Bashing Smith, Kling, and anyone else that gets in my way
Let’s start with the Noah Smith bashing:
For example, take the recent row over the year 2013, in which we saw the Sequester and QE3. Did the events of 2013 disprove Market Monetarism? Paul Krugman at one point said the year would be a test of that (fuzzily defined) theory. Mike Konczal said much the same thing. Now Scott Sumner and David Beckworth are saying (surprise surprise) that 2013 demonstrates considerable empirical support for Market Monetarism. Sumner also lays into me for tweeting Konczal’s article (though when I tweet things with question marks, it means I’m skeptical of the thing I’m tweeting; Sumner probably doesn’t know that).
First of all, Noah completely misses the point. Krugman now denies that 2013 was a test. That’s because he lost. That’s what this is all about. But Noah Smith doesn’t mention that embarrassing fact just as Brad DeLong didn’t mention that fact. Hmmm, I wonder why? I never thought 2013 was a particularly effective test, although I certainly think it tells us something. Which is true, it’s not that good a test, but does tell us something. But somehow I come off worse than Krugman in the paragraph. I wonder why?
BTW, Noah Smith is in no position to know what he meant by the question mark. I say he meant the question was not whether Konczal was right about there being a test, but rather that this was about whether Konczal was right about MM failing the test. That’s the way 99% of readers would have read the tweet. If Noah doesn’t see that it’s because he lacks “self-awareness.” In the future no one should ask Noah what he really meant, come to me if you want to know.
A second problem is that the theories themselves, as presented on the blogs, are fuzzy and not well-defined. What does “Market Monetarism” say? Does it say that fiscal policy doesn’t affect the real economy, and that only monetary policy has an effect? Or does it say that monetary policy and fiscal policy both have an effect? Does “Keynesianism” say QE works at the Zero Lower Bound, or not?
There is nothing fuzzy about the MM view of fiscal stimulus. Monetary offset—how complicated is that? The only think fuzzy is the image of MM in the minds of people who have not taken the time to read our views.
And speaking of which, here’s Arnold Kling:
This is uncharitable, but I think of market monetarism as a theory that can only be confirmed, never rejected.*
Look, I have no objection to people not understanding MM. Paul Krugman says he doesn’t read conservative blogs, and based on Brad DeLong’s recent description of MM that seems to be true of him as well. That’s fine. But then don’t talk about us! If Kling wants to say that MM cannot be refuted then he clearly doesn’t know what MM is. We make all sorts of statements, here are a few:
1. The Swiss could depreciate and then peg their currency to the euro. Paul Krugman was skeptical (didn’t say it was impossible, but what skeptical–and if Krugman’s as Bayesian as he says that counts for something.) But the Swiss succeeded.
2. MMs said QE would impact a wide range of asset prices. Liquidity trap Keynesians said it would not. Even DeLong concedes we were right on that point. OK, I take back all the bad things I said about DeLong.
3. MMs said the Japanese could depreciate the yen as a way of raising prices. Krugman was skeptical. Even Smith seems to agree the BOJ did depreciate the yen.
4. MMs predict that NGDPLT will reduce the severity of the business cycle. Not easy to test, but certainly testable over a period of time.
5. MMs say that falling NGDP will tend to lead to financial crises, even compared to severe recessions where NGDP does not fall (say a supply side recession like 1974.) In 2010 the US and eurozone were in a similar position. The eurozone did a tight money policy in 2011 (by almost everyone’s definition–they raised short term rates with the avowed goal of reducing inflation.) NGDP plunged relative to the US. The debt crisis in Europe got worse relative to the US.
6. MMs say a policy of stabilizing NGDP growth forecasts will also tend to stabilize actual NGDP (much more than current policy).
7. Back in 2009 when the Austrians and old style monetarists said inflation and higher interest rates were on the way, we said both would probably stay low. And we were right.
It’s true that far fewer things are testable than we’d like. The plain truth is that most monetary indicators (interest rates, the base, etc) are ambiguous. Never reason for a price or quantity change. We can’t help that fact, but it really has nothing to do with MM per se. Are there any theories out there that claim you CAN reason from a price change?
Kling continues:
Is there anyone I haven’t offended yet?
Exactly my thought. 🙂
PS. The “self-awareness” comment is a private joke.
Tags:
9. January 2014 at 08:03
“Krugman now denies that 2013 was a test. That’s because he lost.”
“I never thought 2013 was a particularly effective test”
Hmm, I don’t understand how these two things can be true at the same time. If it wasn’t a good test, then how could Krugman “lose”?
“In the future no one should ask Noah what he really meant, come to me if you want to know.”
Hmm…
9. January 2014 at 08:09
“There is nothing fuzzy about the MM view of fiscal stimulus. Monetary offset””how complicated is that?”
It’s not complicated at all. We all get it. It’s obvious that if the Fed offsets fiscal stimulus that the latter has no effect. It’s equally obvious that if I “offset” the attempts by fire fighters to squirt water on a burning house (e.g. by turning the water off) that that will render those fire fighters useless. But does that prove that firefighting is pointless? Market monetarists would answer “yes”. Everyone else would answer “no”.
I.e. the fact that the Fed chooses of offset fiscal policy sometimes (but not always) does not of itself prove that fiscal policy is useless.
9. January 2014 at 08:10
This isn’t a jab, it’s just a thought. Maybe it’s not that they haven’t read market-monetarist views, maybe it’s that those views have been communicated poorly. I’m not going to say that I’ve read everything put out there by market-monetarists, but I’ve read a good deal and I still agree with Noah that the theory is a little fuzzy. I probably haven’t read enough, but it could be a combination of that and that what I’ve read has not done a good job at communicating the theory.
Something I usually consider when people criticize me is that if you think they get your argument wrong 90% of the time it’s a problem with your writing, not a problem with the reader.
9. January 2014 at 08:30
So if Noah and even Krugman come out and say “yes, by the criterion set out, we got it wrong, but it was a lousy criterion anyway” will you be happy?
9. January 2014 at 08:31
@Noah Smith:
I think Scott’s point is it was Krugman who claimed that 2013 will be a test of MM’s views and when it looked like that their theories might indeed pass with flying colors, he backed off and said that they weren’t a test at all.
He seems to have forgotten what he said and is instead shifting the narrative subtly to imply that it was actually the MM guys that claimed 2013 was a test for their theories.
9. January 2014 at 08:32
“If it wasn’t a good test, then how could Krugman “lose”?”
A test is meant to be won or lost — whether the test itself is good or bad is independent of that.
9. January 2014 at 08:36
Jonathan, You said;
“Something I usually consider when people criticize me is that if you think they get your argument wrong 90% of the time it’s a problem with your writing, not a problem with the reader.”
That’s my point! The problem was the way Noah wrote the tweet, not the way I read it.
Seriously, That’s get out of jail free card if I’ve ever seen one. How can anyone not understand what MMs mean by monetary offset? It’s a very simple concept, and we’ve said it 1000 times.
Unleanringecon, I’ll be happy if Krugman admits he’s got a double standard. That he applies different standards to conservative opponents than he applies to himself. That’s all I’m asking for him to admit. If he does so I’ll stop.
9. January 2014 at 08:37
Dilip, Yup.
9. January 2014 at 08:41
Dilip,
Exactly. I imagine we’ve all sat tests which were flawed during our lives; that they were flawed doesn’t mean there wasn’t a matter of passing or failing, or something perhaps wrong with someone’s belief-structure if they predicted the wrong result.
And while Konzcal/Krugman 2013 test wasn’t a good test of MM, it WAS a good test of Paul Krugman’s theories about how the economy works. Not a crucial test, not the death of Keynesianism, but test that indicates that there is probably something wrong with the theory that you don’t find monetary offset when interest rates are near zero.
9. January 2014 at 08:44
At Noah Smith’s post a commenter named Sam pointed to the following Krugman article where Krugman claimed that the sequestor would cost 700,000 jobs:
http://www.nytimes.com/2013/02/22/opinion/krugman-sequester-of-fools.html
Krugman links to Macroeconomic Advisers (MA):
http://macroadvisers.blogspot.com/2013/02/mas-alternative-scenario-march-1_19.html#!/2013/02/mas-alternative-scenario-march-1_19.html
In support of his claim. The MA forecast was made in February 2013 and only estimates the effect of the sequestor, not the tax increases, which by most accounts were to have significantly greater economic impact than the sequestor.
What I find interesting is their real GDP (RGDP) forecast. Their baseline forecast was that RGDP was to grow by 2.1%, 2.4% and 2.9% in 2013Q1, 2012Q2 and 2013Q3 respectively. Their forecast with the sequestor was that RGDP would grow 1.6%, 1.1% and 2.3% in 2013Q1, 2013Q2 and 2013Q3 respectively. Actual RGDP growth was 1.1%, 2.5% and 4.1% in 2013Q1, 2013Q2 and 2013Q3 respectively.
Growth turned out to be worse in 2013Q1 than in either forecast but better in 2013Q2 and 2013Q3 than in either forecast. RGDP growth was forecast to average 2.5% in those three quarters according to their baseline forecast and 1.7% with the sequestor. Instead growth has averaged 2.6%.
This is very consistent with your forecast Scott, that growth would be about the same regardless of fiscal policy changes.
9. January 2014 at 08:44
Has Greenspan ever heard of NGDP?
“Alan Greenspan’s graph of the year: Businesses are (still) holding back on investment”
http://wapo.st/1a3u9V1
9. January 2014 at 08:49
Scott,
Would you say that fiscal policy is irrelevent because of monetary offest, as Ralph suggests?
9. January 2014 at 08:51
In fact, this is what I believe is the core irrefutable proposition of market monetarism. Suppose that the Fed announces that it is changing to a level target for nominal GDP. And suppose that the business cycle continues just the same. There are two possible responses from market monetarists.
1. Say that this was a valid test.
2. Say, “aha! They said they were doing NGDPLT, but look. NGDP was all over the map. Obviously, they were not really doing NGDPLT. They decided to do something else.”
My snark about market monetarism being irrefutable reflects my uncharitable (and untestable) belief that we would see (2).
9. January 2014 at 08:56
“OK, I take back all the bad things I said about DeLong.” An over-reaction; just take back *some* of them.
9. January 2014 at 09:00
I am having serious doubts about overall sanity of some supposedly “serious” people. Monetary offset and this whole affair with Krugman’s MM tests is a basic stuff that with some slight changes in context could be used to asses some basic reading skills on an elementary school. It might be something like this:
In the morning Alice said to Bob that if it rains today she will give Bob a candy. Later in afternoon there was a 3 hour downpour.
Question: should Alice give Bob a candy?
What do you think about Alice if she said that the downpouur was not natural but caused by some “other stuff” and refuses to acknowledge her promise?
9. January 2014 at 09:00
@ Arnold Kling:
“My snark about market monetarism being irrefutable reflects my uncharitable (and untestable) belief that we would see (2).” Maybe (though I would be shocked if you saw it *from Scott*); but MM *would still have been refuted*, whatever anyone *said*.
9. January 2014 at 09:00
Arnold,
Who cares what they would say? It would be obvious to everyone that NGDPLT as a policy had been a failure if the fed didn’t hit the target.
The only question that matters is whether or not the fed could hit a given NGDP target under a wide variety of circumstances. If that turns out not to be true, MM is a failure, and will be considered so by rational people.
9. January 2014 at 09:22
[…] SUMNER: Mark Sadowski…go get me my gun. […]
9. January 2014 at 09:22
@ Arnold Kling:
(Admittedly it’s not enough that the Fed *announce* NGDPL targeting: they have actually to *do* it. But it will be very easy to tell whether they *are* doing it, even if they don’t set up an NGDP futures market.)
9. January 2014 at 09:26
I don’t have much money, Scott, but my gift is my blog post–and this one’s for you.
9. January 2014 at 09:27
I swear the real issue that Noah’s not that damn smart…
“Krugman now denies that 2013 was a test. That’s because he lost.”
“I never thought 2013 was a particularly effective test”
Hmm, I don’t understand how these two things can be true at the same time. If it wasn’t a good test, then how could Krugman “lose”?
“In the future no one should ask Noah what he really meant, come to me if you want to know.”
Hmm…”
Noah, PK / Rorty walked in and proposed a bet. One he made being VERY SURE based on his beliefs about austerity.
He essentially gave points AND his team lost.
Scott wasn’t asking for points, he just said his team would win and did.
It’s the level of certainty based on the conditions before the bet. PK’s brain comes from “less government spending (he doesn’t mean tax cuts) is terrible for economy” – he was SURE his views would trounce.
9. January 2014 at 09:29
Bob Murphy, more please.
9. January 2014 at 09:33
So if Noah and even Krugman come out and say “yes, by the criterion set out, we got it wrong, but it was a lousy criterion anyway” will you be happy?
Me, I’d regard it only as a promising first step, and expect Krugman (I’ll take Smith’s word that he wasn’t really endorsing the idea of a test) to follow up with some sort of self-investigation into what underlying misunderstanding led him to get it wrong. After all, the reasons Sumner and Smith offer for believing 2013 wasn’t really a good test of MM were all knowable last April (Smith’s post would probably have done more good had it been written as a rebuttal to Krugman in April instead of Sumner in January)– contemplating how he, Krugman, managed to overlook all those reasons might make him a bit more careful in drawing sweeping conclusions from, for example, events in Japan. Who knows, it might even open his eyes to the value of intellectual humility in general. That would be a fine thing.
9. January 2014 at 09:35
@Noah
You are far too intelligent to not understand what Scott Sumner was saying. He is critiquing Krugman’s rational consistency. Krugman says that 2013 was a test for MM theory, and then after the test is complete, he essentially says that it was not a test. Scott Sumner’s view on whether it actually was a test or not, or was a good test or a bad test is irrelevant.
He is not asking Paul Krugman to endorse MM, or even admit that MM did what it predicted – he’s just asking him to admit that he completely changed his position.
Stop thinking about it in terms of the status of competing theories and start thinking about it in terms of a straight-forward logical argument. Paul Krugman was not logically consistent. How can us poor non-intellectual types ever trust you if you can’t admit your errors?
9. January 2014 at 09:38
Arnold, that’s not logical and you are a logical guy.
If we have NGDPLT target that says each month in 2013, NGDP will grow by $63B, and finish at Jan 1st 2014, $17,632B
And that same line continues for say 10 years…. (if the Fed adopts it, we’re not going to stop doing it willynilly) that alone means it appears to “may be working”
But then we’d see;
1. how business cycle does
2. we’d see how to reacted at different as the fed hewed closer and closer to the monthly growth target.
How is that not falsifiable?
9. January 2014 at 09:47
Arnold Kling,
“Suppose that the Fed announces that it is changing to a level target for nominal GDP. And suppose that the business cycle continues just the same.”
I think you’re missing the point. Most central banks target the inflation rate and most of them have a fairly decent record at hitting their targets. So there’s already fairly good evidence that central banks have relatively little hitting nominal targets.
NGDPLT proposes changing the nominal target to the level of NGDP. Given central banks’ reasonable success in hitting one nominal target, the claim isn’t really whether central banks can hit an NGDPLT target. The claim is that by stabilizing the level of aggregate demand (NGDP) there will be less variation in RGDP.
NGDPLT will be falsified if less volatility in NGDP fails to result in less volatility in RGDP. And to some extent there is already evidence in favor of Scott’s claim:
An Overhaul of Federal Reserve Doctrine: Nominal Income and the Great Moderation
Joshua R. Hendrickson
January 2010
Abstract:
“The Great Moderation is often characterized bythe decline in the variability of output and inflation from earlier periods. While a multitude of explanations for the Great Moderation exist, notable research has focused on the role of monetary policy. Specifically, early evidence suggested that the increased stability has been associated with monetary policy that responded much more strongly to rising inflation. Recent evidence casts doubt on this change in monetary policy. An alternative hypothesis is that the change in monetary policy was the result of a change in doctrine; specifically the rejection of the view that inflation was largely a cost-push phenomenon. As a result, this alternative hypothesis suggests that the change in monetary policy beginning in 1979 is reflected in the Federal Reserve’s response to movements in nominal income rather than inflation as previously argued. I provide evidence for this hypothesis by estimating the parameters of a monetary policy rule in which policy adjusts to forecasts of nominal GDP for the pre- and post-Volcker eras. Finally, I embed the rule in two dynamic stochastic general equilibrium models with gradual price adjustment to determine whether the overhaul of doctrine can explain the reduction in the volatility of inflation and the output gap.”
http://mpra.ub.uni-muenchen.de/20346/1/MPRA_paper_20346.pdf
9. January 2014 at 09:49
Arnold Kling wrote:
“Suppose that the Fed announces that it is changing to a level target for nominal GDP. And suppose that the business cycle continues just the same.”
Are there two different questions in the above?
1. Can the Fed successfully target the level of nominal GDP? (Or, if we are looking backwards, did the Fed successfully target the level of nominal GDP?)
2. If the Fed successfully targets the level of nominal GDP, how does or did this affect the business cycle?
Do critics question one or both of the above?
9. January 2014 at 09:50
As someone who first became a reader of the econoblogosphere in 2008, I am merely a laymen but it seems to me that the Market Monetarists were pretty much spot on for 2013.
Originally, I found Krugman et al’s arguments that you can engage in austerity when interest rates are above zero but it’s lest certain if you can at the zero bound w/o harming growth, etc. to be persuasive but they turned out wrong IMHO.
As matter of positive economics, from where I am standing, it appears to me that the various transmission mechanisms of monetary policy can successfully off-set the effects of contractionary fiscal policy even at the so-called zero bound and stabilize nominal spending.
The Keynesians hedged and were skeptical of these claims. But the Market Monetarists appear to be right even if 2013 wasn’t a perfect test. Monetary Offset still works even with “unconventional monetary policy” at the zero-lower bound. This year provides clear and convincing evidence to me that it definitely skins the cat from where I’m standing.
For 2014 hopefully Keynesians like Krugman will take Judicial Notice of this proposition. If he holds on we probably have to be cynical and assume he doesn’t want to give up what he probably thinks is his ace in the hole when arguing for more government spending.
To me the more interesting debate is whether or not the MM proposals are the way of skinning the cat that we ought to choose as a society which often entails questions beyond the scope of just economics.
To Scott and all of the other great posters, thanks for taking the time to post. You’ve made robust contributions to the marketplace of ideas that have made my daily procrastination much more valuable.
Looking forward to reading in 2014.
9. January 2014 at 09:57
Kling:
I think what at least one thing Scott meant was that if nominal GDP remained on a stable growth path, but real output and employment fluctuated the same, this would suggest market monetarists are wrong about the importance of spending on output.
9. January 2014 at 09:59
Hey Mark Sadowski, I have a handy-dandy table in this blog post that outlines the Macroeconomic Advisers sequester forecasts vs. reality.
9. January 2014 at 10:07
“2. Say, “aha! They said they were doing NGDPLT, but look. NGDP was all over the map. Obviously, they were not really doing NGDPLT. They decided to do something else.”
My snark about market monetarism being irrefutable reflects my uncharitable (and untestable) belief that we would see (2).”
Isn’t this exactly what happened with monetary aggregate targeting? Yes, it was possible for some old school monetarists to move the goal posts (and some did), but the idea that targeting a monetary aggregate like M2 is generally not accepted. Economists as a whole were Bayesian and rejected that version of monetarism.
9. January 2014 at 10:14
BTW Arnold Kling if you’re still reading, I am *very* sympathetic to your view. I may come back to this on my blog in the future; I don’t think Scott did a great job “bashing” you.
But, I don’t want to distract from Krugman’s groin-kick, and Noah having no idea why Scott is objecting.
9. January 2014 at 10:23
Isn’t the Beyesian thing to do to calculate now what the economy would have been in 2013 if Krugman and Zandi’s model is correct, then examine that in light of how probable it that economic path is versus the alternative?
9. January 2014 at 10:27
Bob Murphy,
Your Macroeconomic Advisers post is excellent and made most of the same points I made above five days ago (oops).
9. January 2014 at 10:32
Look, I think basically you can have your cake or you can eat it, but not both.
Either Krugman was wrong to say 2013 was a test, or he was right to say it’s a test and his prediction about the outcome of the test was wrong.
But it can’t both simultaneously not be a test AND be a test that Krugman got wrong. That just does not make sense.
9. January 2014 at 10:41
Noah Smith,
If you think that these two quotations-
“Krugman now denies that 2013 was a test. That’s because he lost.”
“I never thought 2013 was a particularly effective test”
– are inconsistent because something cannot both be a test and not be a test, check the second again. Just because a natural experiment is set up badly, it doesn’t mean it’s not a natural experiment. And, as has been pointed out, this is all missing the big lesson from what happened.
9. January 2014 at 10:42
@ Noah
What’s wrong with saying that it wasn’t a test, and *even if it was a test,* accepting Krugman’s flawed logic he’s still wrong!
9. January 2014 at 10:48
Scott,
I took Noah’s comment on his blog to mean MM in general, not just monetary offset.
9. January 2014 at 10:59
Noah, yes its true, in the PERFECT TEST:
NGDPLT will be on a 4.5% (or less) trend month-by-month for years.
And during that time, we’ll cut the bejesus out of Government Spending (employees, building, planes, etc) , and it will NEVER effect the economy, every single month, well hit that GDP within a couple of billion eaither way.
That will be the perfect test…
And pssst…. that’s actually what happens.
It isn’t just that Fiscal has no place, its that we can PROVE CUTTING IT helps under NGDPLT.
——
Again, because NGDPLT is a hard cap on growth…. everything is either Real growth or Inflation… under NGDPLT almost any new government spending, particularly pay raises, is just INFLATION, we’ll literally count it as inflation, we’ll come to see it as:
“today the public employees said they wanted to cause inflation and reduce real growth”
Hard caps always become pies. Who got what of this month’s allotted growth? NGDPLT clarifies who delivers and who doesn’t in the economy.
9. January 2014 at 11:03
@Noah
Scientist A: I believe that x does not equal y. We are about to run a test to see if x=y.
Test runs…
Test results: x=y
Scientist A: That was not a test.
Noah, at least let us know that you understand what is wrong with this… at least.
9. January 2014 at 11:12
Scott,
There is no reason to even discuss this. We won this argument.
1) The US recovery is well underway despite significant fiscal consolidation, while Europe is not growth despite an “austerity pause”. It is damn obvious that the difference is monetary policy.
2) Japan is recovering fast and inflation and inflation expectations are increasing. You have been far too negative on BoJ. They are well underway to hitting their 2% inflation target. It is all monetary – and Noah Smith didn’t think the BoJ could do it.
2013 has been a major success for the MM predictions. Keynesian and Austrians have been extremely wrong. There is no reason to debate this any more.
Krugman don’t even bother looking at the numbers.
9. January 2014 at 11:16
Scott,
Here’s my revised proposal for a type of government assistance program that would stimulate the economy, permanently lower unemployment, and replace transfer programs that subsidize bad outcomes.
1. Get rid of the minimum wage. For the proposal to work, anyone with any level of skills needs to be able to get a job.
2. Pay anyone who can document that they worked over 1500 hours in the previous year a lump sum of around $15,000.
3. The amount of income that qualifies for this benefit is capped by randomly selecting a number between $75,000 and $150,000 in order to prevent people from being able to structure their income to receive the benefit.
This way you get a large increase in employment and production and a rise in real incomes. This would help win the “war on poverty” by getting people in the job market gaining skills and teaching them to earn for themselves rather than seeking handouts. Some might object that not everyone can work, but I’d argue that today almost anyone over 18 and under the age of senility can perform some kind of full-time work since much work simply involves sitting in front of a computer or talking on a telephone. Consequently, this could replace almost every other type of transfer payment.
If you assume 100 million people qualify, about 1/3rd of the population, this would cost 1.5 trillion a year. This is affordable if you get rid of the other transfers. However, it is worth noting that there is no hope of stopping government debt from growing to the point where interest payments cost more than they take in with taxes without getting most medical expenses off the government books or seriously limiting the amount spent on medical care. See the end of Alan Blinder’s new book for details on this.
9. January 2014 at 11:54
Noah: “Look, I think basically you can have your cake or you can eat it, but not both.”
Exactly! This is what Scott was trying to say. The point is that it was Krugman baking the cake. So he can either admit that his tests was bogus, which is by itself suspicious if doing it after the test was executed – or he can that the test was valid in which case Market Monetarism passed the test.
Scott’s positon since start was that of 1) that the test was not fair for the Market Monetary test was most likely not because, you know, FED did not adopt transparent monetary policy ideally in form of NGDPLT. This was a year of taper talks and revoking of taper talks etc.
However there is a subtle second thing to comment besides this silly discussion. At the minimum the test proved that fiscal austerity does not mean recession even if Central Bank is at the zero lower bound. Krugman says that it is because of “other stuff”, but you know, one of “other stuff” can also be the fact that Central Bank is capable of expansionary monetary policy even at ZLB. So 2013 makes probability of expansionary monetary policy being expansionary even at ZLB much stronger. Japanese test results also lean in favor of this explanation. All in all this is a pretty bad year for Keynesian predictions and a good year for alternative predictions. But someone wants to keep the cake, eat shout at critics at the same time. And it isn’t Market Monetarists.
9. January 2014 at 12:45
Slow clap.
Regarding Noah’s claim about Scott being inconsistent. Think of it in terms of sports betting. Krugman proposed a bet on a game, signaling his confidence in the prediction. Scott didn’t really like the structure of the bet itself so didn’t take the other side (eg I think my team is better but I dont know if the star QB is going to play for sure. So I’ll avoid this bet.)
After the game is played Krugman’s team has lost. He didn’t lose the bet and Scott didn’t win, because they didn’t agree. But Krugman was still wrong in his prediction and either needs to update his beliefs about the team he backed or come up with a compelling reason why his error should be excused (eg the players got the flu unexpectedly). If he doesn’t have a good explanation for the miss, then that hurts his credibility in future predictions.
9. January 2014 at 13:04
2013 was also a great year for anyone that invested in countries where the central bank was clearly attempting expansionary monetary policy: US and Japan. Although many MMs criticized these central banks at times on the margin, I think there is ample evidence that MMs preferred their approach compared to the relative inaction of the ECB.
I don’t have a quick way to measure the market returns in countries under the ECB umbrella, but I am confident that the US and Japan have outperformed.
9. January 2014 at 14:21
Testability is something that has bothered me. I still believe in the MM interpretation of events, but this is how I think about it.
It works down to two separate issues, which may be getting conflated:
-Whether an NGDP target has more desirable macroeconomic properties than other targets, like an inflation target. There doesn’t seem to be many objections to this from NK, as it doesn’t differ too greatly from a flexible inflation target. Regarding testability, it passes.
-Whether the liquidity trap exists. I don’t think interpreting historical cases of the ZLB is nearly as persuasive as “tests” as Scott thinks, though we should certainly Bayesian update against them (just modestly so). The underlying problem is that the way in which we’re talking about the Fed and inflationary expectations is impossible to effectively operationalize, or at least when I’ve tried to do so myself. In other words, there is no index of how inflationary the Fed’s statements are except TIPS spreads or the reaction of the stock market, which is of course putting a LHS variable on the right side. “Just setting up the prediction market” is question-begging, because the liquidity trap would stop it from working as described.
The latter is the best spin I can put on Kling’s position. But at times on his blog he has also implied that the Fed can hit nominal targets, but sorta concluded it with “yeah but whatever.” That’s wrong. If you want to test whether wage stickiness and everything about the importance of demand-side problems, there are truckloads of such tests. The “testability” question is just about the liquidity trap, but no critic on the right will come out and say they believe in the liquidity trap because they previously spend the last X number of decades arguing it doesn’t exist.
Also, Noah: I believe Scott’s question was whether *you and Krugman* are willing to Bayesian update. The question of whether or not MM thought this was a reasonable test is irrelevant. The point is that if Krugman isn’t full of it, he should revise his priors in favor of MM, given his previous statements. MM aren’t running a victory lap – they’re calling people out for failing to Bayesian update on their own terms. Derp.
9. January 2014 at 14:27
I definitely disagree with Noah Smith about the strength of the empirical evidence in favor of market monetarism. 2013 is a key data point, but let’s make sure to take a broader look at take into account as many relevant examples as possible.
First let’s clarify what we’re trying to evaluate. I think most economists agree that you can do *something* to spur recovery after a recession (except John Cochrane and Noah Smith, I guess). The question is, WHAT IS THAT THING YOU MUST DO? Market monetarists believe that expansionary monetary policy, AKA a central bank committed to drive NGDP up (how far up is a matter for debate) is both necessary and sufficient to acheive boost NGDP growth and employment (MMs also want the central bank to target a market forcast of its target macro variable, but lets set that aside).
Keynsians, like Krugman, Delong, the Obama administration, Wren Lewis, et al, believe in a thing called a “liquidity trap,” which means that “conventional monetary policy” AKA raising and lowering short term interest rates, runs out of ammo when the short term rate hits zero. They are largely agnostic about this voodoo “unconventional monetary policy” like QE, forward guidance, NGDP targeting etc. Let’s set aside the absurdity of their distinction between unconventional and conventional monetary policy and focus on the key claim, which is that expansionary fiscal policy is a key tool in fighting recessions. (Now, do they believe it’s necessary and/or sufficient? Hard to say. They usually wave their hands and talk about conventional vs. unconventional and pushing on a string. Notice how the Keynsian claims are vague and difficult to evaluate, and the MM claims are relatively straightforward).
First, lets recognize the obvious impotence of fiscal stimulus. We have a two-decade-long example of a country with a depressed economy aggressively using fiscal stimulus to escape its “liquidity trap.” That country is Japan, and its Keynsian response to the recession of the early 90’s was massive infrastructure spending. The result of those efforts was bridges to nowhere, obscene levels of public debt, flatlining NGDP, and steady deflation. A smaller version of that happened to the US in 2009. Increasing debt, deficits, and unemployment far worse that what the Obama administration had even forecast in its “do nothing” scenario. Krugman now claims that fiscal stimulus wasn’t tried in the US. Does he also think it wasn’t tried in Japan?
The US and Japan in 2013 are perfect counterexamples to what happened earlier. Contractionary fiscal policy (US) or neutral fiscal policy (Japan) combined with expansionary monetary policy has produced an accelerating recovery and increased employment. The effectiveness of monetary policy is underscored when you look beyond the macro aggregates to market reactions of expansionary/contractionary announcements of central bank policy.
The central bank is in the driver’s seat. Fiscal stimulus could only possibly work if the Fed were to say “now that congress is spending so much more money, we are going to allow inflation to rise.” But once the Fed is willing to say that, fiscal stimulus no longer matters.
9. January 2014 at 14:41
Ralph Musgrave –
“It’s equally obvious that if I “offset” the attempts by fire fighters to squirt water on a burning house (e.g. by turning the water off) that that will render those fire fighters useless. But does that prove that firefighting is pointless? Market monetarists would answer “yes”. Everyone else would answer “no”.”
For your analogy to work, you have to already have the power to target any level of fire you want at zero cost. Now you have two choices:
A) Eliminate the fire at zero cost.
B) Eliminate the fire, but borrow a ton of money at interest to hire firefighters to fight the fire. And whenever more than half the fire is eliminated, stop your efforts to eliminate the fire.
A) is the market monetarist approach, and
B) is the Keynesian approach.
9. January 2014 at 15:00
For the record.
In response to Krugman’s April 2013 post “Monetarism Falls Short” here is what I wrote:
http://economistsview.typepad.com/economistsview/2013/04/monetarism-falls-short.html#comment-6a00d83451b33869e2019101a068f8970c
“The last I checked the Fed had not implemented a policy of nominal GDP level targeting (NGPLT), so when it does, perhaps then we can talk about what NGDPLT has or has not done. However what I do think we’re witnessing is a test, albeit a somewhat complicated one, of the existence or nonexistence of the liquidity trap.
The four largest currency areas at or near the zero lower bound in central bank policy interest rates are the United States, the Euro area, Japan and the United Kingdom…”
And I went on to discuss the empirical evidence against the existence of the liquidity trap. Nearly one year later the evidence has only grown that much stronger.
9. January 2014 at 15:06
Yes, that “self-awareness” is an extremely “private” “joke.” It’s not at all as if you had written three billion words about the Kaminska kerfuffle and now another gazillion allusions to it.
By the way, I don’t entirely get the Krugman issue, either. Perhaps I succeed in explaining why without you having to remark how you ‘wonder why *wink wink* *snark*.’ You write:”Krugman now denies that 2013 was a test. That’s because he lost.” So either YOU think he lost – but that seems unlikely: you keep saying that it was not a good or effective test. (But I admit I am confused, here. In the other post you said:”There is certainly plenty of “derangement” going around, but it’s not in the market monetarist community, which is the only group to have been right about 2013.” So, it was not a test, but you somehow won nonetheless?). Or – which is how I understand it – you think Krugman lost on his own terms, and now does not admit it. But not admitting that there has been a test and thinking one has passed that very test, is not the same thing. Also, in this case you must have an idea of what Krugman would have expected at this point, according to his own approach, isn’t it? Either he has written that up somewhere, or you know his approach well enough to make that analysis yourself. You said in your last post that Krugman had been caught “one of the most embarrassing flip flops that I have ever seen” (btw. in such cases you have to capslock your exasperation at least in parts, like ‘one of the MOST EMBARRASSING FLIP FLOPS I have EVER seen!!!!! HAHAHAHAHA!!!!’). Then:”Last week he says no test actually occurred.” You create the impression as if Krugman literally said:’Look, 2013 has not been a test.’ (Really; you write:” Krugman now denies that 2013 was a test.” But he didn’t say that – that’s how you chose to read it.) As far as I can see, he has not. He thinks he passed it: What he did say is that a certain outcome did not falsify his approach. You might disagree, but you did not point out why. Again, you might think – and perhaps you are right – that Krugman was wrong implicitly, whatever he says that makes you ‘wonder why, hmmm.’ regardless. But then again, this comes back to you having a specific idea of what Krugman actually expected.
The problem is not your “bashing” others, but I don’t think you have done anything else, yet. Perhaps there is a broader meta-point in this whole “I don’t care to ponder what he actually meant, it’s all about how I chose to read it. And I read that he denies that it wasn’t a test, even though he really did not say that – and if you don’t get why, hmmm, I wonder why?” that goes beyond Noah right to how you read Krugman? If so, it’s really subtle, and I don’t get the motivation.
9. January 2014 at 15:07
JohnB,
Here ya go!
http://www.morganwarstler.com/post/44789487956/guaranteed-income-choose-your-boss-the-market-based
Tell me that’s not what you are looking for!
9. January 2014 at 16:02
Excellent blogging.
I think an important observation is that since QE3—open-ended, results dependent QE—the economy has been doing okay, with stock market up 25 percent and almost 200k job growth per month. We had 4 percent real GDP rowth at last read. Still no inflation. QE 1 and 2 were poorly designed, the Fed promised to quit in advance regardless of results.
The federal deficit has shrunk a lot in that same time frame.
It was the right kind of QE—open-ended, results-dependent—that seemed to work.
Maybe we MM’ers do not even need to “win the argument.” All we need is for the Fed to embrace QE3 early and aggressively, when necessary.
9. January 2014 at 16:22
“But somehow I come off worse than Krugman in the paragraph. I wonder why?”
Maybe because your gloating is both obnoxious and baseless. I mean it’s obnoxious anyway but you really have no reason to be gloating.
” MMs predict that NGDPLT will reduce the severity of the business cycle. Not easy to test, but certainly testable over a period of time.”
The early results are not auspicious. When you look at the fact that we still haven’t made up the output gap clearly we could have used more fiscal stimulus or just less fiscal austerity over the last 5 years.
The last 4 years have basically been MM. We’ve had no more FS and since the GOP got in in 2011 we’ve had sharply contractionary FP while we’ve had QE2 and QE3.
How are the results? This is the weakest most shallow recovery in the postwar era. I get that you just want to make it about Krugman rather than the more important question of what these four years of MM have actually given us. it just makes you look narrowminded and petty. Who cares who gets bragging rights?
However, you and your fellow MMers continue to mischaracterize what Krugman said anyway. He never said that we’d have either a recession or that growth would fall off the cliff. So the fact that this hasn’t happened gives you nothing to gloat about.
At the end of the day this is all that matters-not this putrid game of ‘I was right and you were wrong’-namely would growth have been better without the sequester. As Delong shows the answer is yes. If there were full monetary offset in 2013 growth would have been higher.
While QE3 may have offset some of the sequester it surely didn’t offset all of it which means you have: nothing to gloat about.
I know perfectly well this won’t stop you but facts are facts. No one outside of the little MM bubble-with fellow travelers like Bob Murphy, who cares about nothing but taking potshots at Krugman no matter how baseless-are buying into this perpetual ticker tape parade.
If they are link to their posts so we can read them-again outside the MM bubble.
No surprise that this post that you talk such a big game-‘no one’s getting in my way’ doesn’t even look at Noah’s actual arguments which are dead on here. If he’s a Bayesian then you are a ‘small-sample Frequentist’ who is just doing limited ‘event studies.’
9. January 2014 at 16:38
Mike Sax,
WHAT????????????????????
“How are the results? This is the weakest most shallow recovery in the postwar era. I get that you just want to make it about Krugman rather than the more important question of what these four years of MM have actually given us. it just makes you look narrowminded and petty. Who cares who gets bragging rights?”
You HAVE to be trolling.
Good luck finding a single economist, in any bubble, who would agree with your assertion that the fed has been enacting MM policies for 4 years. I really hope you are a clever trolling account and not seriously suggesting what you say.
9. January 2014 at 16:44
Go away Mike Sax. Go back to your blog and write about how much you hate Republicans.
9. January 2014 at 16:48
Mike:
“I know perfectly well this won’t stop you but facts are facts. No one outside of the little MM bubble-with fellow travelers like Bob Murphy, who cares about nothing but taking potshots at Krugman no matter how baseless-are buying into this perpetual ticker tape parade.”
Do you ever read Krugman’s blog? All the guy does is take potshots. He lost a bet. Get over it.
9. January 2014 at 17:07
At this point, to me, it’s not even about Krugman any more. It’s about the sheer joy of watching his apologists twist themselves into knots trying to explain away his latest gaffe.
9. January 2014 at 17:31
Ah, now he lost a bet.
Wait, you have to say:”Now Krugman denies even having made a bet. That’s because he lost. That’s what this is all about.” If anybody diagrees saying “No, I read that passage you quoted, and he did not say that”, you answer:”Now you fail to even mention this embarrassing [use that word as if an established fact as well, repeat how it is embarrassing, or even the most embarrassing thing you have EVER seen, in this live and all before] fact [it’s important that you say fact, even if it’s you interpreting a text passage that does not contain any quotable passage establishing the fact. If not, there might be justified disagreement, and that would dampen the effect of the multiple “hmmm, I wonder why.” People could think you want something else than selling your pre-established POV no matter what. Let’s avoid that, we are not, like, some crazy sophists, but academics, some with tenure, after all].” Now comes the money quote, say:”Hmmm, I wonder why.” It is essential that you don’t actually wonder why, because come on is why. Repeat some of this. Add:”I never thought much of that bet. But first, Krugman said it is a bet [this is an analogy to the actually factual part of this discussion], and now he denies having made one by saying that he did not lose it [this is the part you pulled out of your anus, but by now everybody has forotten that, yourself included.” This last sentence you have to work on a bit, if not, it might seem silly.
You are welcome.
9. January 2014 at 17:52
Paul Krugman is a rock star. He has 1,132,091 followers on Twitter and it is just a bot accoung. Sumner and Murphy are nothing compared to him and this awfully shitty economy is no vindication for them.
On a side note, do you think Murphy thinks about Krugman more than his wife each day?
9. January 2014 at 18:04
Tom,
Is this some kind of pissing contest? Krugman’s popularity comes from his long engangement in popular writing, his authority (and Nobel) from his micro work. This here is another discussion altogether. What does the number of Lady Gaga’s twitter follower’s say about your comparison? More importantly: Would you really say that a similar comparison establishes that Madonna is “nothing compared to” Lady Gaga? Because Madonna SUCKS at twitter!
9. January 2014 at 18:27
Carl you guys are the one that cant get over it. ‘lost a bet?!’ do you hear yourself?
And MM didn’t win anything as output gap wasn’t closed by 2/5 so there was not full monetary offset.
9. January 2014 at 18:29
I do think that Murphy thinks about Krugman more than his wife. She might just sue Krugman for alienation of her husbands affections as he’s so obsessed.
9. January 2014 at 20:11
Take it easy J, you’re getting a little overly excited. Most economists don’t even use phrases like Market Monetarism as it’s a pretty new fad.
I call the last 4 years MM in that there was
1. Contractionary fiscal policy
2. Stimulative monetary policy.
That’s the basics of MM.
9. January 2014 at 20:42
Arnold Kling said:
“In fact, this is what I believe is the core irrefutable proposition of market monetarism. Suppose that the Fed announces that it is changing to a level target for nominal GDP. And suppose that the business cycle continues just the same. There are two possible responses from market monetarists.
1. Say that this was a valid test.
2. Say, “aha! They said they were doing NGDPLT, but look. NGDP was all over the map. Obviously, they were not really doing NGDPLT. They decided to do something else.””
I think this comment shows a lack of understanding of what NGDPLT is. The idea is for the Fed to make a market in NGDP futures in order to create an observable ex ante market expectation for future nominal growth and then change the money supply until the futures price is equal to the nominal growth rate they want to achieve.
Everyone agrees that expectations are a significant driver of the economy. All proponents of NGDPLT are saying is that stabilizing the ex ante expectation of nominal growth is the best (or least worst) thing that a central bank can do given their main tool, a monopoly on production of the money supply. The subsequent ex post NGDP growth realized is less important than the ex ante expectation because economic agents are forward looking (the biggest determinant of current AD is future expected AD).
9. January 2014 at 21:06
Oh yessss, this is exactly the reaction I was hoping to provoke by posting the Kling quote, another excellent summary post.
Noah, I thought Dilip had made the implicit analogy perfectly clear. If you sit a test in school, which is dumb as most school tests are and does little to test what it purports to be testing, you most certainly can still pass or fail that test. You can still turn around to your obnoxious teacher and say, “Ha! You said I could never pass this test, and I did! Not that I accept that this says anything about whether I’m actually smart or not, but I did it!” And if your teacher then turns around and says that the test didn’t actually count, and you had a lot riding on it (study time, blog reputation), then don’t you have a right to sue?
(Okay, perhaps I’m mostly thinking of English classes here.)
Scott, I do think it would help if you posted something to adress Arnold’s concern. Supposing we don’t get futures markets, but we do get a Fed chair who’s been a fan of this blog; what *precisely* do they have to say and do, that you can describe precisely in advance, that would confirm that they are in fact implementing NGDPLT? Does simply saying, “We are now going to target the level of nominal GDP for this year at $x trn and at 4% higher levels each year thereafter” suffice?
9. January 2014 at 21:09
*address*
9. January 2014 at 21:13
IMHO, I think the last year was more of a test of monetary policy per se than of MM. Specifically,
1. Until 2013, the Fed was unwilling to engage in sufficient easing (and I’m not talking about pumping up private bank reserve balances) to even meet their own targets, and
2. PK and Cochrane were saying it’s highly questionable whether monetary policy will work at the ZLB.
Seems to me these have been clearly refuted (even DeLong says so very clearly and explicitly).
Whether you have a Taylor rule, inflation target or NGDPLT seems like a fairly minor question, when leading economists and even the CB doubt the fundamental efficacy of monetary policy itself.
What should be happening right now is not a debate over whether there was an effective test of MM, but rather a thunderous acknowledgement that 2013 proves the Fed has been grossly incompetent over the last six years.
9. January 2014 at 21:55
Mike:
Go back and read Krugman’s posts about Estonia and Ireland vs. Iceland, his posts about English austerity, Obamacare… Krugman is constantly taking victory laps draped in his Keynesian flag, even when the race may not be over yet and he may actually be losing. Worse, he accuses everyone who isn’t convinced that he won of mendacity.
10. January 2014 at 00:23
according to Krugman, ECB had “decisive” role, but Fed didnt matter (?). Ok, maybe not the same, but still…
http://bloom.bg/1lGt2zs
10. January 2014 at 02:06
Negation of Ideology,
I agree my analogy is defective in that “turning off the water” won’t put the fire out, whereas when the Fed offsets or “turns off” fiscal policy, then monetary policy gives us stimulus / fire abatement instead of fiscal policy giving us stimulus / fire abatement. A better analogy would have been as follows.
“It’s equally obvious that if I “offset” the attempts by fire fighters to squirt water on a burning house (e.g. by turning the water off and smothering the fire with carbon dioxide instead) that that will render those water squirters useless. But does that prove that firefighting with water is pointless? Market monetarists would answer “yes”. Everyone else would answer “no”.”
Re your claim that monetary policy costs nothing, whereas fiscal policy does cost something, I don’t agree. I agree that monetary stimulus costs nothing in that the government / central bank machine (gcbm) just prints money (which costs nothing) and buys assets. In the case of fiscal policy (gcbm borrows money, 2, gives bonds to those it has borrowed from, and 3, spends the money (or cuts taxes)). But “printing bonds” costs nothing either. Plus bonds are simply a promise to pay bond holders some money (which costs nothing to produce) at some future date.
As to the interest on those bonds, the real or inflation adjusted rate of interest is currently around zero, so that’s a negligible cost.
10. January 2014 at 02:09
I should add that personally I cannot for the life of me see the point of gcbm borrowing money when it can print the stuff. I.e. I favour the MMT solution to a recession: simply print money and spend it (and/or cut taxes). That solution is effectively a mix of fiscal and monetary policy.
10. January 2014 at 02:22
Wow – sophistry galore in these comments from the Krugman/Smith brigade. Guys, when in a hole, stop digging. Best to keep quiet and hope people miss it. Come back with something new, if you can.
10. January 2014 at 03:44
dtoh:
Good comment. See my comment just a little above yours.
10. January 2014 at 07:00
Benjamin Cole,
Great point about how QE3’s open-ended approach was superior to QE1’s and QE2’s approaches.
Sumner, Beckworth, Christensen, Nunes and Glasner haven’t really been hammering your point home, have they?
10. January 2014 at 07:47
JJ, You asked:
“Would you say that fiscal policy is irrelevant because of monetary offset, as Ralph suggests?”
Mostly irrelevant for AD (NGDP) in the US, but it matters for other variables.
Arnold, It’s not at all easy to determine whether a central bank is doing NGDP targeting, even if they claim to be doing so. It is easy to tell if they are doing NGDPLT.
ant1900, At the end of 2012 I made a very public prediction that growth in 2013 would be about the same as 2012 (about 2%.)
Martin, You said;
“But he didn’t say that – that’s how you chose to read it.) As far as I can see, he has not. He thinks he passed it: ”
That’s a pretty far-fetched claim. I doubt even his supporters like DeLong would swallow that claim.
10. January 2014 at 08:21
Mike Sax,
” I call the last 4 years MM in that there was
1. Contractionary fiscal policy
2. Stimulative monetary policy.
That’s the basics of MM.”
Talking of failing tests, here’s an example of failing the ideological Turing test.
10. January 2014 at 09:09
Arnold Kling:
Although they are not completely clear on that all the time, MM do not believe central banks can control completely the path of NGDP (or inflation). They believe the central bank can completely control expectations of NGDP, and that expectations of NGDP (or inflation) are one of the large drivers of actual NGDP (or inflation). And they believe that future contracts are a good measure of expectations.
So there are three things that can disprove market monetarism:
First: The central bank cannot control expectations of NGDP (or inflation).
I think this is highly unlikely but possible. This would show as the central bank being unable to hold it’s peg under some circumstances.
Second: Future contracts are a lousy measure of expectations:
The central bank would be able to peg, but this wouldn’t keep expectations stable. So central bank policy wouldn’t be responding to what they were intending to respond. As expectations are difficult to measure, this would be difficult to assess. But it’s very unlikely that we would see actual nominal stability if this were the case.
Third: Even with stable expectations of NGDP, actual NGDP does not became more stable.
If the central bank pegged the contract, the expectations were stable, and even then actual NGDP continues to fluctuate as widely as before, MM is dead. It would be difficult to see the difference between this case and the previous one.
So if the make a NGDP futures market, and for some reason are unable to keep the peg, or if they can keep the peg, but NGDP does not become more stable, MM is falsified. I believe all MM could agree on this.
Note that is very important that they peg levels rather than rates of change.
10. January 2014 at 09:40
Morgan,
If you’re still reading this, I agree with almost everything in there except I think that a lump sum regardless of how much you made is simpler and easier without any disincentives to work and earn. I also think it is important to prevent people from artificially keeping their earnings down to receive benefits. That’s why I like the idea of keeping the benefit cap a mystery by using a random number generator.
10. January 2014 at 09:50
Scott,
You say fiscal policy is “Mostly irrelevant for AD….” That can perfectly well be put the other way round, i.e. “Monetary policy is irrelevant for AD because assuming fiscal stimulus works to some extent, monetary policy is not needed”.
10. January 2014 at 12:24
@ ssummers
“That’s a pretty far-fetched claim. I doubt even his supporters like DeLong would swallow that claim.”
Actually, I don’t think so. You ‘hmmm, wonder why’ rhetorically Noah Smith and Brad DeLong didn’t mention it. Then you meet my suggestion that they might just have read it differently not only with disbelief, but make allusions what Krugman supporters would “swallow.”. Do you feel you an authority on what Brad DeLong would swallow? Or why exactly do you tell me that? Not a second did you stop to ponder if your ‘hmmm, I wonder why’ could be a serious question to ask yourself, and that could possibly have another answer than the one you chose from the get-go. Hmmm, I wonder why.
10. January 2014 at 15:16
Martin, Why not just say what you think instead of talking in riddles. I read hundreds of comments a day and don’t recall all the context.
Arthur, Good observations.
Ralph, We’ve been there before many times, the argument is going around in circles.
10. January 2014 at 20:05
@ ssumers
Riddles, really?
Look, if you are too busy, no problem. But don’t just answer me for the sake of pseudo-engaging with commenters and then suggest I speak in riddles just because you are too lazy to look up the context.
11. January 2014 at 10:18
Ralph,
You said; “That can perfectly well be put the other way round, i.e. “Monetary policy is irrelevant for AD because assuming fiscal stimulus works to some extent, monetary policy is not needed”.”
Good point. Suppose Congress passed an NGDP targeting law that automatically lowered or increased monthly income tax withholding rates based on whether the NGDP futures market was above or below the target desired by Congress.
I happen to disagree with you that fiscal policy is the way to go, but I think it’s a good debate to have. It’s totally counter-productive on the part of the MMers to deny that fiscal policy has any effect.
11. January 2014 at 10:34
Scott,
One other thing, you have to give people time to adjust their views when they are wrong. It’s much better to allow them to go through the “Well it’s a complicated problem…. the evidence is ambiguous, but Japan presents some interesting data” phase.
Nobody likes to just come out and say “Whoops I was wrong.” They would much rather do a slow leisurely 180 that suggests their error was due to the complexity of the problem rather than admitting that the problem was simple and they were just being stupid.
12. January 2014 at 09:14
dtoh, Yup.