Bob Murphy (AKA Inspector Javert) is taking time off from his search for Krugman Kontradictions, to look for some over at this blog. Here’s one example:
In any event, Scott used to lecture people when they thought about central bank policy in terms of interest rates. Nowadays, all Scott talks about is how it would be a mistake for central banks to raise rates.
Bob’s made this claim before, many times. And each time I patiently point out that:
1. The level of interest rates is not a reliable indicator of the stance of monetary policy.
2. The Fed uses the fed funds target as a tool to implement monetary policy. On any given day a Fed decision to raises rates is a tighter policy that a Fed decision to not raise rates. As long as the Fed uses the fed funds rate as a policy tool, I have to talk about interest rates. I wish they’d use NGDP futures, so I could stop talking about interest rates.
Contrary to the implication of the term “Nowadays”, I’ve been doing both of these things since day one. In 2009, my first year of blogging, you can find me talking about the Fed’s foolish decision not to cut rates in September 2008, ad nauseum. So Bob’s flat out wrong, “nowadays” my views are exactly the same as before.
When looking for contradictions, it’s important not to be mesmerized by words, but rather consider underlying meaning.
It used to be that Scott said “there is no such thing as wait and see” when it comes to evaluating monetary policy. For example, here and here. If you read those links, you’ll see that this was a principle he used to try to ram into people’s heads; I don’t just mean he adhered to it the way, say, he might like vanilla ice cream. No, to say “there is no such thing as ‘wait and see’ when it comes to monetary policy” was a tenet of Scott Sumner, blogger.
But now things have totally flipped. Not only does Scott think the last six years have amply proven that the hawks were wrong, but he in fact is aghast that some people might deny that you could look at several years of experience and then determine whether the hawks in 2009 had been right or wrong:
At least this is a new accusation. But again, let’s look at the context of my “wait and see” argument.
1. Sometimes I say, “there is no wait and see, the markets tell us immediately how much impact the policy will have, and whether it is adequate.” There’s some hyperbole here. For the current stance of policy, you’d need market indicators that correlate perfectly with the Fed policy goals (i.e. NGDP futures markets under NGDP targeting). We don’t have that. But in the Great Recession I argued that we had good enough indicators (such as TIPS spreads) to know the Fed had done too little—so I thought the hyperbole was justified. Especially given that unemployment was really high at the same time that inflation was expected to run below target.
2. In the recent post that Bob mentions, I was making a very different point. Obviously the Fed thinks the market is wrong about inflation, and about the future path of interest rates. So from an EMH perspective there is no wait and see, policy should be expected to be on target (using market expectations) and it isn’t. That’s obvious. But it’s just as obvious that the Fed doesn’t buy the EMH—why else would it disagree with market forecasts? So my EMH argument won’t convince anyone. But even in that case (I argued), there ought to eventually be some sort of day of reckoning, where we can all say that the hawks were right (ex post), or the hawks were wrong.
Here’s an analogy. Suppose Bob claims to be able to predict the future. He tells me that when I toss a die the number will end up being 1. I’d say that’s a bad forecast, as there is only a 1 in 6 chance that 1 shows up on the die. There’s no “wait and see”, Bob simply made a bad forecast, based on probability theory. On the other hand Bob continues to insist that he can beat the odds, because he can see the future. So I say, OK, but surely we can agree that if the die is tossed and 3 dots appear on the top of the die, then Bob was wrong and his claim to see the future is dubious.
When considering contradictions, context is everything.
PS. I’ve also disagreed with the Fed on the issue of trend NGDP, which they think is about 4% (2% inflation and 2% RGDP growth.) I say 3%. With today’s announcement NGDP growth is running at 2.9% over the past 4 quarters, and this was a period of rapidly falling unemployment. Just wait until the unemployment rate stops falling!
(Yes, inflation will pick up slightly, but RGDP growth will slow further. I’m sticking with 3%.)
PPS. I have a new post on Bernanke’s memoir, at Econlog.
PPPS. A few weeks ago I did a post pointing to the absurdity of prosecuting Dennis Hastert for withdrawing money from his own bank account, and using the funds for a completely legal activity (paying blackmail.)
Now Brett Arends has a column that makes some similar arguments, but much more effectively:
Hastert is not facing jail time for the sexual conduct, if any. No charges have been brought or answered.
He is facing jail because he took his own money out of his own bank accounts in order to pay what amounts to blackmail.
His accuser does not appear to have hired a lawyer or sought damages. He sought hush money.
When did we start supporting blackmailers in this country? When did that become OK? Did I miss the memo?
What if Hastert were a more sympathetic case? What if he hadn’t been paying hush money to cover up alleged sexual misconduct with a student? What if he had been blackmailed for having a love child, or having had an affair, or for being gay? Would he still go to jail for paying?
And what if this weren’t a former politician but, say, a popular figure on TV “” like a personality that everybody liked? Would she still be “disgraced”? Would we be piling on?
Hastert admitted to the court that he knew what he did was “wrong.” Bah. He only “broke the law” because the law is an outrage. Your bank has to report it to the Feds if you withdraw more than $10,000 of your own money. Heaven forbid you should handle your own cash.
Is it wrong for me to point out that so far not one Wall Street crook has faced a day of jail time for stealing the country’s money, but someone faces jail time for handling his own cash?
The $10,000 limit hasn’t been changed in decades. Once it was a lot of money. Now it’s not. Oh, and to make the law even more ridiculous, it’s actually also illegal for you to get around it by acting legally. No, I’m not kidding. If you avoid the $10,000 limits by withdrawing, say, lots of $5,000 installments, they can still send you to jail.
It’s like getting a ticket for “evading the speed limits” by driving at 54 miles per hour.
Or being thrown in jail for “evading the statutory rape laws” by having sex with someone who is over the age of consent.
It simply defies belief.
Hastert withdrew the money as cash because he wanted to keep the payments anonymous.
The law is there to use against really bad crooks, such as terrorists and drug dealers and so on. But old men paying blackmailers?
Perhaps the prosecutors only used this law to go after Hastert because they couldn’t go after him for the alleged sexual misconduct. The response to that is: Really? I thought we had courts, juries, presumption of innocence and rules of evidence? Instead it’s all being decided by prosecutors based on what they want?
Giving prosecutors a blank check to jail whomever they like: Hmm, that’ll end well. Thomas Jefferson and James Madison must be so proud of us.
One of the ironies is that Hastert could have avoided all of this if he’d simply paid his blackmailer in gold coins instead of greenbacks.
Gold is just as anonymous as cash. But it is essentially exempt from these financial regulations. Hastert could have called up any reputable gold dealer and purchased $50,000 worth of gold Eagles or Buffaloes or Krugerrands at a time, and no one would have asked any questions. All he then had to do was give the coins to his blackmailer, who could then call up a gold dealer and sell them.
Or he could have paid by check. Here’s my prediction. People will say, “Yes, the law’s unfair but it’s OK in this one case because Hastert’s a sleaze bag.” And then later someone else will be prosecuted for withdrawing cash from his own bank account and giving it to charity, and people will say, “But Hastert was punished, so why shouldn’t Mr. X also go to jail for the same crime.” Don’t believe me? Then perhaps you’ ve forgotten about the shameful treatment of Kimba Wood:
In January 1993, Clinton’s nomination of corporate lawyer Zoë Baird for the position came under attack after it became known that she and her husband had broken the law by employing two illegal aliens from Peru as a nanny and chauffeur for their young child. They had also failed to pay Social Security taxes for the workers until shortly before the disclosures. While the Clinton administration thought the matter was relatively unimportant, the news elicited a firestorm of public opinion, most of it against Baird. Within eight days, her nomination lost political support in the U.S. Congress and was withdrawn.
The following month, Clinton’s choice of federal judge Kimba Wood for the job was leaked to the press, but within a day it became known that she too had employed an undocumented immigrants to look after her child. Although Wood had done so at a time when this was legal, and had paid Social Security taxes for the worker, the disclosures were enough to cause the immediate withdrawal of Wood from consideration. The Clinton administration then said that the hiring practices for household help would be examined for all of the more than thousand presidential appointments under consideration, causing the whole process to slow down significantly. Determined to choose a woman for the Attorney General post, Clinton finally selected state prosecutor Janet Reno, who was confirmed and served through all eight years of the administration.
Translation: No highly successful moms need apply. Oh, and Tim Geithner was a tax cheat, and Geithner also employed an illegal alien housekeeper. But he’s a man so there’s no problem making him Secretary of the Treasury. He’s a hero in Bernanke’s memoir. Meanwhile Kimba Wood has her reputation destroyed. For engaging in an entirely legal activity and even withholding payroll taxes (which most people don’t do). “But wasn’t her case kinda like Zoe Baird?” Once you start down these slopes, the ball just keeps rolling.