David Beckworth’s new podcast series
David Beckworth just announced a new series of interviews with monetary economists and journalists. I am honored to be the first podcast released, but bigger names are upcoming:
Today is the launch of a new podcast series on macroeconomics called Macro Musing and I am privileged to be the host. Each week, with the help of a special guest, we will get to explore in depth various macroeconomic topics. If want to go all wonky on macro this is the podcast for you!So far I have recorded podcasts with the following guests: Scott Sumner, John Taylor, John Cochrane, Cardiff Garcia, Miles Kimball, Ramesh Ponnuru, and George Selgin. There have been a lot of interesting conversations covering topics such as the origins of the Great Recession, the safe asset shortage problem, negative interest rates, the fiscal theory of the price level, the Eurozone Crisis, Abenomics, the Great Depression, China’s economic problems, and alternative monetary regimes. In addition to these interesting topics, I have enjoyed learning how each guest got into macro, either as an academic or as an journalist, and how they see the field changing over time as new ideas and new technology emerge. I think you will find it fascinating too.
More guest are scheduled, including some Fed officials, but I would love to hear from you on what guests and topics you would like to see on the show. My first guest is Scott Sumner with whom I discuss his views on the Great Recession, NGDP targeting, and his new book on the Great Depression, The Midas Paradox.
I hope to make this a long-term project, but it success depends in part on you subscribing. So please subcribe via itunes or your favorite podcast app (update: here is the soundcloud link) and spread the word. Let’s make this podcast a success together and who knows, maybe we can help make the world a better place.
This podcast is part of the new Program on Monetary Policy (POMP) at the Mercatus Center at George Mason University. I am grateful for all their support in making the podcast happen.
The model here is of course Russ Robert’s excellent EconTalk series. Don’t forget that you need to sign up first.
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11. April 2016 at 06:58
Spare yourself a bit of aggravation. Don’t use the iTunes link, instead use Sound Cloud;
https://soundcloud.com/macro-musings
11. April 2016 at 08:48
(off topic) Bernanke on helicopter drops, must read: http://www.brookings.edu/blogs/ben-bernanke/posts/2016/04/11-helicopter-money
11. April 2016 at 09:17
Good stuff I’ll have to check it out. Hey I’m trying to decide which economic theory got the financial crisis right. It seems to me got the Keynesians got a lot right when it came to interest rates, inflation, how fed actions wont debase our currency (sequester not so much). And yes it looks like your theory did well which is why I’m reading your blog and considering your books.
The question I want to know is why did John Cochrane get the predictions of inflation wrong? I think he’s against simple models lke ISlM (you are to I’m aware) but it seems to me his more elegant models led him astray. Why did his dynamic intertemporal models not work out for him compared to your predictions and p.k.
11. April 2016 at 09:40
Nevermind I just searched your blog by his name.
11. April 2016 at 09:54
Prof. Sumner,
In the podcast, you consistently talk about “supply-side inflation” and “demand-side inflation”. David Beckworth leads to the question : should we reconsider inflation targeting? Instead, doesn’t this beg the question : should we not equally reconsider “inflation is always and everywhere a monetary phenomenon” ?
11. April 2016 at 10:36
Good post by Ed Dolan on tax incidence;
http://www.economonitor.com/dolanecon/2016/04/11/promises-of-corporate-tax-reform-are-forgotten-as-obama-wages-war-on-inversions/
————–quote————–
Corporations as legal entities cannot bear the economic burden of taxes. In a globalized world of mobile capital, the burden both of taxes paid and of costly tax avoidance strategies falls largely on workers. What is there for a progressive not to love in abolition of the corporate income tax?
Somehow, though, our Democratic presidential candidates have not grasped this truth. Hillary Clinton backs measures much like those of the Obama administration, which retreat from earlier reform proposals. This ought to be the perfect opportunity for Bernie Sanders to differentiate himself from Clinton, help workers hit by globalization, and show himself to be the true progressive in the race. All he would have to do would be to push for abolition of the corporate tax combined with full taxation of personal investment income. Where is Bernie when we need him?
————–endquote————-
11. April 2016 at 12:37
OT
President Obama told Fox that his biggest accomplishment in office was “saving the economy from the great depression”
http://time.com/4288634/president-obama-worst-mistake/
So how did he do it? By Obamacare? By raising the minimum wage? What a great guy.
If this is his “greatest achievement” he could have as well said: “I didn’t do anything.”
I bet Obama actually believes what he says.
11. April 2016 at 14:44
James, I think he puts too much weight on the fiscal theory of the price level.
William, As I recall, Friedman later clarified that it was “persistent inflation is always and everywhere a monetary phenomenon.” He acknowledged you could have temporary price increases due to supply shocks.
Patrick, Don’t hold your breath on Bernie proposing that. 🙂
11. April 2016 at 15:15
Scott Sumner (or anybody):
http://www.nybooks.com/articles/2016/04/21/crackdown-in-china-worse-and-worse/
The above article re China. I have contacts in the Hong Kong financial community that are concerned.
11. April 2016 at 15:47
Thanks Scott for the promotion. For those who use Stitcher for their podcasts, here is the link: http://www.stitcher.com/podcast/david-beckworth/macro-musings?refid=stpr
11. April 2016 at 18:15
Ben, I’m concerned too, I’m just saying that it’s a complicated picture.
11. April 2016 at 19:51
I learn English from the radio. Nominal GDP～
https://soundcloud.com/macro-musings
11. April 2016 at 20:36
Neoliberalism didn’t get the Hoover Dam built. Neoliberalism is like Andrew Mellon speaking about percolation. Well, Sumner, percolation (trickle down), didn’t work. Hoover was run out of town. Mellon was viewed as the great buffoon of banking. He said everything would work out alright when people pointed out that Germany was caving in with debt. What a Dweeb that guy was. Sumner is the new Mellon?
Austerity cannot be the essence of Market Monetarism. If it is, its criticism of the Fed is a joke. It is one gang of economic rapists. This is what Mellon said before he was run out of town during the Great Depression:
“…liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”
That does not sound like Market Monetarism to me.
11. April 2016 at 21:19
In fact, Scott, that sounds like New Monetarism. Didn’t Mellon’s plan get carried out in 2008 as everything was liquidated? Isn’t Mellon’s plan, which Bernanke followed, exactly what Market Monetarism opposes?
12. April 2016 at 02:45
Gary Anderson, while the then lame-duck Hoover was desperately trying to do something about the banking Crisis, FDR refused to help. It was Hoover’s Treasury men who hung around to manage the Banking holiday and otherwise to grapple with the crisis. FDR and his team had no idea what to do and no plans for doing anything.
And during his campaign FDR assailed Hoover for having failed to balance the budget.
Myths, however popullar, aren’t history.
12. April 2016 at 05:42
Thank you George, but how do you get around Mellon’s quote and how do you not see that is exactly what happened in 2008 and in the Great Depression, were it not for FDR’s programs to help the real economy, the real people. My dad lived in the Great Depression. He could not afford gas to drive across a town two miles wide and he was working. His wages were cut but not his bills.
The Great Depression stole from main street. Then you have Mellon saying what he said. Then you have the middle class being buried by the Great Recession, by the bursting of the bubble and the tightening of the money supply. Nothing changed.
The Fed does the liquidation. Market Monetarists say they are against the liquidations. The other monetarists are for the liquidations. So, where, George, do the Market Monetarists really stand? And while we don’t like too much easy money, but rather better wages so the regular people don’t have to borrow so much, all we get is high costs of living without wages that keep pace. That was made worse by the liquidations of 2008.
12. April 2016 at 05:56
And George, I was reading a Wikipedia article about the quote Mellon made, revealed in Hoover’s memoirs. Now, defenders of Mellon said that the quote was not proven. But again, you could say Bernanke “saved” us from the Great Recession, but he really didn’t until AFTER the liquidation. So, for people to say Mellon was for loose monetary policy fails to take into account that Mellon was for the same sort of liquidation that happened in 2008.
That is the real Fed, and Mellon was on the Fed board. The real Fed misprices risk, blows bubbles and then crushes the economy to protect the wealthy and the banks.
That is exactly why FDR and Will Rogers taught the people not to trust the bankers. It is like Jamie Dimon saying wages have never been better. Well, for traders on Wall Street, which distorts the big picture. Dimon is out of touch and so was Mellon and apparently so are most Monetarists.
12. April 2016 at 06:22
‘That is exactly why FDR and Will Rogers taught the people not to trust the bankers.’
Not from the Catholic Church’s doctrine that charging interest on loans was sinful? Or maybe from Karl Marx?
‘not to trust the bankers’ has a pretty nasty pedigree.
12. April 2016 at 07:24
“Not from the Catholic Church’s doctrine that charging interest on loans was sinful?”
Priceless, if a central banker came out and said “ZIRP, we are following the monetary policy laid out in the gospel, it’s what the lord would have wanted.”
NIRP – all bankers go to heaven.
12. April 2016 at 07:33
Gary, You are replacing Ray as the clown who is the laughing stock of this blog.
The rich did well in the Great Depression? When stocks lost 90% of their value and the distribution of income became much more equal? Who knew?
You left 4 comments, each one more idiotic than the one before. Have you no shame?
Ray, You need to up your game—Gary is in danger of overtaking you.
12. April 2016 at 09:30
Ray seems to be on the top of his game right now. He even got quoted by Tyler Cowen.
http://marginalrevolution.com/marginalrevolution/2016/04/the-morality-of-panama-papers.html
12. April 2016 at 10:28
So, Scott, I do appreciate you responding to me. You could not ignore me any longer. 🙂 But please, were you for the liquidation of the Great Depression and of 2008 or against it? Are you a Market Monetarist who seems to oppose that liquidation of stocks and labor and farmers, etc., or are you just a vanilla New Monetarist who seems to accept that liquidation? I really would like to know. Seriously.
12. April 2016 at 12:26
I largely enjoyed your discussion with David and am looking forward to your book on the the great depression. However, the empirical evidence of monetary offset of fiscal stimulus back in 2013 does a poor job supporting your viewpoint.
Your evidence is the fact that the deficit reduced by $500 billion dollars and yet the economy grew. Obviously a lot of the growth can be attributed the business cycle. The economy was going to grow with or without austerity. And yet, is $500 billion really contractionary? I hope your readers dont think that we cut spending by $500 b when it realty our government took in more revenue from a growing economy. I largely agree with monetary offset to an extent but that is really poor example.
12. April 2016 at 12:38
You also said along the lines “it should be assumed that monetary policy offsets fiscal policy until proven other wise.”
So Bernanke argued that fiscal policy would be a drag on growth for years. But wouldn’t have been able to offset it?
Is that proof that you’re looking for?
http://www.cbsnews.com/news/bernanke-fiscal-policy-is-stunting-the-recovery/
12. April 2016 at 12:55
Scott and David,
Really good podcast. Well done and thnaks.
Scott, you come across much…mellower…via audio. I believe the medium suits you.
12. April 2016 at 13:14
James you really are arguing black is white if you don’t think 2013 was evidence in favour of monetary offset. I mean it was a homerun. The sequester was automatic across the board cuts to spending and increases in taxes. If you looked up austerity in a dictionary that’s how it would be defined. Also its funny you assert that the economy was going to grow with or without austerity (that’s what I thought because monetary offset). You should maybe start telling your fellow Keynesian cultists that. So they can stop trying to undermine deficit reduction strategys.
UK cultists were left in an awkward position when the British employment hit record levels despite “savage” austerity. Head shaman Simon Wren-Lewis then decreed that there in fact hadn’t been any real austerity. Someone better tell the Labour party that.
12. April 2016 at 13:52
hahah come on guy
12. April 2016 at 13:59
home run huh? Just how large was that sequester? I’m too lazy to look it up but it was really small compared in the economy. Keynesians overestimated its impact on the economy. So what? How do you go from that to proving that spending multipliers are 0 or proof of the monetary offset just because the deficit was reduced by $500b?
“Also its funny you assert that the economy was going to grow with or without austerity (that’s what I thought because monetary offset). ”
thats the thing with you anti-keynsian ppl. You have no sense of distinction of the difference between levels and rates of change. Yes I assert that the economy was going to grow with or without austerity because of the growth cycle. Hey even keynes said that economies tend to be self-correcting since equipment would eventually decay. Its simple to explain why the deficit was reduced: increase in government receipts. Again I do believe monetary can offset fiscal policy to an extent but that is a poor example.
12. April 2016 at 14:32
UK ‘austerity’?
“Even Britain has now abandoned austerity
And while Osborne will never publicly admit this, the big surprise of his budget is its implicit acceptance of this Keynesian view.
Instead of trying to reduce borrowing any further or aiming for a balanced budget, as it originally promised, the British government has now accepted that deficits will keep rising in absolute terms and will still be worth 6% of GDP by the next election in 2015.”
http://blogs.reuters.com/anatole-kaletsky/2013/03/21/even-britain-has-now-abandoned-austerity/
And, an offsetting {non-monetary} increase in aggregate demand?
“One economist, Alan Clarke at Scotiabank, says the compensation payments have been more successful at stimulating the U.K. economy than quantitative easing. U.K. lenders have already paid £11.5 billion ($18.7 billion) to millions of customers, and have set aside another £7.3 billion for future
payments.
But the payments are not just creating one-off windfalls: the PPI industry is also creating much-needed employment.
As we report over on WSJ.com, claims have been coming in at such a clip that it’s created tens of thousands of new jobs to handle them.”
http://blogs.wsj.com/moneybeat/2013/10/04/how-a-banking-scandal-is-bolstering-britains-economy/
Plus a government generated boost to the housing market?
12. April 2016 at 14:33
Not from the Catholic Church’s doctrine that charging interest on loans was sinful? Or maybe from Karl Marx?
That’s not a doctrine, that’s a moral teaching. Nor is it a clear and abiding moral teaching.
12. April 2016 at 14:40
Thank you Postkey
12. April 2016 at 14:53
@Gary Anderson: “I really would like to know. Seriously.”
No, you wouldn’t. That’s a lie. You’re just playing games with rhetoric, trying to be deliberately provocative. If you really wanted to know the answer to your question, you would have spent a little effort to understand Market Monetarism — where the answer is blindingly obvious.
Market Monetarists see the Great Depression and Great Recession as enormous, self-inflicted, unnecessary economic pain — caused by tight money policies from the US Federal Reserve. MMs are completely opposed to the wacky claim that the pain of recession is somehow “necessary” to “purge the rottenness out of the system”.
This isn’t somehow secret or confusing or open to interpretation. If you had honestly put in the slightest effort to understand, the obvious answer is completely clear.
But you didn’t bother. So no, it is not at all true that you “really would like to know”. That’s mere pretense on your part, not true at all.
12. April 2016 at 15:00
@james elizondo: “Obviously a lot of the growth can be attributed the business cycle. The economy was going to grow with or without austerity.”
You seem to have your own private macro theory, that is neither Keynesian nor Market Monetarist (nor Austrian, nor old monetarist, nor …). No significant school of macroeconomics, just before 2013, was making the predictions that you are now so easily claiming (in hindsight).
“Keynesians overestimated its impact on the economy. So what?”
The “so what”, is that their very very confident prediction was clearly falsified. Which means that their model of the macro economy is clearly missing some very significant parts (or has large errors). Since Keynesianism is a major school of macro, this is an important discovery.
“How do you go from that to proving that spending multipliers are 0 or proof of the monetary offset just because the deficit was reduced by $500b?”
That’s only one tiny bit of data, not “proof”. But it was, in particular, a very important experiment to distinguish the predictions of Keynesians from those of Market Monetarists. And the MMs clearly won.
Given that you have some bizarre private theory that is neither Keynesian nor MM, it isn’t a surprise that the 2013 experiment isn’t particularly relevant to you.
12. April 2016 at 15:26
postkey, james As I said please pass this info along to the Labour Party. I don’t think they’ll be best pleased to find out something they’ve been campaigning against for 6 years was never actually happening.
Lol at “Keynesians overestimated its impact on the economy. So what?”. Cuts to government spending have a large detrimental effect on employment is kindof a big thing in Keynesian thinking. “Overestimating” this effect is a polite way of saying they were wrong.
Anyway if what happened in 2013 in the US wasn’t austerity and the attempts to bring the deficit down in the UK since 2010 aren’t austerity then the word is totally meaningless. I’d gladly see it consigned to the dustbin of dead political buzzwords. Then we can go back to discussing what the level of government spending is optimal without the Keynesian smokescreen that allows centre-left parties to push for more spending.
12. April 2016 at 15:32
Gary, my father also lived through the depression. And my mom too. So let’s set family history aside and argue about the depression itself, OK?
Mellon’s statement is his statement, not a summary of Hoover’s policies, or of Hoover’s own philosophy, which was quite different, whether for better or for worse. (Hoover was the last of three presidents Mellon served under.)
Recovery from the great depression was driven, not by FDR’s fiscal policy, but by expansion of the monetary base, beginning with the gold devaluation and then continued by gold inflows from Europe. Some New Deal policies–and the NRA in particular–actually thwarted recovery, which might have begun sooner but instead was delayed until FDR’s ill-informed attack on the price system was declared unconstitutional.
12. April 2016 at 15:45
Sir Don Geddis
Unlike you and your bff Sir Alexander Hamilton I dont think there’s a grand theory in economics. One ring to rule them all! I view theories to help us answer tough questions. Seems like the classical model helps us with inflation in the long run. Short-run not so much. Keynesian theory looks pretty good about its predictions about inflation and interest rates back in 2008. If you’re happy to be married to a theory I really don’t care. It’ll be your fault when your theory is unable to answer a particular question.
12. April 2016 at 15:46
Alexander Hamilton no one is talking to you.
12. April 2016 at 16:06
James, You said:
“So Bernanke argued that fiscal policy would be a drag on growth for years. But wouldn’t have been able to offset it?
Is that proof that you’re looking for?”
That’s proof he preferred to rely on fiscal. But 2013 is proof that if forced to offset it, to prevent a slump, he would offset it.
If you believe Bernanke, do you also believe him when he says the Fed never runs out of ammo?
And as for 2013 being a “poor example”, why did 100s of Keynesian economists, including Paul Krugman, argue that it was a great example, until it went against their prediction. Do they not understand Keynesian economics as well as you do? And are there any “good examples” you can point to?
12. April 2016 at 16:20
“That’s proof he preferred to rely on fiscal. But 2013 is proof that if forced to offset it, to prevent a slump, he would offset it.”
forced to offset austerity is what you’re referring. OK. I think a better interpretation is that he’d try to offset it. My point is that we had the chairman of the fed advocating fiscal stimulus or at least less austerity. If he would have gotten his wish then turned around and offset it with monetary policy it would have been non-nonsensical. There wouldnt have been an offset. could be wrong.
“If you believe Bernanke, do you also believe him when he says the Fed never runs out of ammo?”
no but unlike you he lists a whole bunch of risks that are associated with unconventional monetary policy. That why he thinks a mix of fiscal and monetary policy to address our problems is a better approach.
“And as for 2013 being a “poor example”, why did 100s of Keynesian economists, including Paul Krugman, argue that it was a great example, until it went against their prediction. Do they not understand Keynesian economics as well as you do? And are there any “good examples” you can point to?”
Hey they got it wrong. P.K looked back and asked himself “the sequester was small why did I think it would have such a big impact.” But you to use their failed prediction as proof or strong evidence that spending multipliers dont exist and monetary evidence does is a flimsy foundation. Hey you convinced me about the potential of monetary offset I just think you’re example is weak thats all.
12. April 2016 at 16:21
“If you believe Bernanke, do you also believe him when he says the Fed never runs out of ammo?”
opps I meant yes I do believe him but unlike you…..
12. April 2016 at 17:04
James Pot. Kettle. Black. You talk about the “Keynesians” as if they’re your favourite football team. You sound younger and less mature with every post.
12. April 2016 at 17:12
Don, I appreciate your post, because, yes, I want to be convinced of the merits of Market Monetarism, not that the Fed ever listens. You said:
“Market Monetarists see the Great Depression and Great Recession as enormous, self-inflicted, unnecessary economic pain — caused by tight money policies from the US Federal Reserve. MMs are completely opposed to the wacky claim that the pain of recession is somehow “necessary” to “purge the rottenness out of the system”.”
I appreciate, and agree completely with that statement.
George, you said Hoover was different than Mellon. I would agree. I would apologize lumping them together. However, Mellon wanted in the 1930’s exactly what Bernanke seemed to supply in 2008, a total meltdown.
If Bernanke was such a student of the Great Depression, why didn’t he intervene earlier? Is that just what the Fed does? Is that an unchanging rule, that in a massive credit crisis, the Fed will always allow labor, small business, stocks and real estate?
I bet that is a secret Fed rule. So, George, Mellon was on the Fed, not just secretary of the Treasury. He knew what he was saying.
As far as FDR’s programs, they helped the poor hurt by the Great Depression. There was nothing wrong with doing so. If that was not central to recovery so what? It was the RIGHT THING TO DO.
Thanks for both of your input. Much appreciated. I have more confidence in Market Monetarism than I did before, but less confidence in the Fed than ever.
12. April 2016 at 17:16
Sorry, I meant to complete the sentence: Is that an unchanging rule, that in a massive credit crisis, the Fed will always allow labor, small business, stocks and real estate to be “liquidated”.
12. April 2016 at 17:58
A.H
You got me
13. April 2016 at 00:19
“If you believe Bernanke, do you also believe him when he says the Fed never runs out of ammo?”
This is what Bernanke said in 2016.
“ . . . exhausted monetary policy, . . . ”
http://www.brookings.edu/blogs/ben-bernanke/posts/2016/04/11-helicopter-money
‘And as for 2013 being a “poor example” ‘
This is what Warren Mosler wrote:
“First, I had been looking for 4% growth for 2013 and scaled back to 2% due to the tax increases and sequesters, and I thought it would continue to weaken until deficit spending increased.
Turns out there was an increase in private sector deficit spending/credit expansion on oil and gas exploration and production that offset the 2013 fiscal adjustments and further expanded in 2014 to further support GDP growth.
The increase in energy related deficit spending is now over due to the Saudi price cut, and unless deficit spending elsewhere accelerates seems to me GDP growth will quickly evaporate.”
http://econlog.econlib.org/archives/2015/01/the_keynesians.html
13. April 2016 at 04:36
On Hoover’s policies: http://www.econlib.org/library/Enc/HooversEconomicPolicies.html
The famous Mellon “statement” is itself a caricature, made up after the fact by Hoover himself. There is actually no direct evidence that Mellon favored all-out “liquidation.” As an ex-officio member of the FRB, he supported rate cuts. For details see http://onlinelibrary.wiley.com/doi/10.1111/j.1538-4616.2008.00134.x/abstract
13. April 2016 at 05:22
James, So your defense of Keynesians economics is that 100s of prominent Keynesian economists are so dumb they don’t even know austerity when they see it? In that case how could they possibly implement intelligent Keynesian policies?
Second question, if we had had a recession in 2013, would Krugman have still said “oops, I was wrong, there actually was no austerity?” Seriously?
And third, Krugman was wrong, there was lots of austerity in 2013, the sequester was just a small part of the total. In some ways 2013 was similar to 1937, and Krugman still thinks austerity caused that recession. Why doesn’t he also change his mind on 1937?
You said:
“no but unlike you he lists a whole bunch of risks”
And the risks he lists are of trivial importance. The risks of not acting are 100 times greater. Bernanke told the Japanese to show “Rooseveltian resolve”, he didn’t tell them to wring their hands and worry about tiny risks.
Postkey, Mosler is a Keynesian? I thought he was a MMTer?
And your quote from Bernanke doesn’t contradict what I said.
13. April 2016 at 05:29
George, you said:
The famous Mellon “statement” is itself a caricature, made up after the fact by Hoover himself. There is actually no direct evidence that Mellon favored all-out “liquidation.” As an ex-officio member of the FRB, he supported rate cuts. For details see http://onlinelibrary.wiley.com/doi/10.1111/j.1538-4616.2008.00134.x/abstract
But George, we have no reason to doubt Hoover do we? Mellon was a member of the Fed. And turns out, Bernanke was for cutting rates too, but only after the liquidation of 2008. Looks pretty much like they were brothers in crime to me, just in different times. But both responding to a credit crisis.
They all want to cut rates, after they raped labor, real estate, small business, and the stock market.
If we believe that the Fed and Basel 2 mispriced risk on purpose, causing the housing bubble, it appears this transfer of wealth was totally premeditated, start to finish.
13. April 2016 at 05:50
Gary, I hardly know what to say. White’s article is precisely about why we most certainly do “have reason to doubt” Hoover’s portrayal of Mellon’s policies! You seem determined to stick to the myth, and to brush aside evidence pointing out that it is just that. That is your prerogative. But I think it is bound to reduce the weight others should be willing to attach to your pronouncements here.
13. April 2016 at 06:04
George, on a slightly different subject, it appears that the Fed financed WW2. Why doesn’t the Fed finance the real economy now? http://www.talkmarkets.com/content/us-markets/the-federal-reserve-financed-ww2-but-cannot-finance-america-now?post=84143
Why must the financing of the banks, through excess reserves be the only solution?
As far as the Mellon quote, I wouldn’t care so much except Bernanke liquidated in 2008! Hoover understood the Fed perfectly, even if the quote was an interpretation of what the Fed does, liquidate, rather than actually coming out of Mellon’s mouth.
13. April 2016 at 06:27
” . . . was never actually happening.”?
“Even Britain has now abandoned austerity”
13. April 2016 at 06:48
Come on Scott I’m not calling Keynesians dumb. They clearly overestimated the sequester. The cbo put it at $68 b or 0.4% of gdp. Do you spit in the ocean and expect the tide to change course? At the same time this 68 b cut was partial offset by less austerity at the state and local level. If gdp growth rates depends on the change of fiscal policy all else equal then even in Keynesian models we can see why growth still occurred in 2013: the change in the pace of fiscal tightening wasn’t that much different from 2011, 2012.
If I’m wrong or my view is outdated then by all means correct me. But that big 500b number you like to use to show auterity in 2013 was probably from a large increase in gov revenue and the business cycle.
For you to pretty much say “500b reduction in the deficit plus growth equals non existent spending multiples and proof of the monetary offset” is a big stretch.
13. April 2016 at 07:05
For your other questions
If we had a recession in 2013 would Krugman say “opps was wrong there wasn’t austerity”
You’re asking about Krugman intellectual honesty. I think he would be honest. He’s admitted mistakes in the past and leans against arguments that fit nicely in his ideology like the link between economic inequality and growth. Ill ask you the same question “do you think he would be honest with himself?”
If you don’t his intellectual integrity that’s your deal.
Great Krugman was wrong about there not being a lot of austerity in 2013. Can you explain that to me? Cuz i don’t want to be a Jackass. But please ill be focusing on the change of fiscal policy not levels. Something your readers have a hard time distinguishing.
The risks of unconventional monetary policy is Def asymmetric. But are they optimal compared to other tools like fiscal policy
13. April 2016 at 08:33
I’m sure you’ll have a strong rebuttal
http://krugman.blogs.nytimes.com/
13. April 2016 at 08:57
I have a question for any market monetarist. There are two novel ways of funding government without the use of borrowed money.
1. The Fed funds the projects, and claws back the “base money” used to fund the projects at a later date.
2. Public money is created interest free to fund projects that would bring the US up to global standards.
My question is are either of these Keynesian or are they monetarism. Keep in mind that the Fed funded WW2.
13. April 2016 at 09:02
@Gary Anderson: “If Bernanke was such a student of the Great Depression, why didn’t he intervene earlier?”
This is one of your most insightful questions. It may be one of the biggest macro mysteries of the last decade. The truth is, nobody (except perhaps for Bernanke himself) knows the answer to this question.
Bernanke not only understood the Great Depression, he also understood how a central bank could fix (or prevent) it. In 1999, as an academic, he wrote a paper analyzing the Japanese “lost decade”, and sharply criticizing the Japan central bank for not taking the appropriate monetary policy steps to correct the economy. And listing a large number of specific steps they could take. If there was anyone who you would wish to be chair of the US Federal Reserve in 2008, Bernanke seemed like he should be the guy.
And then, in 2008, when he actually was chair, Chairman Bernanke did not in fact act according to the monetary policy advice of 1999 Bernanke the Academic. Nobody knows why.
There are lots of theories and speculation. Fed chair is not a dictatorship; he still would need to convince the other (perhaps much more ignorant) Fed governors. There’s also a lot of politics in Washington, perhaps concern that “radical action”, if unsupported by the elected officials, would have a danger of impacting the Fed’s “independence”. There’s talk of the “FedBorg”, where the organization seems to somehow assimilate everyone who enters it, and they begin acting just like everyone else who has been there, regardless of their prior history.
But the truth is, nobody really knows. On this blog, we generally believe that 1999 Bernanke was correct, understood the causes of demand recessions, and knew the fixes. But 2008 Bernanke did not implement that advice. The million-(trillion?-) dollar, unanswered, question is: why not? We don’t know.
13. April 2016 at 09:23
Don, that is an eloquent answer. I would hope that I could quote your entire response and link to this article unless you object to it.
I look at things as conspiracy quite often, but you have exposed the truth that we actually know, that he froze for some reason and didn’t pull the monetary trigger.
I don’t know if you have read all my posts, but I talked to a lady in Las Vegas, where I live, who had to adopt the pets on the block because the housing crash took away the pet owners. But that didn’t happen everywhere. Pets died, people killed each other, like the guy and his mother who burned themselves up in the nice house in Reno, and divorces abounded, all because Bernanke didn’t pull the trigger. I have felt the pain of all this first hand. The Fed has to be held accountable, at least in the analysis, for what it has done to America.
13. April 2016 at 10:11
Sir Don Geddis
“You seem to have your own private macro theory, that is neither Keynesian nor Market Monetarist (nor Austrian, nor old monetarist, nor …). No significant school of macroeconomics, just before 2013, was making the predictions that you are now so easily claiming (in hindsight).”
Do you know what a business cycle is? Is that my own private marco theory? That would be odd since Keynes himself that economies can be self-correcting because equipment would eventually be obsolete and need to be replaced. But yes I came up with the business cycle.
“The “so what”, is that their very very confident prediction was clearly falsified. Which means that their model of the macro economy is clearly missing some very significant parts (or has large errors). Since Keynesianism is a major school of macro, this is an important discovery.”
Keynesian economists made the incorrect prediction but it doesnt refute Keynesianism. The economists overestimated the sequester and didnt catch the reduction of austerity at the state and local level.
Important discovery huh? Nope
“That’s only one tiny bit of data, not “proof”. But it was, in particular, a very important experiment to distinguish the predictions of Keynesians from those of Market Monetarists. And the MMs clearly won.”
you big number of 500b deficit reduction can be attributed to an increase in government receipts due to growth in the economy. This is where you say “ahh but you and your kind predicted no growth!” if that simple argument works for you fine. Just know your ignoring the business cycle and the fact that the change in fiscal tightening in 2013 was more or less the same as 2012 2013.
“Given that you have some bizarre private theory that is neither Keynesian nor MM, it isn’t a surprise that the 2013 experiment isn’t particularly relevant to you.”
where did you learn economics?
13. April 2016 at 11:10
“Postkey, Mosler is a Keynesian? I thought he was a MMTer?”
So you agree with his analysis?
13. April 2016 at 11:51
@Gary Anderson: “The Fed has to be held accountable, at least in the analysis, for what it has done to America.”
Scott Sumner agrees with you. It’s a national tragedy that the there is no official way to evaluate the Fed’s performance. The key sentence: “The Fed does not currently evaluate whether its past decisions were wise, even in retrospect.” Forget about holding the Fed to some goal imposed from the outside. The Fed isn’t even willing to state its own goals, by which it would be willing to be held accountable.
13. April 2016 at 12:07
@james elizondo: “Do you know what a business cycle is? Is that my own private marco theory?”
The Keynesians might be wrong (and they are!), but at least they have an actual theory, which makes predictions. (That’s why they predicted a 2013 recession — and were wrong.)
What you need, in order to count as a macro “theory”, is something that would look at economic (and political) data near the end of 2012, and make a prediction about recession (or not) for 2013. Even a conditional prediction is fine (“if the sequester happens, then A, else B”).
But you don’t even have that. You’re just making up a “just so” story, using hindsight bias.
If 2013 was a recession, you would have claimed “no, the so-called ‘business cycle’ happened not to be on an upswing that year”. If no recession, “the business cycle self-corrected in 2013!”. But you use this phrase “business cycle” to bury a huge unknown in your macro model, since you can’t predict the business cycle. You have no way, in late 2012, of confidently predicting that “in 2013, the business cycle will ‘self-correct'”.
An explanation which “explains” all possible outcomes, is no explanation at all.
“an increase in government receipts due to growth in the economy”
And Market Monetarists confidently predicted, in late 2012, that monetary offset would cause exactly this observed 2013 economic growth. What data did you expect, with Krugman’s “great 2013 MM experiment”, if the MMs were right and the Keynesians were wrong? Exactly the economic outcomes that actually occurred, of course.
“if that simple argument works for you fine.”
That’s why the 2013 example is so compelling. Because the contrast (between the predictions of different macro models) is so stark and clear and obvious and simple. An argument being “simple” is not a criticism.
At least the Keynesians offer a (bad) model. You have no model at all, and thus your claims are unfalsifiable, and thus you aren’t really in the conversation at all.
13. April 2016 at 12:51
Postkey That article is from 2013. Public spending in nominal terms has increased by around 1% every year since the Conservatives came to power. With inflation well over 1% over this period this has been called a real terms cut (correctly so). If Britain has abandoned austerity someone really needs to tell those government departments facing 10% cuts to their budgets that they don’t need to worry.
Don, Yup we got these kind of nonsense explanations when UK growth started taking off. “The economy would have grown faster if it hadn’t been for austerity” Same as when unemployment skyrocketed after Obamas stimulus. “It would have been worse without it” How can that ever be falsified? Popular/Vulgar Keynesianism of this sort makes Keynesianism seem like unfalsifiable pseudoscience. We’ve come a long way from “When the facts change, I change my mind. What do you do, sir?” it seems.
Krugman and his ilk would have gained a bit more of my respect if they had just said “Maybe an inflation targeting central bank can maintain aggregate demand whilst the government makes modest consolidations to it’s budget” but that probably wouldn’t have helped their political position.
13. April 2016 at 13:14
Don
“But you don’t even have that. You’re just making up a “just so” story, using hindsight bias.”
I’ve actually been getting my info from Krugman’s blog. You actually have no idea what their response has been since their failed prediction. You prob just cover your ears and say out loud “nope you’re wrong!”
You apparently have no idea what your own theory says to the Keynesian counterargument. For example if you were to make an argument along the lines of
“But there is no mechanism in the Keynesian model by which austerity can reduce GDP without reducing jobs.”
I’d be in a rough spot. This is much stronger point to show a flaw in Keynesian theory. But you’re unaware just like Alexander Hamilton of Keynesian arguments for their failed prediction, and the counter your theory provides. you should read more.
13. April 2016 at 13:28
Gary, financing WWII meant seeing to it that the gov’t grabbed a large share of the economy’s potential output. That’s not the same as increasing that total. (As Bog Higgs has shown, there was no genuine wartime “recovery” of total output from its prewar levels, and certainly no vast increase–the wartime years were very lean ones for U.S. consumers). The Fed could and did help steer scarce resources the governments’ way. But it did not “finance” any substantial increase in total output, and it cannot generally do so other than by seeing to it that there is no money shortage. (Once there isn’t more money = higher prices.) A central bank is not a sort of cornucopia, capable of spewing forth all the real wealth anyone could want, if only it would increase the nominal money supply sufficiently.
13. April 2016 at 13:45
So what do ‘we’ tell the Labour party?
13. April 2016 at 13:56
“And your quote from Bernanke doesn’t contradict what I said.”
Only if one suffers from cognitive dissonance?
13. April 2016 at 14:09
“monetarism… broadly defined as the view that monetary policy can and should be used to stabilize economies”
I used to find Krugman annoying. Now I just find him inscrutable.
13. April 2016 at 15:06
George, not sure I quite follow you. There was an enormous increase in GDP during WW2. But you are certainly right that there was rationing and consumers suffered. Still, GDP went wild thanks to the Fed. Unless you believe someone else was responsible for the increase. 🙂
https://eh.net/encyclopedia/the-american-economy-during-world-war-ii/
But as my article (linked to my name)quotes:
To direct the savings of American citizens into the war effort, the Treasury and Federal Reserve marketed a range of securities that would fit the needs of all classes of investors, from small savers who wished to invest for the duration of the war to large corporations with temporarily idle funds. To distribute these securities, the twelve Federal Reserve Banks organized Victory Fund committees and established plans to market war bonds in cooperation with commercial banks, businesses, and volunteers.
13. April 2016 at 15:07
James I’m aware of most of the excuses for their wrong prediction. Scott had many a back and forth with them over it back in 2014. The current fad seems to be to deny there was any austerity at all as postkey helpfully came in and demonstrated.
Postkey I don’t know. You tell me what you would tell them. According to you they’ve been campaigning against something that didn’t happen. I’m not a labour voter so it’s not my place to tell them what their policies should be.
13. April 2016 at 15:13
@james elizondo: “You actually have no idea what their response has been since their failed prediction.”
False. I’ve read Krugman’s rationalization for his own failed prediction.
What you fail to appreciate, on the other hand, is how easy it is for a clever person to rationalize failure via hindsight. The value in those “explanations” is close to zero. What matters, is the predictions you are able to make before the future in fact unfolds.
And the more confidently and without exception you state your original prediction (as Krugman and the other Keynesians did), the bigger a hole you’ve made for yourself when the prediction fails. You’re giving Krugman far too easy a pass, if you think his post-hoc rationalization in any way makes up for the supreme confidence with which he (and others) offered their original predictions about 2013.
13. April 2016 at 15:41
Don, thanks for the links. And for the information.
13. April 2016 at 15:42
Don & A.H
Points been made.
13. April 2016 at 16:25
James, Why do you keep equating the sequester with austerity? If you don’t know what happened in 2013, just say so, and go investigate. No, the big fall in the deficit was not due to the business cycle, it was mostly due to tax increases and spending cuts. Growth was justly slightly above trend, hence the business cycle played only a very small role.
And again, if Krugman is right about 2013, then he’s completely wrong about 1937, which he’s mentioned a number of times in his blog as an example of austerity causing a depression. No comment?
Postkey, I couldn’t disagree more with MMTers if I tried, my views are almost the complete opposite, which should be obvious.
13. April 2016 at 17:12
Ok
What about when Krugman says that Keynesian models say that growth rates depend on the change of fiscal policy all else equal. He goes on to show that the change in fiscal tightening in 2013 was not that much different from 2012 2011 as state and local governments eased cuts. Shame on him for not catching that sooner but it does explain how growth in 2013
doesn’t refute Keynesianism.
Hey I’m all ears so if you can convince that his logic doesn’t make sense then Great I learned something very valuable today. If you already addressed it you can just send me some links.
About the 2013 vs 1937 You make an interesting point but i have no informed opinion. More work do.
13. April 2016 at 18:17
Gary, of course real GDP did increase during the war, though the tables in the link you provide are only for nominal GDP, which is not the issue. No one denies that the Fed can make nominal GDP grow quickly. The less pronounced increase in real GDP, itself often exaggerated due to misleading official statistics, was mostly due to military mobilization; by the end of the war 45% of output was war related. To attribute these developments to monetary policy is to oversimplify matters dramatically.
13. April 2016 at 22:29
George I am curios about the Victory Fund. It was almost like a sovereign fund. How does a sovereign fund relate to Monetarism as a policy?
13. April 2016 at 23:09
” The current fad seems to be to deny there was any austerity at all as postkey helpfully came in and demonstrated.”
Does this statement demonstrate that “The current fad seems to be to deny there was any austerity at all”?
“Even Britain has now abandoned austerity . . .”
http://blogs.reuters.com/anatole-kaletsky/2013/03/21/even-britain-has-now-abandoned-austerity/
13. April 2016 at 23:18
“Postkey, I couldn’t disagree more with MMTers if I tried, my views are almost the complete opposite, which should be obvious.”
They are very obvious. :-).
I probably didn’t make myself clear?
However, do you agree with this?
“First, I had been looking for 4% growth for 2013 and scaled back to 2% due to the tax increases and sequesters, and I thought it would continue to weaken until deficit spending increased.
Turns out there was an increase in private sector deficit spending/credit expansion on oil and gas exploration and production that offset the 2013 fiscal adjustments and further expanded in 2014 to further support GDP growth.”
http://econlog.econlib.org/archives/2015/01/the_keynesians.html
14. April 2016 at 04:17
Postkey Yes I read it the first time and it still isn’t true:
http://www.ifs.org.uk/tools_and_resources/fiscal_facts/public_spending_survey/cuts_to_public_spending
There was no slowing down of the reduction in nominal public spending it continued at roughly the rate it has since 2010. Keynesians can continue to tell each other that there was no austerity to try and salvage some credibility but that won’t change anything for the departments who have had their budget cut by over a third since 2010.
14. April 2016 at 05:25
James, You said:
“He goes on to show that the change in fiscal tightening in 2013 was not that much different from 2012 2011 as state and local governments eased cuts. Shame on him for not catching that sooner but it does explain how growth in 2013 doesn’t refute Keynesianism.”
Krugman is wrong. First of all, fiscal policy is about Federal spending, state and local is no more “fiscal policy” than would be “private investment” Do fiscal policymakers control S&L? No, it’s endogenous, just like investment.
Second, he’s wrong that 2013 was not much different from 2011 and 2012, fiscal policy became dramatically tighter. Look at the deficit for each calendar year (not fiscal year) and you’ll see what I mean.
The thing that you have to understand about Krugman is that he continually plays games with the data. Sometimes he defines austerity as a fall in the deficit (1937). At other times as a fall in the level of federal spending, or federal output. The only constant is that he cherry picks the definition that works best in that particular case. That’s why I keep bringing up 1937, which you have not responded to. If you research 1937, I think you will see my point.
You also have not explained why we should trust Keynesian economists to steer the economy, when 350 of the most prominent ones can’t even do the most basic prerequisite, which is identifying when fiscal policy is easy and when it’s tight. Without that basic ability, how could they do anything else?
And you didn’t answer my question as to what would have happened if there had been a recession in 2013. Would Krugman, et al, have said “oops, that’s not due to the austerity, it turns out there was no austerity” or would he have said “See, we were right” I’d like an answer.
Postkey, No, I don’t agree.
14. April 2016 at 06:21
Scott
“Krugman is wrong. First of all, fiscal policy is about Federal spending, state and local is no more “fiscal policy” than would be “private investment” Do fiscal policymakers control S&L? No, it’s endogenous, just like investment.”
This seems odd to me. Shouldn’t we view austerity/non-austerity on a country as a whole? You ask “do fiscal policymakers control S&L?” Aren’t there fiscal policymakers on the S&L level? Look at Kansas. They went on a tax cutting crusade. Look at California’s decision to raise taxes. Indeed fiscal decisions are being made beyond the federal level and should be viewed from that perspective.
“Second, he’s wrong that 2013 was not much different from 2011 and 2012, fiscal policy became dramatically tighter. Look at the deficit for each calendar year (not fiscal year) and you’ll see what I mean.”
Scott this chart is from the IMF (according to Krugman) and it measures the cyclically adjusted primary surplus for government as a whole (key word whole)- measured in changes not levels. According to him that what matters. So is deceiving me with his chart or is the chart itself insufficient to show the change of fiscal policy? I’m all ears.
http://graphics8.nytimes.com/images/2015/06/22/opinion/062215krugman3/062215krugman3-blog480.png
“The thing that you have to understand about Krugman is that he continually plays games with the data. Sometimes he defines austerity as a fall in the deficit (1937). At other times as a fall in the level of federal spending, or federal output. The only constant is that he cherry picks the definition that works best in that particular case. That’s why I keep bringing up 1937, which you have not responded to. If you research 1937, I think you will see my point.”
I’m not naive to think that all information presented to me is in good faith. So I try diversify my reading materials. hence your blog. I will have to research 1937 and get back to you. I’m sure its addressed in your book. I prob do need to be more skeptical of p.k
“You also have not explained why we should trust Keynesian economists to steer the economy, when 350 of the most prominent ones can’t even do the most basic prerequisite, which is identifying when fiscal policy is easy and when it’s tight. Without that basic ability, how could they do anything else?”
Well it appears you define fiscal policy only at the federal level. I guess p.k and friends include the S&L. Also P.K and his crew did a great job predicting interest rates and inflation (yes you did to). Alot of people got those predictions wrong.
Hey ppl get predictions wrong. (look at your most recent post) But they have admitted it and yes they have rationalized it. Now if their rationalizations dont make sense (change in fiscal policy was not that much different) I will become more skeptical of Keynesians. It may be a surprise to you buy I’m already fairly skeptical of P.K…..actually not really but I realize I should be.
“And you didn’t answer my question as to what would have happened if there had been a recession in 2013. Would Krugman, et al, have said “oops, that’s not due to the austerity, it turns out there was no austerity” or would he have said “See, we were right” I’d like an answer.”
I did answer this. You’re questioning Krugman’s intellectual integrity. Maybe you have reason to do so but as of yet I dont. For example he leans against arguments that fit nicely to his ideology like the link between inequality and slower growth. He’s admitted that he was wrong about the contagion in Europe. Turns out Draghi’s “whatever it takes” did alot of good he wasn’t expecting. I know ppl get things wrong and I look for the ability to admit mistakes and so far he’s done.
No if I catch him cherry picking data I expect my opinion to change.
As of now your answer is that I’d expect him to keep his intellectual integrity.
14. April 2016 at 15:15
James, what do you think about my view of Draghi? http://www.talkmarkets.com/content/bonds/draghi-and-germany-have-a-secret-plan-to-save-the-eurozone?post=90083&uid=4798
14. April 2016 at 16:56
I’ll check it out Gary
14. April 2016 at 23:52
“Keynesians can continue to tell each other that there was no austerity to try and salvage some credibility but that won’t change anything for the departments who have had their budget cut by over a third since 2010.”
They don’t say there was no austerity.
They say that it was abandoned.
“Even Britain has now abandoned austerity . . .”
Thanks for the interesting link.
14. April 2016 at 23:56
“Postkey, No, I don’t agree.”
Thanks for your ‘reply’.
15. April 2016 at 00:04
@james elizondo
It appears that 2013 was different from 2011 and 2012 due to the increase in the price of oil and and investment in the US oil industry.
“First, I had been looking for 4% growth for 2013 and scaled back to 2% due to the tax increases and sequesters, and I thought it would continue to weaken until deficit spending increased.
Turns out there was an increase in private sector deficit spending/credit expansion on oil and gas exploration and production that offset the 2013 fiscal adjustments and further expanded in 2014 to further support GDP growth.”
http://econlog.econlib.org/archives/2015/01/the_keynesians.html
However, S.S. does not appear to think that this was inportant!
15. April 2016 at 06:39
Postkey I couldnt open the link
But from your other posts it does appear that austerity slowed down in the U.K and the change in fiscal policy in 2013 in the U.S wasnt so different from 2012 or 2011.
These guys are slamming their heads against the wall and declaring its good for your health cuz you feel better once you stop.
Or if a country shuts down half its economy then turned it back on and declares “look growth it worked!”
15. April 2016 at 07:24
@james elizondo
“Or if a country shuts down half its economy then turned it back on and declares “look growth it worked!”
S.S. says:
“ . . . back in 2010, the US and euro zone had the same unemployment rate around 9-10%. And we had something like a controlled experiment, since the US and the Eurozone did roughly the same amount of austerity. (By some measures the US did a bit more.) The big difference between the two areas was monetary policy. The US did some monetary stimulus through QE and forward guidance, while the ECB did nothing. Now the unemployment rate in the Eurozone has gone up from 9% to 11.6%, while it’s gone down in the US to 6.3%. This huge divergence in employment outcomes over the last 3 years with monetary policy being the difference, not fiscal policy, seems very striking.”
http://www.adamsmith.org/wp-content/uploads/2015/02/therealproblemwasnominal2.pdf
He believes that the ‘success’ of the US economy was down to monetary policy and ignores the explanation of W.M.?
I think that this link will ‘work’.
http://econlog.econlib.org/archives/2015/01/the_keynesian_s.html
It is a pity that S.S. did not comment on W.M.’s post at the time?
15. April 2016 at 08:23
hey good info I’l have to check it out
16. April 2016 at 18:24
X
The government was still spending less each year in real terms. The trajectory of nominal spending remained the same. The deficit continued to fall. Spending as a share of GDP continued to fall. By every conceivable measure the government was being more “austere” in each year than it had been in the previous one. A 3% real reduction in spending over a parliament is unheard of in modern times. Some departments such as the DWP (welfare) had their budget cut by more than a third. Yet employment hit record levels. If that isn’t a test of whether a central bank can maintain adequate aggregate demand when the government is reducing it’s deficit then I don’t know what is.