Ben Southwood finds lots of evidence for (market) monetarism

Ben Southwood of the Adam Smith Institute has several recent blog posts that are well worth reading.

When the Bank moves its key policy rate, commentators talk about it hiking or cutting interest rates; on top of this, we’ve seen extremely low effective interest rates in the marketplace; together this makes it reasonable to believe that the central bank is the cause of these low effective rates.

There are lots of reasons to doubt this claim. In a previous post I pointed out that the spreads between Bank Rate and market rates seem to be narrow and fairly consistent””until they’re not. I made the case that markets set rates in an open economy. And I arguedthat lowering Bank Rate or buying up assets with quantitative easing (QE) may well boost market rates because they raise the expected path of demand, the expected amount of profit opportunities in the future, and thus investment.

Since then I came across an elegant and compelling explanation of exactly why this is. In a 1998 paper, Tore Ellingsen and Ulf Söderström show that this is because some monetary policy changes are purely expected and ‘endogenous’ responses to economic events, whereas some monetary policy changes are unexpected ‘exogenous’ changes to the central bank’s overall policy framework (like raising or lowering the inflation rate that markets believe they really want).

When changes are expected, market rates keep a tight spread around policy rates; when changes are a surprise, cutting Bank Rate actually results in higher interest rates in the marketplace.

The post has some nice graphs showing this distinction.  He has another post citing no less that 4 papers with monetarist-friendly findings.  Here’s one example:

In “QE and the bank lending channel in the United Kingdom”, BoE economists Nick Butt, Rohan Churm, Michael McMahon, Arpad Morotz and Jochen Schanz tackle the popular creditist view that movements in lending drive overall activity, and that quantitative easing works by stimulating lending, and find “no evidence to suggest that quantitative easing (QE) operated via a traditional bank lending channel”. Instead, their evidence is consistent with the monetarist view, that “QE boosted aggregate demand and inflation via portfolio rebalancing channels.”

They find this result by looking at the difference between banks that dealt directly with the Bank of England when it was buying gilts (UK government bonds) with new money in its QE programme. If the creditist view held, these banks would be more able to expand their lending with the extra deposits created when the BoE hands over new money for gilts.

And a post exposing the silliness of internet Austrian commenters, who seem to think that anyone who is not an Austrian is a Keynesian.

Ben’s colleague Sam Bowman (also at the ASI) has a good post explaining NGDP targeting.

Meanwhile, the only head of a major central bank ever to say good things about NGDP targeting now presides over an economy that is creating jobs at a rate no one could have imagined 18 months ago.


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75 Responses to “Ben Southwood finds lots of evidence for (market) monetarism”

  1. Gravatar of Major.Freedom Major.Freedom
    22. October 2014 at 02:53

    NGDP monetarists are not Keynesians because they’re not Austrians.

    NGDP monetarists are Keynesians because they share essentially the same “problem -> solution” economic outlook as the Keynesians.

    It is absurd to deny that “insufficient aggregate demand”, “sticky wages”, are not Keynesian mantras.

    If any internet troll shouted “The recession was caused by insufficient government intervention to counteract the fall in AD”, then it would be literally impossible to determine whether that troll was a Keynesian or NGDP monetarist.

    The response by Sam was nothing but knee jerk vitriol.

    Market monetarists think of the economy in the same way. Lack of aggregate demand is the problem.

    Do you think it is a coincidence that both Keynesians and Monetarists consider Fisher as their father? That they both believe government management of aggregate demand is the magical key of policy?

    This vitriolic reaction from Sam is like how Karl Marx reacted when he was told his worldview was essentially Feuerbachian. Both of those two people believed they were the other’s opponent. But we know now they were in the same camp.

    Sam is just having a moment of catharsis by attacking this “Corey” in the hopes of purging his psychology of the affinity between NGDP monetarism and Keynesianism by attributing that affinity as nothing but a belief of others like Corey. Attack it, and hopefully convince oneself it is true.

  2. Gravatar of Major.Freedom Major.Freedom
    22. October 2014 at 03:13

    Do you want to know what “Monetary offset” really is?

    It’s a 100 year old tango on the soft socialism dance floor, starring Mr. Monetarist and Mrs. Keynesian, when suddenly Mr. Monetarism has a Robbie Williams moment of clarity, encouraged by his fans, and believes he should do the dance alone because Mrs. Keynesian was only following Mr. Monetarist’s lead anyway.

    “But honey! What if you become trapped in the liquid punchbowl? You’ll need me!”

    “Don’t worry about me darling, you know I will always love you, but you cramp my style and I am tired of being looked at as being associated with you. If I get stuck in the punchbowl, I’ll just piss on the closest guest, or the bartender, or if need be even the host! Surely previous dancers were only too timid.”

    “Oh honey! Your words are like daggers to my soul.”

    “It’s got to be done darling. The trolls keep calling me as your other half. I need to break free and fly solo, then the world will finally love me!”

  3. Gravatar of Daniel Daniel
    22. October 2014 at 03:37

    Internet Austrians are retarded.

    In other news, water in wet and the Sun rises in the East.

  4. Gravatar of Steven Kopits Steven Kopits
    22. October 2014 at 05:36

    You should look up some of the analysis by the Fed’s own economists.

    Other than for QE1, which was broadly considered a success, the take on QE2, QE3 and Twist is surprisingly ambivalent. Indeed, some of the commentary is downright hostile, notably, that the bank is taking a huge risk in blowing up its balance sheet for minimal economic impact. Read between the lines, and you get the impression that not a few bank staff think it’s all an ill-considered publicity stunt.

    Robert Rubin puts it diplomatically:
    “”I don’t think there are any magic wands,” Mr. Rubin said. “Uncertainties could be far greater with the vast increases that have taken place in the balance sheet of the Fed,” which is now worth more than $4 trillion, up from pre-crisis levels around $800-900 billion.”

    http://blogs.wsj.com/economics/2014/03/03/rubin-says-feds-qe3-will-lead-to-trouble/

  5. Gravatar of Daniel Daniel
    22. October 2014 at 06:05

    I think economists suffer from massive mental blocks.

    For example – the continual usage of big scary terms like “central bank balance sheet”, which one could use the equivalent “money supply”.

    So you have a bunch of sadists wringing their hands about “the increased risk of a large central bank balance sheet” because they know that if they said “expanding the money supply angers the gods” they’d be laughed out of town.

    So we end up having to over-rev the engine because the idiots who are driving refuse to switch into second gear.

    Also, Tyler Cowen is proof that you don’t need to be particularly smart to be a professor.

  6. Gravatar of Dan W. Dan W.
    22. October 2014 at 06:56

    So it now takes $200 billion of liquidity injections each quarter to prevent a 10% stock market correction. Who here wants to allow corporate equities to rise or fall on their merits? Certainly not dovish / squeamish central bankers!

    Free market capitalism? Don’t make me laugh.

    http://www.bloomberg.com/news/2014-10-21/how-markets-need-200-billion-each-quarter-from-central-bankers.html

  7. Gravatar of Kenneth Duda Kenneth Duda
    22. October 2014 at 07:11

    The thing I don’t understand about Austrians:

    They act like all monetary policy is bad, and the answer is no monetary policy. But no monetary policy is impossible. Suppose we go back to a gold standard, which Austrians seem to generally like. The gold standard is still monetary policy, where the supply of base money is determined by gold mining and industrial gold consumption. Why would you want a sudden discovery of gold to result in a base money supply shock, or if it turns out we can build cold fusion reactors out of gold, you’d get base money contraction? It seems like an intelligent Austrian would have to prefer fixed-quantity fiat money over that ridiculous situation. But even that is *still* monetary policy. Why should that one be the best? Austrians sometimes talk like you should leave markets to themselves, because markets always know best, and ignore the fact that no market participant can create base money so there is no way for the market to cause the right amount of base money to get created.

    The only model I can think of that leads you to the conclusion that a fixed quantity of based money is “best” is a model where all government action is “bad”.

    Oh wait! Under MM, a market *can* cause the right amount of base money to get created. So why don’t the Austrians love MM??

    I just cannot understand Austrians.

    -Ken

    Kenneth Duda
    Menlo Park, CA

  8. Gravatar of TravisV TravisV
    22. October 2014 at 07:20

    Kenneth Duda,

    (1) Austrians don’t believe markets always know best. Sumner thinks aggregate market reactions to policy changes are typically rational. Austrians think market reactions to policy changes are wildly irrational.

    (2) Austrians don’t think TIPs spreads, stock prices or even commodity prices are reliable indications of what the future will look like. Bob Murphy thinks he knows better than the markets. Even now, they still cling to the notion of “long and variable lags.” Sumner has driven a fatal blow to Austrian economics by showing that markets don’t respond to policy changes with “long and variable lags.”

  9. Gravatar of Majromax Majromax
    22. October 2014 at 08:01

    @Daniel:

    > So you have a bunch of sadists wringing their hands about “the increased risk of a large central bank balance sheet” because they know that if they said “expanding the money supply angers the gods” they’d be laughed out of town.

    Putting on a devil’s advocate hat here, there is a sensible position to be made out of this.

    With various QE actions, the CB takes on a significant balance-sheet risk. From the standpoint of the currency continuing to exist, this is okay. However, it may not continue to exist in accordance with CB policy.

    Seigniorage revenues are normally remitted to the government. However, there is no politically palatable mechanism to correct for seigniorage *losses*. If the CB finds that its entire stock of mortgage-backed assets is worthless, for example, it cannot call up the Treasury and ask for the shortfall.

    This is a problem because the CB’s current policy suggests that if inflation picks up then it can reduce the money stock by, if all else fails, letting current assets fully mature.

    If that cannot happen, then what everyone expects to be a temporary increase in the money supply suddenly becomes a permanent increase in the money supply.

    Ironically for “inflation derps”, this suggests that the better CB response to the crisis would have indeed been a smaller but permanent helicopter drop. Then, there would be no “risk” to account for.

  10. Gravatar of am am
    22. October 2014 at 08:23

    Thanks for the reference on the previous post.

    Re the last paragraph of this post: could you indicate who the head of the central bank is.

  11. Gravatar of benjamin cole benjamin cole
    22. October 2014 at 08:34

    Richard Fisher recently stated that all central bankers dislike quantitative easing. The question is, “If quantitative easing is necessary, should central bankers be allowed to run central banks?”

  12. Gravatar of Peter K. Peter K.
    22. October 2014 at 09:11

    As a thoughtful liberal Keynesian I am confused by the terms of the debate.

    Austrians believe anything the government does is bad and counterproductive whether fiscal spending or money printing.

    MMs are okay with money printing to stabilize the NGDP path, but don’t like government spending.

    Keynesians believe government spending delivers more bang for the buck but money-printing is better than nothing?

  13. Gravatar of Major.Freedom Major.Freedom
    22. October 2014 at 09:32

    TravisV:

    So much wrong in your comments. You are misleading Duda about proselytizing on a subject you clearly don’t understand.

    “Austrians don’t believe markets always know best.”

    Austrians believe only individuals can “know” anything. Austrians believe individuals know best about themselves; their own persons and material property. A market is just the process of individuals being unhampered by violence, from civilians or statesmen, in planning and implementing their own goals, having directive control over their persons and property.

    I am not so much criticizing what you said here though, just clarifying. What you write next are where the bigger problems reside.

    “Sumner thinks aggregate market reactions to policy changes are typically rational. Austrians think market reactions to policy changes are wildly irrational.”

    Austrians do not think market reactions are “irrational.” Austrians hold that ALL individual action is “rational”. Austrians regard rational behavior as simply purpose, goal driven activity. This contrasts with mechanistic phenomena dealt with in the natural sciences.

    What you have in mind for “rational” is quite different from what Austrians have in mind. You identify “rational” by some arbitrary ideal of “stability”, or more concretely, “full employment” and “full output”, without any significant deviations from that ideal.

    When Austrians talk about malinvestment, the boom bust cycle, and so on, you view that as a positive argument that Austrians believe individuals are stupid. But them saying that market actors depend on an UNHAMPERED price system in order for action in a division of labor to be coordinated, is NOT them saying that markets are irrational using either definition.

    Think of a radio. If someone jams the frequency being used with spam and noise, making it impossible for the other users to understand what is being said by everyone, this is not a claim that radio users are stupid or irrational by nature. They physically cannot communicate effectively and clearly because of the spamming taking place.

    That spamming is akin to what non-market, property violating activity does to the price system in a division of labor. That signal jamming from non-market central banks is what causes the boom bust cycle. Signals are distorted, and investment and consumption thus get discoordinated.

    Don’t blame the market process for not being capable of transcending and sublating non-market activity. Your ideology is just a product of irrational philosophical dogma from yesteryear still echoing in the minds of your intellectual role models, and theirs too. And you don’t even know it.

    “(2) Austrians don’t think TIPs spreads, stock prices or even commodity prices are reliable indications of what the future will look like.”

    Sure they do. But only in a free market. We don’t have a free market. We are at the mercy of arbitrary whims of people sitting in marble palaces who shrink markets and expand markets by their encroachments and retrenchments of intwrvention.

    This is not a market. This is soft-socialism. Looking at the stock market doesn’t tell us the valuation of assets using the free market process.

    “Bob Murphy thinks he knows better than the markets.”

    Says the CENTRAL BANKING, anti-free market in money ideologue!

    YOU think you know better than the market! YOU think you know what NGDP ought to be, and to seek violent government action to overrule the free market because investors and consumers are so stupid and won’t spend enough money over a short enough time horizon, thus plunging themselves into permanent depression.

    Give me a break TravisV. For you to accuse anyone of considering themselves as more knowledgeable than the market is the pot calling the kettle black. Wake up will ya?

    Murphy is not saying he knows better than the market. He is saying he knows better than market monetarists, and blind politicians and socialist monetary overlords. He knows more than they (and you) BECAUSE he knows that NEITHER he, nor anyone else, knows more than the market. Murphy is saying that YOU believe YOU know more than the market, which is precisely what motivates you in supporting ANTI-market behavior!

    In fact, he is so many light years ahead of you that he knows he can’t know better than the market even in those few specific activities of “national security” that you recoil in horror from. He considers himself more knowledgeable than you, because he knows you and he don’t know more than the market.

    You have it exactly backwards!

    “Even now, they still cling to the notion of “long and variable lags.” Sumner has driven a fatal blow to Austrian economics by showing that markets don’t respond to policy changes with “long and variable lags.”

    Sure they do! We are right now observing the effects of long and variable lags that you fallaciously attribute to only short run cause and effect. You don’t have a clue just how complex the market really is. You don’t know the economics of knowledge, nor physical production. These are phenomena the connections of which span decades, a hundred years even, and more. You are sitting there typing on a computer because of long and variable lags inherent in the economy. Just think about how long it took for the knowledge and capital to accumulate sufficiently to even make such a thing possible.

    You are so blind!

  14. Gravatar of TravisV TravisV
    22. October 2014 at 10:07

    “German lawmakers rip ECB over corporate bonds report”

    http://in.reuters.com/article/2014/10/22/ecb-policy-germany-idINL6N0SH58J20141022

  15. Gravatar of Majromax Majromax
    22. October 2014 at 10:39

    @TravisV

    >> The ECB should focus on its main target of price stability and refrain from more “dubious measures” to boost the economy, Barthle warned.

    That supports the idea that many in EU politics (and especially German politics) feel that the ECB should interpret its mandate as an inflation ceiling rather than an inflation target.

  16. Gravatar of TravisV TravisV
    22. October 2014 at 10:58

    Kevin Erdmann just posted a state-of-the-art analysis of earnings yields, interest rates and leverage:

    http://idiosyncraticwhisk.blogspot.com/2014/10/the-earnings-yield-interest-rates-and.html

    I asked Kevin a question about falling interest rates and P/E ratios in the comments section.

  17. Gravatar of Kevin Erdmann Kevin Erdmann
    22. October 2014 at 11:09

    Dan W. says “So it now takes $200 billion of liquidity injections each quarter to prevent a 10% stock market correction.”

    Your posture is cynical, yet the end result is basically that you are interpreting abundance as failure. There are a disconcerting number of people from both extremes of the political spectrum now that see something like a rising stock market as a negative sign. The left because it means the wrong people are getting paid and the right because it means we have some sort of mythical monetary bubble.

    The largest economic risk we have now is the many people insisting that we cut off our nose to spite our face. It’s the one issue with bipartisan support these days.

  18. Gravatar of Anthony McNease Anthony McNease
    22. October 2014 at 11:26

    I got into an internet struggle with several “the Fed is stealing from savers to give it to Big Banks and the federal government!!!” types. Big mistake on my part, but I told them about the market for deposits and loans. Banks are flooded with cash deposits these days. Low deposit rates are not a result of Bernanke or Yellen but rather the market forces of supply and demand. And the same is true for loans. Loans are cheap today not because Yellen wants to help Obama borrow more but rather because there is just not that much demand from qualified borrowers for more debt.

  19. Gravatar of Dan W. Dan W.
    22. October 2014 at 13:37

    @Kevin,

    I interpret your response as indicating you believe there is no cost associated with QE. Is this true? If so would it not be akin to saying there is a free lunch? If there is a free lunch why is the Fed limiting the buffet to $200 billion a quarter. Why not make it a $ trillion a quarter?

    I do not believe in free lunches and that the cost of QE is reflected in elevated consumer prices (elevated from what they would be) and in elevated asset prices, including homes as well as stocks and bonds. High prices for stocks are wonderful for those in the market, not so great for those initiating an investment portfolio. High home prices are great for sellers. They are less meaningful for those in a home and they are a huge burden for those looking to buy.

    But you tell me. Is anyone hurt by QE?

  20. Gravatar of Anthony McNease Anthony McNease
    22. October 2014 at 14:17

    Dan W.

    I don’t want to interrupt, but I’d like to address your latest post.

    Everything has tradeoffs, so there can be too much or too little of everything. The purpose of the central bank is to try and determine what the right level of the money supply should be. QE is a method used to try and accomplish this. Money is a medium of exchange. It’s a means of trading your labor for homes, cars, movies, burgers, etc. The Fed is attempting to find the right level of the medium to facilitate innate demand for goods and services. Too little of the medium constricts this demand while too much creates too much of this. This brings me to your hypothesis: elevated asset prices.

    What the “correct” price level for stocks, bonds, and homes should be is fraught with conjecture and figurative voodoo, but I’ll just say that current P/E ratios aren’t crazy. Home prices don’t seem historically high. If they are elevated in the cities I’d argue that’s mostly because of Chinese money and not QE from the Fed. Exceptionally low yields on Treasuries is potentially a bit overheated, but all of the people who’ve been betting against Treasuries the last 5 years has gotten killed. All of the other prices aren’t rising close to the “target” 2%. I doubt that any additional supply of the medium of exchange could be channeled exclusively to assets and not other goods and services as well. And lastly the dollar has been strengthening against the other currencies despite the fact that the Fed has undergone much more QE than the ECB of BoJ. If the Fed has done too much QE while the ECB has been restrained then shouldn’t the exchange rates for E/$ be going up? It’s not, so something else is at play here.

  21. Gravatar of Daniel Daniel
    22. October 2014 at 14:55

    Majromax

    this suggests that the better CB response to the crisis would have indeed been a smaller but permanent helicopter drop.

    My point exactly, like I said

    the idiots who are driving refuse to switch into second gear

    Also, internet Austrians carry on their proud tradition of idiocy.

  22. Gravatar of Blurry banks’ future is | Spontaneous Finance Blurry banks’ future is | Spontaneous Finance
    22. October 2014 at 14:57

    […] by markets and not by central banks. I already wrote responses to those claims here and here. Scott Sumner just mentioned his latest post, so I thought it would be a good idea to share Deloitte’s insight and own explanation of the […]

  23. Gravatar of Daniel Daniel
    22. October 2014 at 14:59

    Dan W

    Too little water is bad for you.
    Too much water is bad for you.

    Idiots (like you) draw the conclusion that water is bad for you.

  24. Gravatar of TravisV TravisV
    22. October 2014 at 15:29

    Krugman and The New Republic attack Amazon and Yglesias is having none of it: http://www.vox.com/2014/10/22/7016827/amazon-hachette-monopoly

  25. Gravatar of Don Geddis Don Geddis
    22. October 2014 at 15:31

    @Dan W: In a depressed economy (like we have had since 2008), yes there are free lunches. Economics is not a zero-sum game. It’s possible to move to a new equilibrium where everybody is better off.

  26. Gravatar of Jason Smith Jason Smith
    22. October 2014 at 15:40

    Ben’s relationship between the long and short term interest rates is consistent with the “model” where

    log r = c log(k NGDP/M)

    where M = the monetary base for the 3 month rate and M = the currency component of the base for the 10 year rate.

    http://informationtransfereconomics.blogspot.com/2014/02/the-link-between-monetary-base-and.html

    The “expected” vs “unexpected” shifts appear to be due to the fact that the short rate sometimes falls well below the trend value set by the equation above. In the information transfer picture, this represents information loss due to e.g. inaccurate expectations of NGDP performance or coordinated market behavior (e.g. pessimism or optimism). The subsequent rise out of those doldrums is a return to more accurate expectations or the more typical uncoordinated market behavior.

    Another way to see it is the “unexpected” shifts are the result of coming out of the “trance” of coordinated behavior.

  27. Gravatar of Major.Freedom Major.Freedom
    22. October 2014 at 16:33

    Kenneth Duda (OK if I call you “Dude”?)

    “They act like all monetary policy is bad, and the answer is no monetary policy. But no monetary policy is impossible.”

    Monetary policy is a creation of man that has not always existed. Of course it is possible for it to be abolished. Much like communism was abolished in Russia.

    One of the things that socialists hang onto to justify their ideology, is to pretend that socialism and all of its variants, market monetarism included, has the “inexorability of a law of nature.” That rather than representing a contingent, ideas motivated, CHOICE of how people act, it is instead presented as a necessary historical phenomena.

    That justification is utterly groundless.

    “Suppose we go back to a gold standard, which Austrians seem to generally like. The gold standard is still monetary policy, where the supply of base money is determined by gold mining and industrial gold consumption.”

    That is not “monetary policy” as Austrians define it. The term “policy” is reserved to government intervention.

    You are equivocating here. When Austrians say “abolish all monetary policy”, they of course do not mean “abolish all money.” They mean abolish SOCIALIST money. They mean abolish government monopoly in money, and to produce money in a free market.

    “Why would you want a sudden discovery of gold to result in a base money supply shock, or if it turns out we can build cold fusion reactors out of gold, you’d get base money contraction?”

    Why not abolish all markets so that we can avoid the consequences of all unforeseen sovereign consumer value changes, and be “safe” from all market activity?

    Why would you want violent against innocent people, which is necessary for monetary socialism to be enforced?

    Why do you presume that socialism in money is the standard, and then assert without a good reason that it is up to free market advocates to prove to you that they are better off with a free market in money? You have no right to impose your toilet paper on them, by force of government, and then declare that it is up to them to convince you otherwise, and if you don’t accept their reason for their own use for their own body and property, that oh look at that, it’s socialism for them too?

    How arrogant can you get? You are not just satisfied with having control over your own body and property, no, you also want to have your plan implemented on others.

    Austro-libertarians just don’t accept what you clearly don’t even think about and take for granted. They don’t think like you. They have more respect for other people. They don’t take the standard to be a free market and FORCE on others who would rather be sheep under some tyrant. No, they just want to secede from your batshit insane way of life. They want to be left alone to trade and deal with each other voluntarily. If you want to accept toilet paper as your money, if you want to agree to pay 35% of your salary in said toilet paper, then they have the courtesy to let you do that to your heart’s content. All they ask is that you give them the same damn courtesy and you tell them, yes, OK, you SHOULD be able to choose whatever money you want, and you should be able to choose to NOT pay 35% of their salary in the toilet paper you want to pay in. They you think they should be able to secede from your preferred tyrant.

    Gold discoveries? Oh you mean those once every hundred years events where there is a large gold discovery? Oh the horror! It’s better to have booms and busts every 10 years, huh? Better for lots of people to lose their jobs and for socialism in money to reign supreme because YOU can’t handle the risks of free enterprise.

    “It seems like an intelligent Austrian would have to prefer fixed-quantity fiat money over that ridiculous situation.”

    It “seems” like you have no clue. Austro-libertarians want a free market in money. Shall I repeat? A free market in money. Not a government imposed gold standard. Not a government imposed fixed supply of fiat money. NO GOVERNMENT.

    It’s amazing how difficult it is for you to even accurately describe the position of Austro-libs. Is it really that difficult on your sensibilities that you can’t even mention it?

    “Austrians sometimes talk like you should leave markets to themselves…”

    OMG, could this be a moment of clarity?

    “…because markets always know best, and ignore the fact that no market participant can create base money so there is no way for the market to cause the right amount of base money to get created.”

    Nope. My bad.

    Who the heck do you think you are to believe you know “the right” amount of money? You don’t know the right amount of base money. I don’t either. No individual does. Only the process of the market, of buying and selling, of production and competition, can tell us how much money there should be.

    For only the market allows all individuals to freely determine their own values between money and real goods, and only the resultant matrix of valuations can truly represent and bring about “the right” quantity of money.

    You have this clinging mentality to socialist ideology. That there must be a centralized mind to control and dictate money for every other mind to merely be passive users.

    Why should the centralized mind rule all other bodies? Why can’t individual minds direct and control those individual bodies?

    You are trying to elevate your fears as a blank check on the lives of everyone because you can’t handle market competition (in money).

    “The only model I can think of that leads you to the conclusion that a fixed quantity of based money is “best” is a model where all government action is “bad”.”

    Austrians don’t believe governments should fix the supply of money.

    “Oh wait! Under MM, a market *can* cause the right amount of base money to get created. So why don’t the Austrians love MM??”

    Oh wait! Under MM there is no market in money! For a central planner to print toilet paper, and use force to maintain its monopoly, and then print more money when people spend less, and print less when people spend more, is not a “market in money.” It is socialist money with a particular rule that must be imposed by the socialist planner.

    What, did you think merely labelling this socialist plan “market monetarism”, that the market is in control of anything?

    Suppose someone slaps you upside the head every time you blinked. Does the fact that your blinking is what the slapper uses to make the choice of when to slap you, that there is somehow a free market in face slapping? That we should call this “market slapping” because you are, by virtue of blinking, seemingly directing how many slaps take place?

    You are blind! It doesn’t matter what socialist rule is imposed. If the rule is based on what the victims do, that doesn’t mean the victims are in control.

    “I just cannot understand Austrians.”

    That’s because it takes methodological individualism to understand what is based on individual action.

    It takes actual market thinking to understand free market economists. If you don’t get it, it’s because you refuse to think like a free market economist.

  28. Gravatar of Major.Freedom Major.Freedom
    22. October 2014 at 16:34

    There is no such thing as a free lunch. No amount of unemployment changes this.

    No free lunches in a depressed economy or a booming economy.

  29. Gravatar of Major.Freedom Major.Freedom
    22. October 2014 at 16:44

    Sometimes I wish the unofficial and awkward code of silence towards Austrianism is better, rather than reading the lies, the distortions, and the misconceptions from the previously silent pundits.

    Would it kill you haters to READ the source material of that which you criticize and insult?

  30. Gravatar of Negation of Ideology Negation of Ideology
    22. October 2014 at 17:11

    Dan W –

    “But you tell me. Is anyone hurt by QE?”

    Compared to what alternate policy? And would anyone be hurt by the alternate policy? There is no neutral monetary policy. Just like there is no free market monetary policy (an absurd contradiction in terms).

    The only difference between QE and the previous monetary policy is that the Fed is buying long term government (and government-backed) bonds in addition to short term government bonds. It’s a technical change to prevent the Fed from buying short term bonds at negative rates, not a major policy difference. Ending QE would not be neutral – it would simply be a different policy.

    There are an infinite number of possible monetary policies, none of them neutral, thus it is likely impossible that any policy benefits every single individual compared to every other possible policy. So your question is irrelevant. The question is what policy is the best overall.

  31. Gravatar of ssumner ssumner
    22. October 2014 at 17:38

    Steven, I think we all agree that there are much more effective tools than QE.

    Daniel, Very perceptive remark about the hidden agenda in the language “central bank balance sheets” and remarkably unperceptive remark about Tyler Cowen’s intelligence.

    Ken, And do they realize that under a gold standard, interest rates would almost certainly be zero right now? So the savers would still be complaining (although I suppose inflation would be a tiny bit less.)

    Majormax, I’ve often claimed that NGDPLT would have meant less QE, and hence much less “risk” to central banks, which as you note is actually sort of an artificial (I’d say phony) risk as the central bank is part of the government.

    AM, Mark Carney.

    Peter, It depends on whether you are talking about old or new Keynesians. NKs prefer monetary stimulus to fiscal stimulus. And “bang for the buck” is the wrong metaphor, monetary stimulus is costless.

    Dan, You said:

    “If so would it not be akin to saying there is a free lunch?”

    Suppose you see a man repeatedly hitting his own head with a hammer. Is it a free lunch if he stops? Suppose the government has a rent ceiling which leads to a housing shortage. Is it a free lunch if they stop? Suppose the government has an erratic and disinflationary monetary policy that is creating mass unemployment. Is it a free lunch if they stop doing so? Do you believe there are any free lunches?

  32. Gravatar of Major.Freedom Major.Freedom
    22. October 2014 at 19:33

    “Suppose you see a man repeatedly hitting his own head with a hammer. Is it a free lunch if he stops?”

    No, because whatever he does instead of repeatedly hitting himself over the head with a hammer, will come at the cost of doing something else that he otherwise could have been doing, not excluding hitting himself repeatedly over the head with the hammer!

    “Suppose the government has a rent ceiling which leads to a housing shortage. Is it a free lunch if they stop?”

    No, because whatever gain is made in the construction of new houses, comes at the cost of something else that otherwise could have been built with the materials and labor hours, not excluding leisurely idleness!

    “Suppose the government has an erratic and disinflationary monetary policy that is creating mass unemployment. Is it a free lunch if they stop doing so?”

    No, because retaining the socialist monetary system by force, comes at the cost of not only those central bankers doing something else with their time other than causing mass unemployment, but also what everyone else could have done had they been able to live free from socialist money and had individual control over their own property and the freedom to produce their own money and not have to pay taxes in toilet paper.

    “Do you believe there are any free lunches?”

    NO ECONOMIST SHOULD BE EVEN HINTING TO HIS STUDENTS THAT FREE LUNCHES EXIST.

    It is irresponsible, shameful even. It goes directly against the heart of economic science.

  33. Gravatar of Blue Eyes Blue Eyes
    22. October 2014 at 21:20

    @am the name you are looking for is Mark Carney. The UK is experiencing a jobs boom (fastest furthest fall in unemployment for forty years), while inflation is around 2% and falling. NGDP is rising at circa 5% a year.

    @Anthony McNease in the UK your point about savers and borrowers holds true: private debt is falling, and the most reliable mortgage borrowers can borrow at rates at or below the rate of inflation, but despite this apparent free lunch, the housing market appears to have come off the boil (after a sharp upward correction).

  34. Gravatar of Dan W. Dan W.
    23. October 2014 at 05:06

    Scott,

    Your response and those of your disciples illustrate beliefs that are extraordinary. One is a disregard for the law of scarcity, the law on which the principle of opportunity cost is based. Another is willful ignorance of how a free-market Capitalism works and the role of credit in such an economy. It begs the question of how effective of a “doctor” of Economics one can be if one ignores fundamental principles of the “science” and also ignores the basic mechanisms that allow the “patient” to function?

    Monetarism provides a model for money. It explains that increasing the money supply increases prices. If your goal is to manipulate prices then Monetarism may be one of the better ways to go about it. But if your goal is to enhance economic growth then Monetarism is of limited use. Yes, limited use. For while a failure to increase the money supply can limit economic growth there is clear evidence that ever greater increases in the money supply do not correlate with ever greater increases in economic growth. Common sense helps provide one explanation for this outcome: All else being equal an increase in prices will lower the quantity of goods demanded. If and only if increased prices are joined by an equal or greater increase in income will there be a net increase in economic activity.

    But you don’t have to believe me. Believe the data: Real incomes are in decline. How can there be real economic growth if an hour of work buys less than it once did?

    “Analyzing data from the government’s Current Population Survey, Gould found that workers at the 20th, 30th, 40th, 50th, 60th, 70th, 80th, 90th, and 95th percentiles all experienced declines (ranging from 0.5 percent to 2.0 percent) in their real wages in the first half of 2014 compared with the same period last year.”
    http://www.businessweek.com/articles/2014-08-27/for-every-education-level-real-wages-have-gone-down-this-year-so-far

    So where in your NGDP model do you show that turning monetary valves will generate real economic growth? Oh, that is right, you don’t make that claim. Rather, your argument is that since increases in nominal income are historically coincident with increases in real economic growth the solution is to artificially pump up nominal incomes! The great scientist Richard Feynman described your thinking perfectly as “Cargo Cult Science”. This is the notion that by imitating the form of something one can hope to get results equal to those yielded by real inputs.

    Life is particularly cruel in the regard to phony science. Most doctors up into the 19th century were earnest. They meant to do well. But they were ignorant of the real causes of infection and death. Consequently doctors, through their ignorant actions, caused death. Such that mothers giving birth in a hospital via a doctor were much more likely to die than mothers giving birth at home via a midwife!

    So you have much work to do to show how your ideas can yield real economic growth and, especially, do not cause harm to it. I strongly recommend that in formulating that hypothesis that you give greater consideration to the fundamental principles of economics and the real factors of economic production.

  35. Gravatar of Daniel Daniel
    23. October 2014 at 05:10

    Between Dan W and Major_Moron, there’s a perfect storm of stupidity brewing.

  36. Gravatar of Benjamin Cole Benjamin Cole
    23. October 2014 at 05:22

    “Suppose you see a man repeatedly hitting his own head with a hammer. Is it a free lunch if he stops? Suppose the government has a rent ceiling which leads to a housing shortage. Is it a free lunch if they stop? Suppose the government has an erratic and disinflationary monetary policy that is creating mass unemployment. Is it a free lunch if they stop doing so? Do you believe there are any free lunches?”–Scott Sumner

    Dead solid perfect.

  37. Gravatar of Dan W. Dan W.
    23. October 2014 at 06:20

    If QE equates to hitting oneself in the head then stopping might be a universally good thing.

    As for rent controls, you will find those who do not believe removing them is a free lunch. So that example is erroneous.

    Otherwise if the only retort is juvenile taunts I believe that reflects worse on your position than on mine.

  38. Gravatar of Scott Sumner Scott Sumner
    23. October 2014 at 06:59

    Dan, You said:

    “Monetarism provides a model for money. It explains that increasing the money supply increases prices. If your goal is to manipulate prices then Monetarism may be one of the better ways to go about it. But if your goal is to enhance economic growth then Monetarism is of limited use. Yes, limited use. For while a failure to increase the money supply can limit economic growth there is clear evidence that ever greater increases in the money supply do not correlate with ever greater increases in economic growth. Common sense helps provide one explanation for this outcome: All else being equal an increase in prices will lower the quantity of goods demanded. If and only if increased prices are joined by an equal or greater increase in income will there be a net increase in economic activity.

    But you don’t have to believe me. Believe the data: Real incomes are in decline. How can there be real economic growth if an hour of work buys less than it once did?”

    None of what you say here correctly characterizes my views. Other people seem to be able to understand what I am advocating, why can’t you? If you can’t even understand what I am advocating, why in the world would you expect me to take seriously your criticism of the ideas that you think I am advocating, that I am not in fact advocating? Indeed why even read my blog if you are not capable of understanding what I am saying?

    And please stop reasoning from a price change. Higher prices do not lead to less being purchased. That’s not what economics teaches.

    “As for rent controls, you will find those who do not believe removing them is a free lunch. So that example is erroneous.”

    I see. So if I point to a public policy that economists on both the left and right agree is idiotic, then it is not a “good example” if at least one person in the entire world favors rent controls? In that case what would constitute a good example? Just examples with 100% agreement? How many are there in economics?

  39. Gravatar of Ben J Ben J
    23. October 2014 at 07:04

    “Life is particularly cruel in the regard to phony science.”

    Priceless coming from an Austrian

  40. Gravatar of mpowell mpowell
    23. October 2014 at 07:26

    It’s kind of funny to see the Austrians go whole hog for ‘there are no free lunches!!!’. I mean, if there are no free lunches, then your policy recommendations aren’t any better than mine. Obviously, that’s not what they mean, the funny part is that they don’t have more than a superficial understanding of the concepts they’re trying to discuss.

  41. Gravatar of Dan W. Dan W.
    23. October 2014 at 08:16

    Scott,

    Simple question (I hope).

    Please explain the “costs” associated with different levels of QE. Are these “costs” proportional to the amount of QE? Are there no “costs”? How does one decide whether one amount of QE is better than another? Is this decision guided by science or politics?

  42. Gravatar of Daniel Daniel
    23. October 2014 at 08:48

    Please explain the “costs” associated with different levels of QE.

    http://en.wikipedia.org/wiki/Loaded_question

    But then again, you’re too dumb to get it.

  43. Gravatar of Dan W. Dan W.
    23. October 2014 at 11:07

    Daniel,

    You clearly have found the perfect tautology. One the one hand it presents itself as so sublime that few can understand it. On the other hand any answer it provides is the right answer. Of course in this case what is the point of the tautology if there are no wrong answers?

  44. Gravatar of Daniel Daniel
    23. October 2014 at 12:09

    Coming from a man who thinks sticky wages are a communist fiction, I’ll take it as a compliment.

  45. Gravatar of Daniel Daniel
    23. October 2014 at 12:10

    What I’m trying to say is that you’re too stupid to understand that humans are not the frictionless perfect spheres you assume them to be in your economic model.

  46. Gravatar of TallDave TallDave
    23. October 2014 at 12:44

    Please explain the “costs” associated with different levels of QE. Are these “costs” proportional to the amount of QE? Are there no “costs”? How does one decide whether one amount of QE is better than another? Is this decision guided by science or politics?

    I think the simple stock MM answer is that QE creates some micro distortion, but this is more than offset by the macro effects (increased employment and RGDP) of expanding monetary policy at a time when money is less tight than ideal.

  47. Gravatar of TallDave TallDave
    23. October 2014 at 12:45

    *more tight than ideal, sorry

  48. Gravatar of TallDave TallDave
    23. October 2014 at 12:47

    How can there be real economic growth if an hour of work buys less than it once did?

    This is pretty clearly untrue. Even people working minimum wage today enjoy all sorts of things the median American did not 30 years ago.

  49. Gravatar of Kenneth Duda Kenneth Duda
    23. October 2014 at 12:55

    Major.Freedom, I am confused.

    > They mean abolish government monopoly in money,
    > and to produce money in a free market.

    I do not see how a free market can produce money. Do you want each market participant to decide for itself what to use as “money”? How is that different from barter?

    I am only trying to understand your views, not criticize or advocate etc.

    -Ken

  50. Gravatar of Daniel Daniel
    23. October 2014 at 13:34

    Kenneth,

    You are making a very big mistake. Engaging Major_Moron only results in spewing e never-ending stream on nonsense (as you will soon learn).

    His views do not make sense, other than “internet austrians should be in charge” (luckily for mankind, their mental pathologies ensure that will never happen).

    Like all idiots, he is best left ignored.

  51. Gravatar of Major.Freedom Major.Freedom
    23. October 2014 at 14:06

    Daniel, name calling is the hallmark of intellectual inferiority and self-doubt. At least you agree with me and admit you lack the requisite knowledge.

  52. Gravatar of Major.Freedom Major.Freedom
    23. October 2014 at 14:15

    Kenneth,

    “I do not see how a free market can produce money. Do you want each market participant to decide for itself what to use as “money”? How is that different from barter?”

    Let me put it this way. In a free market of jewelry, does the fact that anyone is in principle free to produce and sell any jewelry they want, imply that there will be as many chemical elements or compounds made into jewelry as there are individuals in the world? Of course not. Gold, silver, and some precious stones are used the world over for jewelry.

    How many fiat currencies are there? As many as there are central banks right? How many central banks are there? About 150? 200? I don’t know the exact number. Maybe you do.

    A free market in money would almost certainly result in fewer currencies, if that is what you mean as the opposite of barter.

    Markets in the past have arisen for money. That is actually how money arises at all. Money arises in a market.

    Daniel is very afraid of my views, which is why he can’t help himself but try to convince you and not rely on your own judgment. He doesn’t trust your judgment because he is worried that rational and logical thinking will lose him allies. He doubts himself so much he hates himself for it.

    I will leave it to you decide if he is worth your time, given he is prone to childish insults and vitriol.

  53. Gravatar of Brian Donohue Brian Donohue
    23. October 2014 at 15:28

    I like TallDave’s take. Every dollar of monetary accommodation devalues all existing dollar denominated assets ever so slightly.

    This is a first order effect that is swamped by the macro benefits of increased employment, assuming we aren’t yet at full employment, and I don’t think we are.

  54. Gravatar of Kenneth Duda Kenneth Duda
    23. October 2014 at 22:22

    Major.Freedom, thanks for the response. Let me see if I can represent your views of the Austrian ideal fairly:

    1. The market should decide what gets used as money. Maybe gold, silver, and MoneyIncorporated’s notes (maybe backed by gold and silver, or maybe not, if market participants are confident in MoneyIncorporated’s management of the money supply). Whatever the market settles on will be optimal because markets find optimums. Or maybe it will turn out that barter is the way to go. The market will decide. If money makes it easier to find utility-improving transactions, then the market will figure that out.

    2. As population and productivity grows, if there is any need to create additional money, either the market will find a way to do it (start using platinum or Bitcoin as money in addition to gold and silver), or prices will fall so that the quantity of money (in real terms) increases back to optimal levels.

    3. If there is a shock that sharply increases the demand for money, and the immediate result is everyone slashes their spending and consumption and we have 25% unemployment, that’s fine, because Say’s Law says that the unemployed will find work at some price, or we can always find another fixed-supply commodity to use as money, and if that failed for some reason, then that simply means that the optimum is 25% unemployment. There is no free lunch, so any government intervention is doomed to make things worse overall, especially if one correctly includes “freedom” as part of one’s assessment of how good/bad the overall situation is. One should not let fear of that situation be used to trick one into surrendering one’s freedom to the Federal Reserve.

    Did I get that right?

    Thanks,
    -Ken

  55. Gravatar of Major.Freedom Major.Freedom
    24. October 2014 at 02:33

    Kenneth:

    I should point out that any argument of “should” or “ought” is outside the scope of Austrianism, and is an ethical, normative argument. Saying allow the individual to decide money is a libertarian argument.

    Other than that, the only thing to change in your argument is to add that libertarianism cannot be forced on others. Moving once again to a free market in money does not mean bashing the walls of the Fed down and forcing others to NOT use Fed notes as money. The libertarian can only demand and force their own selves out of the Fed monopoly. The rest are free to remain unfree and subject themsleves to impoverishment, periodic unemployment, and growth of that central bank’s out of control army, police, and bureaucracy.

    So for those who do secede, what you wrote in your post is a pretty good summary that describes the norms just for those individuals who want to be free to use their own money. The rest can use Fed notes and subject themselves to heightened risks of unemployment if they want.

  56. Gravatar of Philippe Philippe
    24. October 2014 at 03:25

    mf, can’t you use bitcoin?

  57. Gravatar of Daniel Daniel
    24. October 2014 at 04:05

    Philippe

    Funny thing you should mention Bitcoin.

    According to Misesian dogma, Bitcoin is not “real” money, since it does not originate in a commodity for which there was non-monetary demand.

    That is, of course, if you ignore the fact that anthropologists found zero evidence of such a process ever happening.

    But making sense of the facts is not something Austrians value.

  58. Gravatar of ssumner ssumner
    24. October 2014 at 04:46

    Dan, It costs about 6 cents to print up each $100 bill. And under my preferred policy regime there would be far less QE than under yours. (Something you still don’t understand, and probably never will.)

  59. Gravatar of Dan W. Dan W.
    24. October 2014 at 05:40

    Scott,

    Would there be any harm in increasing QE 5-fold or 10-fold or 100-fold? If there is so little harm in printing money why not print lots and lots of it! How do you know when too much is too much? Could it not be you are being too conservative? What defense can you give for your policy recommendation if challenged that the central bank should be doing even more, a lot more?

    The argument that “well in the past 5% seems like a good trend” is traditionalism! Who cares what one has done in the past? What should be done in the future and on what basis should those decisions be made?

  60. Gravatar of Daniel Daniel
    24. October 2014 at 05:51

    I bet Dan W thinks he’s being a really clever fellow who asks all sort of provocative questions for which we have no clear answer.

  61. Gravatar of Daniel Daniel
    24. October 2014 at 06:17

    Dan W

    http://noahpinionblog.blogspot.be/2013/02/how-to-win-arguments-by-pretending-to.html

    Hint – it’s about you.

  62. Gravatar of Kenneth Duda Kenneth Duda
    24. October 2014 at 06:37

    Now I’m even more fascinated.

    > The libertarian can only demand and force their own selves
    > out of the Fed monopoly.

    Are you a libertarian like that? Do you live by this view? Are you using something other than CB fiat currency as money? How does that work?

    > Saying allow the individual to decide money is a libertarian argument.

    You imply it’s not an Austrian argument. What kind of money does a good Austrian want? Does one want a CB that imposes a fixed-supply fiat currency? Does an Austrian not care about the monetary regime as long as no bureaucrat is messing around with the money supply in a misguided effort to improve overall welfare?

    Thanks,
    -Ken

  63. Gravatar of Dan W. Dan W.
    24. October 2014 at 07:15

    “No clear answer”

    That is what I believe too.

    Now can we consider what happens if policymakers guess wrong? What are the consequences of a monetary policy that distorts the price signals of an economy?

  64. Gravatar of Philippe Philippe
    24. October 2014 at 07:54

    why do you think monetary policy is ‘distorting price signals’?

  65. Gravatar of Edward Edward
    24. October 2014 at 11:42

    Phillippe,
    It’s useless to argue with a hard money lunatic

  66. Gravatar of Daniel Daniel
    24. October 2014 at 12:55

    Now can we consider what happens if policymakers guess wrong? What are the consequences of a monetary policy that distorts the price signals of an economy?

    What would a monetary policy that DOES NOT distort look like ? (hint – it doesn’t look like anything, since it doesn’t exist)

    Damn you’re stupid.

  67. Gravatar of TallDave TallDave
    24. October 2014 at 13:11

    Brian Donohue,

    Thanks, also keep in mind that incomes would rise faster too.

    That’s why I mentioned the other day that you always have to ask “for whom?” Because wages are so sticky downwards, periods of deflation usually benefit those who keep their jobs.

    Dan W:

    Would there be any harm in increasing QE 5-fold or 10-fold or 100-fold?

    The level of QE itself is almost immaterial, as it only exists to serve the target. The Fed only intervenes in order to make the target credible. After that, expectations take over. To give an extreme example, it is entirely possible for the Fed to increase QE almost arbitrarily and not create any inflation. That only seems strange until you consider the markets are full of rational actors who might know that (say) the Fed already credibly promised to reverse all that QE next month.

    The argument that “well in the past 5% seems like a good trend” is traditionalism!

    Or empiricism.

  68. Gravatar of ssumner ssumner
    25. October 2014 at 04:36

    Dan, You said:

    “Would there be any harm in increasing QE 5-fold or 10-fold or 100-fold? If there is so little harm in printing money why not print lots and lots of it! How do you know when too much is too much? Could it not be you are being too conservative? What defense can you give for your policy recommendation if challenged that the central bank should be doing even more, a lot more?
    The argument that “well in the past 5% seems like a good trend” is traditionalism! Who cares what one has done in the past? What should be done in the future and on what basis should those decisions be made?”

    I see you are new here, and have never read my blog before.

    You said:

    “Now can we consider what happens if policymakers guess wrong? What are the consequences of a monetary policy that distorts the price signals of an economy?”

    Gee, that’s one issue I’ve never addressed in my blog. What if Fed policymakers made a mistake? I’ve always assumed Fed policy has been perfect for the past 100 years, and thus forgot to consider what happens if they make a mistake. Maybe I’ll do a post on that someday.

    Dan, I hate to say this, but you are in danger of sliding into MF/Mike Sax territory. I implore you to think before you post your next comment.

  69. Gravatar of Major.Freedom Major.Freedom
    25. October 2014 at 05:24

    Kenneth:

    To me it’s not all that fascinating. It’s just using what you yourself use when you consider optimal car making, or optimal wealth allocation. Let the individual decide for themselves. It’s not really controversial.

    “Are you a libertarian like that? Do you live by this view? Are you using something other than CB fiat currency as money? How does that work?”

    I was only explaining the standard free market position.

    I prefer not to write on an internet site that I am committing crimes.

    “Saying allow the individual to decide money is a libertarian argument.”

    “You imply it’s not an Austrian argument.”

    That’s right. Austrianism is wertfrei. The argument for a free market in money is a libertarian one.

    “What kind of money does a good Austrian want?”

    The key thing about “want”, is that the non-libertarian conception of “want” often sucks up other people, as if they want it to. So for example, if you hear someone say “I want gold as money”, and nobody makes property rights explicit, of the norms associated with that want, then it is very easy to interpret that statement as “I want to force gold as money on you against your will.” That isn’t what the libertarian means when they say they want X as money. What they mean is that they want to seek out making X as their store of value and medium of exchange with others. Of course, they respect other’s choices, but what they do not respect is other people’s violent actions that suppress healthy competition in money production and distribution. The government suppresses this activity by enforcing a (their own) monopoly over medium of exchange. They do this through various means: Legal tender laws, forcing taxes payable in dollars, etc. The matrix of power and its victims makes free competition in money a legal impossibility.

    That’s why the real libertarian position is more an insurrection, rather than revolution. Individuals who create their own money outside the legal framework. Here the libertarian ought becomes an Austrian optimality.

    “Does one want a CB that imposes a fixed-supply fiat currency?”

    No. Neither growing, nor fixed, nor shrinking. We do not have to “choose” what CBs have power over.

    “Does an Austrian not care about the monetary regime as long as no bureaucrat is messing around with the money supply in a misguided effort to improve overall welfare?”

    Central banks cannot exist without “bureaucrats.” Central bankers ARE bureaucrats. Their police force are bureaucrats. These entrenched institutions isolated by state power are bureaucratic institutions.

    The former Soviet Union stacked various bureaucratic institutions with PhDs, with scientists, social and natural. Scientific socialism is still socialism. Socialism is maximum bureaucracy. Central banking is maximum bureaucracy in medium of exchange.

  70. Gravatar of Major.Freedom Major.Freedom
    25. October 2014 at 06:14

    Philippe:

    “why do you think monetary policy is ‘distorting price signals’?”

    Because a free market is good, and the good is a free market is good and the good is the free market and the free market is good and the good is the free market because people free market good and market free good people.

    Seriously though, the reason why monetary policy distorts price signals is because the very concept of distortion and non-distortion is predicated upon individual preferences and actions as manifested in cooperation. Every individual preference and action playing a role in prices, constrained to all other individual preference and action, is what we just call a free market. You can call it anything you want, what is important are the actions of people.

    Individual preferences for own person and property, manifesting in actions for own person and property, are suppressed with central banking. But we all still act. This combination of violent and peaceful actions is what results in distorted as opposed to undistorted prices.

    Think of what you believe the purpose of central banking is purely in terms of people’s formal names. Say there are 26 people, Mr. A, Mr. B, Mrs. C, Mrs D., etc. If you think of the purpose of central banking purely in terms of those specific people and their actions, then you will be in a better position to understand that in this group, the individual’s own free activity with their persons and property, cannot be communicated via prices to the others without distortion. Someone, Mr. Z say, will have to impose ONE preference for say what the rest in total spend, or how much money they in total hold. Individual preference determined prices and spending become an impossibility. This is the case even if all 26 agree to central banking!

    It would be like me telling you “Philippe, I will allow you to choose exactly what and exactly how many hours of what specific work I will do, exactly what and how much food I will eat, exactly what and how much medicine I will ingest, exactly what and how many times I will drive to which stores, etc”.

    I can freely give up my responsibility to choose for myself to you. I could even convince myself that what you choose for me, is really what I want, because I think you’re smarter than me so much that you even know better for me, then me! I could believe all of it.

    Now add another person to the believer group. Then another. And another. The bigger the group gets, the more one dimensional your choices must be. Instead of choosing my life in detail, you would only have the capacity to choose only a few basic things. Gallons of water, pounds of food, etc. Now make the group bigger.

    Now let’s say you only want to decide for everyone how many dollars they spend over the course of a year. Doesn’t sound so bad, right? It is not as bad as you telling others how to live their lives in detail. Now you just want to tell people how much everyone should spend. If certain individuals over here want to spend less, then other individuals over there must spend more. How do we increase their spending? We have increase their incomes. Not because their production over “there” became more valuable or needed in the coordination of all production including the people who are producing over “here”, but simply because you have chosen to eliminate the effects of people reducing their spending over “here” by engaging in activity that suppresses not only the activity “here”, but also the very same activity you are engaging in yourself. You don’t, you can’t, have every individual choose how much money will be created using their own property and offered to market. Only you can decide. You have to suppress individual money production and competition.

    Ideology is the best way, since when you make people believe it is easier than using force against them. So you hire PhDs to give your operation the appearance of credibility.

    Back to price distortions. Because you and only you decide how much money to print (i.e. if other people spend less of what you have a monopoly over, then YOU decide to print more, and if people spend more of what you have a monopoly over, then YOU decide to print less. It’s YOUR rule after all), then what you make impossible are the profit and loss signals, the price signals, in the production of money itself.

    When the production of money itself becomes isolated from individual market competition, whatever relative prices are that prevail, are not the result of individual preferences of own person and property. But those individuals continually act nevertheless, and so the schism between individual preferences in competition, and your monopoly, prevent prices from containing the result of actual competition in money.

    It would be like monopolizing the car making industry, which affects not just cars but coordination in the economy as a whole. The resultant projects are affected by your actions.

    Now the crucial part. What it all boils down to. WHY it might be asked should your monopoly over money lead to crashes that cannot be solved by better and better optimal monopoly activity? Why can’t you just….REPLICATE…the market in as close a way as possible?

    The ultimate roadblock is not actually people’s ideological convictions. If that were the ultimate roadblock, then MM would “work.” In fact ALL plans would “work”. No, the ultimate block is physical reality. Material scarcity. This is the heart of ABCT. This is what forces itself upon us when we do not coordinate our activity.

    When prices in money are the result of no competition in money, then the relationship between money production and real goods production in a division of labor gets out of coordination. It is not so much “too much total money” or “too little total money”, nor “too much total spending” or “too little total spending”. It’s the RIGHT kind of spending, and the RIGHT prices.

    The right prices and the right spending are not made coherent in aggregates that eliminate individually determined prices and spending. They become lost. That loss, is what the monopolist himself or themselves suffer from in the monopoly itself. They don’t know profit and loss signals in their own monopoly. Their activity is not subject to market forces of profit and loss. Other individuals cannot make the central bank go bankrupt in the central bank’s own charter. They immunize themselves from market forces by use of state coercion.

    But we all use the money the monopolist prints. So what we do in terms of real goods production, and what they do in terms of money printing, are not constrained to market forces, the activity of which is itself ultimately constrained to physical reality. Activity carries on against physical reality that the money monopoly only temporarily enables people to believe things are going alright. This is done by the aggregates. “Employment” is up, “output” is up. Thus the world is “good.” We don’t have to worry about the details because then we would be stepping on Mr. Efficient Market, and he can overcome the lack of profit and loss in the production of money by, well, supernatural revelation which reveals to him what a free market in money would look like, so he can get around the monopolist. After all, to be smarter than the monopolist at a game of chess, means that you have the ability to know what the profit and loss signals would have been in the production of money if the monopolist wasn’t a monopolist.

  71. Gravatar of Major.Freedom Major.Freedom
    25. October 2014 at 06:29

    Further to this part:

    “Now let’s say you only want to decide for everyone how many dollars they spend over the course of a year. Doesn’t sound so bad, right? It is not as bad as you telling others how to live their lives in detail. Now you just want to tell people how much everyone should spend. If certain individuals over here want to spend less, then other individuals over there must spend more. How do we increase their spending? We have increase their incomes. Not because their production over “there” became more valuable or needed in the coordination of all production including the people who are producing over “here”, but simply because you have chosen to eliminate the effects of people reducing their spending over “here” by engaging in activity that suppresses not only the activity “here”, but also the very same activity you are engaging in yourself. You don’t, you can’t, have every individual choose how much money will be created using their own property and offered to market. Only you can decide. You have to suppress individual money production and competition.”

    The rule of NGDPLT works as follows. Central bankers must be convinced to want to make total spending rise at a stable rate over time. But what MM has as an ideal, of everyone’s incomes rising equally, doesn’t work out that way in practise. If ANYONE reduces their spending anywhere in the country, then central bankers increase the incomes of specific people, mostly bankers and investment specialists. Their incomes are increased by money created out of thin air. There are “swaps”, but the value of the security given up is always less than the value of the money. That is why the money is accepted in the first place. That is how the money supply increases in not just the central banker’s accounts.

    Incomes increase for those the central bankers deal with directly. It would be impossible otherwise. If their incomes did not increase, then NOBODY ELSE’S incomes could increase. How in the world can spending for others keep increasing without limit? Clearly the income increasing starts with the central banks, and those they directly deal with have their incomes grow first, and that is what enables their spending to grow, which then increases the incomes of others, who then spend more, and so on. Long and variable lags.

    What MM boils down to is Machiavellian:

    “Directly increase the incomes of ‘member’ bankers as well as government agents first, and keep doing that to whatever extent is necessary to keep their spending, and hence total spending, rising. Call out money savers as heretics. This should be done modestly so as to prevent public revolt.”

  72. Gravatar of Philippe Philippe
    26. October 2014 at 09:09

    MF,

    as usual your comments are rambling and extremely confused, getting all sorts of things completely mixed up.

    In mainstream economics, the term ‘distortion’ refers to departures from the ideal model of ‘perfect competition’, which is pareto-efficient. The conditions for ‘perfect competition’ are extremely strict however…. Real-world markets are never like perfect competition models. As such all real-world markets are actually ‘imperfect’ or ‘distorted’ to a greater or lesser degree.

    You, on the other hand, have invented your own definition of ‘distortion’. For you it means anything which is different to the imaginary world of ancapistan. But this is a purely ideological and political definition, which has nothing to do with economics.

    Your argument goes:

    1. in ancapistan everyone is free.
    2. they are free because the definition of freedom is ancapistan.
    3. because everyone is free in ancapistan everyone can express their true preferences freely.
    4. therefore whatever people do in ancapistan is whatever is best, because the definition of best is whatever free people choose to do, and the definition of freedom is ancapistan.
    3. therefore ancapistan is the best of all possible worlds.
    4. therefore anything which is not ancapistan is a distortion away from this best of all possible worlds.

    This is a circular argument. A shorter form of this argument is: “ancapistan is best because the definition of best is ancapistan. Therefore everything else is inferior”.

    According to you, whatever happens in ancapistan is necessarily the best that could possibly happen. There is no such thing as failure within the rules of ancapistan. Ancapistan can only succeed because the definition of success is ancapistan.

    So if for example there was mass starvation in ancapistan, that would be the best possible outcome, as whatever happens in ancapistan is necessarily best. And if people attempted to stop the mass starvation by violating ancapistan rules, that would be a negative ‘distortion’ away from the ideal.

  73. Gravatar of Major.Freedom Major.Freedom
    26. October 2014 at 17:23

    Philippe:

    “as usual your comments are rambling and extremely confused, getting all sorts of things completely mixed up.”

    You have never shown this was true a first time, so saying “as usual” is inaccurate.

    This is just your uninformed, emotional outburst you need to feel better, that’s all.

    “In mainstream economics, the term ‘distortion’ refers to departures from the ideal model of ‘perfect competition’, which is pareto-efficient. The conditions for ‘perfect competition’ are extremely strict however…. Real-world markets are never like perfect competition models. As such all real-world markets are actually ‘imperfect’ or ‘distorted’ to a greater or lesser degree.”

    That is not how Austrians define “distortion”, because they reject “perfect competition” as itself an intellectual distortion, if you will. Perfect competition is just an ideology which has nothing to do with economics, because economics is the study if real world human action and production, and real world action and production is nothing like that ideal.

    Any deviations away from what is itself a distorted ideal, cannot then be claimed as a distortion.

    You are arguing over semantics. You are not even addressing whether or not the substance of the Austrian theory is correct or not. You are just saying “this is how the mainstream defines distortions.”

    All you are doing when you say that is publicly admitting that you lack the ability to understand anything that doesn’t fit into your narrow worldview, and that you refuse to put any effort in rectifying that.

    What Austrians define as a distortions are distortions away from what would be real world and imperfect prices that convey individual consumption/saving preferences, which we just label “market” preferences. The only way that all individual preferences can be communicated in prices is if and only if each individual has economic freedom to manifest their preferences.

    You don’t understand this requirement, and you falsely believe that there is some sort of circular logic taking place, when nothing could be further from the truth. The question being asked is what would prices look like if each and every individual were free to manifest their preferences for their own persons and property? Those prices, whatever they would be, would be prices that most accurately convey individual preference information by definition.

    The distortions to prices are distortions away from those prices that would prevail in what we call a free market, which is a society where no individuals infringe upon the economic freedom of any other individual.

    The standard you use to define distortions is the impossible ideal of perfect competition. The standard I use to define distortions is the very possible ideal of free markets.

    Your standard is irrational. Your standard prevents the concept of “distortion” from having any real world meaning, because distortion only has real world meaning to the extent that “no distortion” has real world meaning. But if according to your definition of distortion, the real world is always distorted, that no distortions is impossible, then that means the concept of real world no distortions has no meaning, and then that in turn means the concept of real world distortions has no meaning.

    A rational standard would not suffer from this flaw. A rational standard to gauge distortions would identify a possible real world of no distortions, and then define distortions as deviations away from that.

    Pure and perfect competition is an impossibility. It is a non-economic ideology. It is akin to a religion.

    I did not invent my own definition of distortions. The mainstream did. They invented this arbitrary ideal of perfect competition and then condemned all markets by definition, because by definition perfect competition is an impossibility.

    No free market economist was dishonest or stupid enough to set up a theory of “pure and perfect government”, and then claim that because no government in the real world lives up to it, that markets must therefore take control of government services.

    But even if I did “invent” my own definition of distortion, that is not in itself wrong. Only a moron would believe all meaningful definitions are not creations of man. All definitions were “invented” by someone. As long as I state my definition when asked, or mention it when I suspect that my interlocutor is using a different definition and isn’t aware of the definition I am using, then there is nothing wrong with that.

    “You, on the other hand, have invented your own definition of ‘distortion’. For you it means anything which is different to the imaginary world of ancapistan. But this is a purely ideological and political definition, which has nothing to do with economics.”

    You, on the other hand have invented your own definition of ‘distortion’. For you it means anything which is different to the imaginary world of perfect competition. But this is a purely ideological and political definition, which has nothing to do with economics.

    Philippe, the effort you put into self-reflection is absolutely terrible. You are such a hypocrite. What you claim I am doing wrong, you yourself are doing.

    “Your argument goes:”

    “1. in ancapistan everyone is free.
    2. they are free because the definition of freedom is ancapistan.
    3. because everyone is free in ancapistan everyone can express their true preferences freely.
    4. therefore whatever people do in ancapistan is whatever is best, because the definition of best is whatever free people choose to do, and the definition of freedom is ancapistan.
    3. therefore ancapistan is the best of all possible worlds.
    4. therefore anything which is not ancapistan is a distortion away from this best of all possible worlds.”

    We’ve been over this. I have corrected you numerous times but you have shown that you do not want to put any effort in learning where you are going wrong. You have made the above false “summary” more than once, with me correcting you each time. How many times do you need?

    “According to you, whatever happens in ancapistan is necessarily the best that could possibly happen. There is no such thing as failure within the rules of ancapistan. Ancapistan can only succeed because the definition of success is ancapistan.”

    No, for the millionth time that is not what I believe. In a free market, people can fail in their goals. In a free market, people won’t necessarily always achieve the best that they could have achieved.

    You still don’t understand that the free market is a process. It is not a static ideal end goal that looks like anything specific. The free market is just the optimal way that all individuals can achieve their own conceptions of the ideal, their own conceptions of success, their own conceptions of the best, and their own conceptions of optimal goals.

    I am not claiming that moving forward to a free market will immediately make everyone materially better off. Leeches and thieves for example will be, in the short run, materially worse off than they were before. Their victim’s own conception of success, their victim’s own conception of what is best, was up to that time destroyed by the actions of the leeches and thieves. A movement towards a free market will enable all individuals, the past victims included, to seek their own conception of success.

    There is nothing circular in this. It is a recognition of the fact that the only way each and every individual can seek their own conception of success is by way of the free market process. It is the process that allows each individual to seek their own success.

    “So if for example there was mass starvation in ancapistan, that would be the best possible outcome, as whatever happens in ancapistan is necessarily best. And if people attempted to stop the mass starvation by violating ancapistan rules, that would be a negative ‘distortion’ away from the ideal.”

    No, the free market process does not predict that each and every individual will choose to produce food for themselves. If you Philippe personally want to give up your responsibility to think and produce in order to sustain yourself, and become a slave to someone else instead, who you want to make sure you always have enough food, who will decide how much food you will eat, then the free market process cannot guarantee that your master will always choose to give you enough food to eat.

    But your choice to give up your responsibility to produce the means to feed yourself, food directly or some other production from which you then trade to eat, then what you cannot do in a free market is then force others to give up their responsibility like you did. Myself and all other individuals will still be able to seek our own success and our own conception of the good, while you wallow in self-pity and failure.

    The free market is not a garden of eden that guarantees unlimited abundance of wealth. The free market is a process by which each individual is free to seek their own conception of success. I could fail, you could fail, anyone could fail. I could fail to succeed, but that doesn’t mean there is a problem with the social structure of free markets. It means there was a problem with me.

    Socialists like you never ever want to admit of even the possibility that you are in any way responsible for your failures. The free market scares the living daylights out of you because you know that any failures to succeed will be made explicit as your fault. You are so scared of your own person that you have strong doubts that you would be able to even survive by only reason and peaceful production. You believe you need psychos willing to steal from random strangers who don’t have such self-loathing doubts so that you selfishly always have enough to eat should you ever fail.

    Your worldview is circular, by the way. Your worldview is

    People are bad so we need a government made up of people are bad so we need a government made up of people are bad…

  74. Gravatar of Major.Freedom Major.Freedom
    26. October 2014 at 17:25

    Philippe:

    Only the free market process allows for Pareto improvements, by the way.

    Every other process is necessarily an infringement upon individual property rights and thus not a Pareto improvement.

  75. Gravatar of Philippe Philippe
    26. October 2014 at 18:36

    wow, you really are mentally ill, aren’t you.

    Your basic problem, as well as clearly being a very sick-in-the-head and delusional character, is that you are completely incapable of separating your bizarre political ideology from economics. You constantly conflate the two. As I pointed out before, you start off by making an economicky-sounding argument, and then you inevitably end up trying to justify it with a demented ideological rant about your ‘ancap’ political belief system. If you weren’t so obviously hate-filled and repulsive, it would actually be quite funny – the endlessly repetitive, idiotic nature of it.

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