists perfect people to run their perfect systems. What is curious is not that they believe this the first time. It is that they continue to believe it after so many failed attempts.

  91. Gravatar of Tom M Tom M
    9. January 2015 at 07:23

    @ Dan

    “How can it be argued that the US economy is experiencing deflation in light of the following facts?”

    All of those issues you outlined are only parts of what goes into looking at inflation. Although we certainly are not in a deflationary period now, if you look at Core PCE (the Feds go to measure for inflation), you will see that since the start of 2012, it has trended downward.
    US. Bureau of Economic Analysis, Personal Consumption Expenditures Excluding Food and Energy (Chain-Type Price Index) [PCEPILFE], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/PCEPILFE/, January 8, 2015.

    Also, looking at 5 and 10 year TIPS spreads indicates markets expect even less inflation in the future.

    So to answer your question- I don’t think it could be effectively argued we that the US is currently experiencing deflation, however I would argue that markets and the past trend would indicate we are moving in that direction. Which leads to another interesting question.

    If markets expect inflation to continue to decrease, why would the Fed pursue a contractionary policy by raising interest rates? The Fed should listen to the wisdom in TIPS spreads

  92. Gravatar of Dan W. Dan W.
    9. January 2015 at 08:07

    @ Tom

    I agree with what you say. I believe asset prices are indicative that money growth in the economy is strong. I believe the trend of wages and consumer prices is reflective of globalization, technology driving productivity gains and a changing 1st world demographic.

    Put another way, given what we have observed in the past 5 years by what measure can any one claim that further increases in the monetary base will yield higher incomes? I do not see the PCE trend changing – neither does the “market”. That die appears to be cast, barring an unforseen, negative, supply shock.

    If monetary action is ineffective at altering inflation trends how can there much hope that it would be effective at altering NGDP trends? Arguing that “we just need a bigger boat” (ie greater monetary injections) seems to be a cop-out. The monetary injections we have had have been very effective at stimulating the financial markets. And all things considered the economy is doing ok. The employment rate is declining and there seems to be a decent job market for people who have basic skills and a desire to work.

    The current trend of inflation indicators are telling us something. But I would like to see a wider range of opinion of what they mean. Otherwise, do we not risk doing the same thing over and over again and getting the same results?

  93. Gravatar of Ray Lopez Ray Lopez
    9. January 2015 at 08:25

    From Brian’s link: Friedman (1968) “From the infinite world of negation, I have selected two limitations of monetary policy to discuss: (1) It cannot peg interest rates for more than very limited periods; (2) It cannot peg the rate of unemployment for more than very limited periods” – take note Target NGDP cultists of (1): what is a ‘very short time’ in your brainwashed minds? Years? Months? Weeks? Days? Hours? I posit that it’s more towards hours than years. What is your evidence to the contrary? As for Friedman’s (2), it’s based on some outdated version of the Philips Curve, and I doubt it holds at all anymore, even for a few hours.

  94. Gravatar of Tom M Tom M
    9. January 2015 at 09:20

    @ Dan

    I would argue the current trend is the Feds own fault. Its not that money injections are not accurate, its the message the Fed is sending that is ineffective.

    Imagine a scenario where the Fed increased the monetary base by 10x, but said they would pull back if inflation increase past 2%. If the market expects the Fed (if they believe the Fed is credible) to withdraw that money as inflation approaches 2% it would have a drastically different effect than if the Fed said…

    We our increasing the base by 10x.

    With 2008, the Fed essentially injected money into the system while simultaneously raising interest on reserves at the Fed (the former being more expansionary and the latter being more contractionary). The Fed has been completely ambiguous as to what are its policy goals and therefore, the market is unsure of how to react (what constitutes full employment? what would be a worrisome inflation rate?).

    By having a policy that explicitly states the goals- the market would naturally adjust to reach that goal (as long as the Fed had credibility, which history shows us it does).

    The policy itself would act as a tool.

  95. Gravatar of ssumner ssumner
    9. January 2015 at 10:02

    Travis, Or, he could simply point out that NGDP grew rapidly during the recovery.

    James, Maybe you are making the mistakes, assuming that NGDPLT would not be enough. Should I care about a liquidity crunch if NGDP was on target? Indeed to keep it on target wouldn’t they have had to do enough OMOs to prevent a liquidity crunch?

    Kyle. That’s for the US–I probably should have said top US economists, with perhaps one or two foreigners. The BOJ could use the best experts in Japan. Ditto for the ECB. They can keep doing research as part of their job–they only meet once every six weeks.

    In any case, make it the top 500 and you are still better off than relying on plumbers or community bankers.

    Talldave, Reason published me (twice), as did many other conservative outlets. But yes, there were diverse views.

    Njnnja, I don’t think I said powerless, just not powerful enough to target inflation.

    Dan, You said:

    “Scott bemoans the idea of a “plumber” being appointed to the central bank. It escapes him that the person who is responsible for making such appointments is in fact a “plumber” per Scott’s definition.”

    It “escaped” me? Or I knew he had expert advisers? I’ll let you decide.

    Regarding your second comment, I don’t know anyone claiming the US is experiencing deflation, but even if they were your observations would have no bearing on that claim.

    Charlie, See my response to Dan.

    You said:

    “It seems to me that Scott is making a case for a economic priesthood that will made decisions for us. Actually, he’s making an even more narrow case “” saying that a priesthood made up of certain believers should lead us.”

    Do you favor having an “experienced pilot priesthood” put in charge of flying all our 747 airliners? Or should plumbers be given a chance? I hope you are just joking, the alternative is too depressing to contemplate.

    Ray, You said:

    “From Brian’s link: Friedman (1968) “From the infinite world of negation, I have selected two limitations of monetary policy to discuss: (1) It cannot peg interest rates for more than very limited periods; (2) It cannot peg the rate of unemployment for more than very limited periods” – take note Target NGDP cultists of (1): what is a ‘very short time’ in your brainwashed minds? Years? Months? Weeks? Days? Hours? I posit that it’s more towards hours than years. What is your evidence to the contrary? As for Friedman’s (2), it’s based on some outdated version of the Philips Curve, and I doubt it holds at all anymore, even for a few hours.”

    Friedman favored pegging M2 growth forever. He never suggested you cannot target NGDP, or peg NGDP futures prices. He once recommended pegging TIPS spreads. Is one of my supporters paying you to make my critics look bad?

  96. Gravatar of TravisV TravisV
    9. January 2015 at 10:19

    Yglesias: “2014 is the year American austerity came to an end”

    http://www.vox.com/2015/1/9/7520599/austerity-2014

  97. Gravatar of TravisV TravisV
    9. January 2015 at 10:23

    Prof. Sumner,

    Re: 1920-21, I thought Brad DeLong’s point that wages were a lot more flexible back then is a critical one. Combined with Krugman’s concession that committing to permanent increases in the monetary base would increase AD, it shows that DeLong and Krugman largely agree with your macro model.

    At this point, I wonder how important DeLong believes fiscal stimulus really is……

  98. Gravatar of Charlie Jamieson Charlie Jamieson
    9. January 2015 at 11:03

    Mr. Sumner
    If you had 500 plumbers come to your house to fix a problem, all 500 would agree on how to do it.
    If you asked 500 pilots to fly a 747, all would agree on the right method.
    But if you took 500 economists — even the ‘best’ economists, defined any way you want — they would never agree on basic policy.
    One, it’s just not a hard science.
    Second, the pilot flies the plane, and the plumber fixes the leak … but the central bank has very little control over the economy. There are too many variables, too many participants and too many factors beyond which he has no control — geography, culture, politics, resources, outside shocks.
    It’s fun to debate, though.

  99. Gravatar of TravisV TravisV
    9. January 2015 at 11:43

    Could someone please tell Ambrose Evans-Pritchard that China’s leaders are pragmatic and that the odds of CPI deflation are lower in China than they are in any other major economy on the planet?

    http://bit.ly/1FvM33Y

    http://bit.ly/1x5LVBe

    http://bit.ly/1wakgyP

  100. Gravatar of James in London James in London
    9. January 2015 at 12:54

    Scott, you are true Trojan to keep answering down here after 100 comments!
    I take your point. The LOLR is really only needed when the Central Bank has already allowed NGDP expectations to collapse, thus having to clear up its own mess. As an earlier commenter said, LOLR is not a feature but a bug.

  101. Gravatar of Ray Lopez Ray Lopez
    9. January 2015 at 13:57

    @Charlie Jamieson +1 right on, brilliant analogy!

    @Scott Sumner – do you deny that targeting NGDP is ‘monetary policy’ as defined by Friedman? Of course his 3%/yr of M2 target framework is not the same as targeting NGDP, but it is the same as “monetary policy” unless you are so brainwashed not to see that. And nobody is paying me to blog, Mr. Tin-foil hat.

    PS–when do we expect to see you explain what “pegging” NGDP means? Do you realize how radically futures fluctuate? I’ll check the other thread but I doubt you’ve answered.

  102. Gravatar of Negation of Ideology Negation of Ideology
    9. January 2015 at 17:18

    Scott –

    ” Thus I’d say only the top 50 to 100 monetary economists in the world are qualified.”

    If your NGDP futures targeting proposal were implemented, would this cease to be true?

  103. Gravatar of Alex Alex
    9. January 2015 at 18:36

    Scott –

    This may have been mentioned already, but over in Australia’s central bank (which you have previously praised) we have a majority of the board as laypeople (mostly CEOs). The whole point is to provide the real time data which the board won’t have access to via official statistics.

    Perhaps the system works differently to ours, and you have a greater need to stack the board w/ the ‘right’ people, but the Australian experience suggests that these laypeople tend to follow the advice of the bank but add value through letting the bank identify turning points a bit better.

  104. Gravatar of Jeff Jeff
    9. January 2015 at 19:06

    Alex,

    The Federal Reserve System consists of the Board of Governors in DC and 12 regional Federal Reserve Banks. Quoting from the Fed’s web site:

    Each of the 12 Reserve Banks is subject to the supervision of a nine member board of directors (board). Six of the directors are elected by the member banks of the respective Federal Reserve District (District), and three of the directors are appointed by the Board of Governors. Most Reserve Banks have at least one Branch, and each Branch has its own board of directors. A majority of the directors on a Branch board are appointed by the Reserve Bank, and the remaining Branch directors are appointed by the Board of Governors.

    The Bank and Branch directors are mostly local business people, and they do tell the Reserve Banks about what is going on in their world. So in that way, at least, our system is a bit like yours.

  105. Gravatar of Alex Alex
    9. January 2015 at 20:39

    Thanks Jeff, that makes a fair bit of sense.

  106. Gravatar of Ben J Ben J
    10. January 2015 at 05:08

    Ray on fine form – raises concerns that pegging a price might be hard because the price fluctuates. Dizzying heights of stupidity. I await your next comment with baited breath Ray…

  107. Gravatar of Ben J Ben J
    10. January 2015 at 05:15

    Charlie Jamieson, you said,

    “but the central bank has very little control over the economy”

    Try really hard to be specific about what you mean, and you’ll find plenty of consensus in economics. Real or nominal? What do you mean specifically about ‘control’? Or are you just saying words you heard a very serious sounding friend of yours say about how there’s lots or variables and it’s all very complex?

  108. Gravatar of Ben J Ben J
    10. January 2015 at 05:24

    Reading all of Charlie’s comments, I’m betting he’s MF’s new persona. Like Geoff, starts with random concern trolling (vaguely MMT?), then vascillates to ranting about the “high-priesthood” controlling people and proudly proclaiming that the economy is too complex to control (certainly not an MMT position). Note the similar writing style. It’s just like what happened to Geoff, but this time all in a single thread!

  109. Gravatar of ssumner ssumner
    10. January 2015 at 07:59

    Travis, Yes, wages were more flexible back then.

    Charlie, You said:

    “but the central bank has very little control over the economy.”

    That doesn’t even rise to the level of being right or wrong, just meaningless. You need a basic training in economics to even string together sentences that have meaning, that are not gibberish. I can see why you’d like to see people with no training in monetary policy put in charge of that important policy tool.

    And no, plumbers don’t always agree, I’ve used multiple plumbers and can speak from experience. Nor do trained surgeons always agree.

    Travis, Not as low as Brazil. China had deflation about 12 years ago, I seem to recall.

    James, Glad we agree.

    Ray, This is getting comical:

    “do you deny that targeting NGDP is ‘monetary policy’ as defined by Friedman? Of course his 3%/yr of M2 target framework is not the same as targeting NGDP, but it is the same as “monetary policy” unless you are so brainwashed not to see that.”

    Of course I agree. You really don’t have any reading comprehension. You are like a first grader.

    And I did not advocate pegging NGDP, I advocated pegging NGDP futures prices. Again, zero reading comprehension.

    Negation, Yes.

    Alex, See Jeff’s comment, and I’d add that spotting turning points is a problem, but not the key difference that separates the Fed and the RBA. The key difference is that the Fed doesn’t do well at the zero bound, and the RBA has a regime that has avoided the zero bound (up until now, don’t know if that success will last.)

    Ben, You had the same reaction to Charlie’s comment as I did, he can read your comment if he finds mine too opaque.

  110. Gravatar of Major.Freedom Major.Freedom
    11. January 2015 at 11:53

    Sumner:

    “Friedman favored pegging M2 growth forever. He never suggested you cannot target NGDP, or peg NGDP futures prices. He once recommended pegging TIPS spreads. Is one of my supporters paying you to make my critics look bad?”

    What you write makes yourself look bad. Claiming someone never suggested that X is a bad idea, and using that person as some sort of supporter for your own ideas, has some, well, interesting implications to say the least.

    Did you know that Friedman never suggested that it is a bad idea for the Fed to target the price of a Chicago School grad program?

    Seems he would be on board with it. He never said he was against it!

  111. Gravatar of Major.Freedom Major.Freedom
    11. January 2015 at 11:55

    Tom M:

    “There is no explicit target the Fed is required to hit. At no point do they say “our goal is to hit x target”… They always keep it ambiguous to avoid losing credibility. But I would argue this is a mistake, a level target would act as a permanent forward guidance measure rather than the current policy which is more variable.”

    What about a permanent price level target? You would still think that is a bad idea! It is not the lack of an explicit target that irks you, it is the lack of NGDP targeting.

  112. Gravatar of Charlie Jamieson Charlie Jamieson
    12. January 2015 at 12:37

    “but the central bank has very little control over the economy”

    Try really hard to be specific about what you mean, and you’ll find plenty of consensus in economics. Real or nominal? What do you mean specifically about ‘control’? Or are you just saying words you heard a very serious sounding friend of yours say about how there’s lots or variables and it’s all very complex?

    Hey, Ben: the central bank facilitates the banking system, which is critical and necessary, obviously, but almost all of what it does there is entirely predictable. Does it control real growth or employment, or the price of financial assets excluding treasuries? If my view, no.
    When we get obsessed with the Fed and monetary policy it keeps us from making structural changes, or coming up with really big ideas that might have an impact.

  113. Gravatar of Ben J Ben J
    13. January 2015 at 00:05

    Charlie,

    The fact that you didn’t answer either of my questions asking you to clarify confirms my belief that you don’t know what you’re talking about.

  114. Gravatar of Tom M Tom M
    14. January 2015 at 13:40

    @ Major Freedom

    “What about a permanent price level target? You would still think that is a bad idea! It is not the lack of an explicit target that irks you, it is the lack of NGDP targeting.”

    I would prefer a price level target to the current stance, however based on what I’ve seen most problems associated with fluctuations in inflation, are actually more related to fluctuations in nGDP and therefore I believe it would be a more effective target.

    I would prefer either level target (prive level targeting/ nGDP level targeting/ nWage level targeting, etc.) to a a target in general (inflation target, nGDP target, etc)

  115. Gravatar of Major.Freedom Major.Freedom
    15. January 2015 at 05:04

    I would prefer 3 lashings to 4 lashings, 2 lashings to 3 lashings, 1 to 2, and 0 to 1.

    If the reason one prefers fewer lashings to more lashings is X, then X logically leads to 0 lashings as preferable.

    The key is being able to realize and accept that 1 lashing is still a lashing.

  116. Gravatar of Major.Freedom Major.Freedom
    15. January 2015 at 05:08

    You prefer level price targeting over non-level NGDP targeting?

    That’s because it would be closer to level NGDP targeting.

    I really don’t get why there is a seeming need to say you want level NGDP but getting to that point by running around the tree a few times first.

    Even if one of the less than ideal targets is had, there would then still be a call to get to your ideal of level NGDP.

Leave a Reply