Chris Rock gives new meaning to “creative destruction,” and Ezra Klein responds

I’m afraid that I don’t know much about Chris Rock.  I stopped watching TV decades ago and don’t keep up with pop culture.  Most of my readers will find this interview to be too liberal (as I do), but you can’t deny that he’s an interesting thinker, and has some provocative observations.  One of my favorites was when he compared being a rich black man in America to the Bill Murray role in Lost in Translation.

Ezra Klein also enjoyed the Rock interview, but he criticized Rock’s claim that Obama should have let the economy drop sharply in early 2009 (no bailouts or stimulus), so that the GOP would have owned the fiasco, and then later in 2009 Obama could come in and rescue the economy.  I’m going to slightly disagree with both Rock and Klein, but not quite in the way you might expect. Before doing so let me point out that Ezra Klein may well be the most talented reporter in America, and I was honored to make a recent list of “must read” bloggers he mentioned.  However even there I’d respectfully disagree.  I’m probably a bit more moderate and pragmatic that Bryan Caplan, but he’s someone liberals need to read more than me, even if they are annoyed.  He should replace me on the list.  Robin Hanson too.

Here’s Klein discussing Rock:

The big problem with this idea “” which I’ve heard other liberals propose in the past “” is it’s morally odious: it would have meant putting millions of Americans through harrowing pain in order to help Obama out politically. If a GM lets a team flatline the team loses a few games. If the president lets the country’s financial sector flatline millions of people’s lives are destroyed.

But the other problem with this idea is it would have be a political disaster for any president, including Obama, who tried it.

Those are fine arguments, and I mostly agree.  But consider the following historical analogy. Between July and October 1932, the economy finally began recovering.  Then a relapse occurred, partly due to Hoover’s incompetence.  In a campaign speech Hoover indicated that we were almost forced off gold early in the year, and that only his adroit leadership had saved the gold standard. Of course that made the markets doubt the future stability of the gold standard, especially with FDR leading in the race for president.

FDR was never willing to commit to staying on the gold standard, despite it being part of the Democratic platform in 1932.  Unfortunately, fixed exchange rate regimes are one area where (for better or worse) governments have to lie.  If they even hint that they might consider devaluation, markets will lose confidence in the currency and attack the peg.  FDR should have either lied and said he’d stay on gold, or announce he planned to devalue, which would have immediately forced a devaluation.  The uncertainty from October 1932 to March 1933 created a run on the dollar and then a collapse of the banking system during the long interregnum.  In the last days of the Hoover administration, the President tried to put together a bank holiday plan and asked for FDR’s cooperation (i.e. commitment to continue the policy.)  FDR would not cooperate.  This is not to exonerate Hoover; he should have done the bank holiday anyway.  He was a very incompetent president, despite being perhaps the most competent person to ever be elected president.  There must be a lesson in there somewhere for the “great man” theory of history.

Then FDR took office, and immediately saved the day with a bank holiday.  But that was not enough to spur a recovery, so 6 weeks later he devalued the dollar.  Now FDR was the hero.  Then he implemented lots of Hoover’s ideas in his New Deal–mostly bad ideas, like the cartelization of industry and artificially high wages.

FDR’s sabotage (if that’s what it was–which is of course debatable) occurred before he took office. So it’s not exactly what Rock proposed.  But given how much liberals revere FDR, I could not help thinking of this episode when reading Klein’s piece.  So in a sense I agree with Klein, and that’s why I believe FDR should have avoided ambiguity over the dollar.  Don’t do something that hurts the economy, in the hope that the later political implications will allow you to become a hero by saving it.  It’s like a three bumper shot in billiards, theoretically possible, but highly unlikely.  And that means unethical.

Now for my contrarian view.  I don’t think Obama could have sabotaged the economy, even if he had tried. Unlike FDR, he had little control over monetary policy in the short run.  If during the campaign he had promised to put a hawk in charge of the Fed, his promise would have been laughed at.  All he had was fiscal policy, and you all know about my views on monetary offset. Indeed I think an Obama attempt to sabotage the economy via austerity might have actually helped.  Here’s the argument:

1.  Depression scholar Ben Bernanke had no intention to preside over another Great Depression. While he preferred that fiscal policymakers would share the burden, he was prepared to go it alone if necessary.

2.  Some of the suggestions Bernanke gave Japan in the early 2000s (like level targeting of prices, or focusing on NGDP) would have probably been more effective than the actual monetary and fiscal stimulus combined.  Would he have pulled out a nuclear option like level targeting?  I can’t be sure, but I’d say that without fiscal stimulus there is at least a 25% chance the recovery would have been faster due to strong monetary stimulus, and perhaps a 40% chance it would have been about the same.  And yes, that means there’s a non-negligible probability that I am wrong about monetary offset, as I’ve always acknowledged.

I don’t expect this argument to change the minds of any Keynesians, and I’m not sure I’m entirely convinced myself.  But I do believe we overrate the ability of any one person, even the president, to boost the economy.  And that also means we also overrate their ability to hurt the economy.

I don’t believe that President Obama understands economics well enough to be qualified to sabotage the economy, or save it.

PS.  Check out David Henderson’s excellent piece on police brutality, and also Adam Ozimek’s great post.


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89 Responses to “Chris Rock gives new meaning to “creative destruction,” and Ezra Klein responds”

  1. Gravatar of Peter K. Peter K.
    7. December 2014 at 09:00

    Here are this thoughtful liberal’s thoughts on the matter. Back in 2012, when asked by a reporter about Krugman’s criticism that Chairman Bernanke should go back and read Professor Bernanke – remember Bernanke had been Chair at Princeton and had hired Krugman – Bernanke replied in exasperation that he had been talking about deflation in Japan.

    http://www.nytimes.com/2012/04/29/magazine/chairman-bernanke-should-listen-to-professor-bernanke.html?pagewanted=all

    http://delong.typepad.com/sdj/2013/03/ben-bernanke-1999-rooseveltian-resolve.html

    It was okay to go nuclear to prevent deflation, but not to help target the NGDP path level in a timely manner. That’s not a priority in other words. Hence the vague inflation target and vague QE policies. “We’ll hit the inflation target eventually, just look at our forecasts.”

    I like Chris Rock. He’s very smart and I usually agree with him but he’s just an entertainer and has opinions like everyone else.

    I used to agree with Klein, but now agree with Rock. The ideal situation is as you suggest, Bernanke goes nuclear and the recovery is swift.

    Originally I feared letting the financial system collapse would turn politics worse even more nasty than it already is. Things could spin out of control. I even thought that nationalizing Citi would panic the markets and lead to a much worse situation.

    But the bankers and their politicians have been so aggressively unrepentant. The financial sector is fine while the rest of the economy stagnates thanks in part to Bernanke.

    So there’s a question of moral hazard. The bankers and their paid lobbyists in Congress haven’t learned any lessons so the whole disaster will repeat itself in a decade.

    And I bet this time, b/c the bankers were so unrepentant, there won’t be bailouts and the financial system will collapse. Hopefully NGDP path level targeting will be the norm by then. It’s a race and the stakes are hight!

  2. Gravatar of ssumner ssumner
    7. December 2014 at 10:42

    Peter, Very good comment.

  3. Gravatar of Major.Freedom Major.Freedom
    7. December 2014 at 11:22

    “I used to agree with Klein, but now agree with Rock. The ideal situation is as you suggest, Bernanke goes nuclear and the recovery is swift.”

    You guys always seem to talk about “recovery inducing” inflation as if it had no negative or unintended consequences.

    Every time, and I mean every time, central banks have gotten close to your “ideal”, or closest to it, there has always been a subsequent crisis. No, crises don’t “just happen”, no more than patients dying from overdoses “just happen.”

    I understand that in some cases, a person’s livelihood depends on them not understanding something, but this is not just about you, this concerns me and millions of others.

    I’ll welcome the day that you stop trying to treat other people like lab rats, testing which rule of socialist money “works best” on us.

    Is there really zero consideration of inflation distorting the capital and labor structure of the economy and making subsequent deflationary corrections or hyperinflationary currency collapses inevitable? What would history have to look like if that weren’t the case? Inflation to finance the war of 1812, then the panic of 1819. Inflation to finance the civil war, then the panic of 1872. Inflation to finance WW1, then the collapse of 1921. Inflation to finance WW2, then the recession of the early 1950s. Inflation to finance guns and butter, then recession of 1971. Inflation unconstrained to gold, then recession of 1981. Inflation to fight recession of 1980s, then stock market collapse of 1987. Inflation to prevent recession after 1987, then recession of 1991. Inflation to finance bailout of LTCM, Greenspan put, then recession of 2000. Then more inflation to stop recession, then collapse of 2008.

    Do you really believe it is a coincidende that multiple generations of separate populations, who have never met, have some sort of inner clock alarm that leads to periodic and sudden widespread increases in the demand for money holding for no good reason, e.g. “animal spirits”?

    What was it that Einstein said the definition of insanity was again? Doing the same thing over and over and expecting a different result every time? Note that NGDP is a result, inflation of the money supply so that the government doctor makes the economy “recover” is doing the same thing over and over.

    We have hundreds of years of evidence. Still the socialists believe in guns over reason.

  4. Gravatar of SG SG
    7. December 2014 at 11:36

    Scott,

    off-topic, but you really need to point out that Paul Krugman’s notion of “Post-modern Recessions” is incompatible with any coherent theory of monetary policy.

    He mentioned the concept way back in 2008, as well as here, here, and here

    He says “Post-moderation recessions haven’t been deliberately engineered by the Fed, they just happen when credit bubbles or other things get out of hand.”

    And yet he still advocates monetary expansion, even though the current recession wasn’t caused by tightening monetary policy?

    The logical distinction between “deliberately engineering” something and merely allowing something to happen that you have the power to prevent is, what exactly?

  5. Gravatar of Kevin Erdmann Kevin Erdmann
    7. December 2014 at 13:43

    Scott, Peter ‘ s comment has its virtues, but any comment that looks back on the previous 8 years as strong evidence of the Fed steering the country to the advantage of Wall Street and the banks is highly delusional. Even now, real estate – the main exposure on bank balance sheets – is distressed. The only winners were those holding treasuries when the masses started running for the exits and risk takers who added exposure at the bottom of the crisis. If that’s what we get when the deck is stacked for us, I hate to imagine what it would look like if the Fed was trying to screw us. Maybe Reagan ‘ s 10 scariest words apply even when government’s help has been bought and paid for.

  6. Gravatar of Bob Murphy Bob Murphy
    7. December 2014 at 15:21

    Scott,

    I was surprised by you saying Hoover should have declared a banking holiday. Previously, I thought you believed banking had nothing really to do with monetary policy, and indeed that it just clattered up macro models to put banks in them at all.

    I totally get why you think devaluing the dollar in 1933 helped, but I would have thought (before this post) that you would’ve viewed the bank holiday as federal meddling in markets.

    If you get the chance I would be interested to hear more.

  7. Gravatar of Bob Murphy Bob Murphy
    7. December 2014 at 15:26

    Peter K.,

    Sorry if I’m just missing it, but did you provide links to Bernanke’s reaction? I.e. I knew people were saying that Chairman Bernanke wasn’t acting like Professor Bernanke, but I never heard that he officially addressed that. Can you provide a link?

  8. Gravatar of benjamin cole benjamin cole
    7. December 2014 at 16:18

    Egads. I guess the idea of statesmanship is dead.

    It is well to remember that the GOP in 2011-12 screamed for tight money — I have always wondered if that was merely to provide an exit for Obama.

    I often wonder if Romney had won in 2012 whether the new (or revived) mantra would be “deficits don’t matter” and a new, more stimulative Taylor rule would be ginned up.

    And yes, Obama has flubbed monetary. Romney might have done better.

  9. Gravatar of ssumner ssumner
    7. December 2014 at 17:43

    SG, Perhaps Krugman thinks about causation in moralistic terms. Let me see what I can come up with.

    Kevin, I agree, although their actions in 2008 were clearly designed to help the big banks without helping Main street. That’s why they did IOR.

    Bob, I just meant that he should have done it with or without FDR’s cooperation, if that was his inclination. I haven’t studied bank holidays enough to have an intelligent opinion.

    I’m not at all sure it’s even meddling in free markets. Maybe in a free market banks would have declared a holiday on their own, but regulations prevented it. That’s an issue I’d need to study. Banking was clearly not a “free market” in 1933, for instance branching was illegal. That regulation was the main cause of the banking crisis.

  10. Gravatar of Kevin Erdmann Kevin Erdmann
    7. December 2014 at 18:53

    “I agree, although their actions in 2008 were clearly designed to help the big banks without helping Main street. That’s why they did IOR.”

    With friends like that, who needs enemies? Reagan’s scariest 10 words, indeed…

  11. Gravatar of TravisV TravisV
    7. December 2014 at 21:08

    Dear Commenters,

    Could someone please explain the following comment above by Prof. Sumner about Obama:

    “If during the campaign he had promised to put a hawk in charge of the Fed, his promise would have been laughed at.”

    I’m not sure I fully understand what he meant there…..

  12. Gravatar of Matt Waters Matt Waters
    7. December 2014 at 22:26

    “I agree, although their actions in 2008 were clearly designed to help the big banks without helping Main street. That’s why they did IOR.”

    I remember an FT Alphaville post by Isabella…forget her last name. I got frustrated with FT site’s constant sign-in issues for a free blog and stopped checking it awhile ago.

    Anyway, when I was checking it, she posted how IOR was the only thing keeping the money market alive with the lack of short-term, “safe” assets. Before 2008, the M1 monetary base actually went down as NGDP generally stayed on its post-Volker course. IMO, the development of the shadow banking system had the de facto effect of reducing required reserves. CFOs and treasurers of corporations, pension funds, insurance companies and mutual funds took funds which were bank deposits in the 90’s with reserve ratio of 10% and put them into higher yielding repo/commercial paper/money market with ultimate reserves near zero.

    In practice, the money multiplier never reaches near its infinite series value, but the lower reserves in the shadow banking system still increased velocity.

    The shadow banking system seemed to have all the hallmarks of a traditional pre-Fed banking panic. Most AAA tranches ultimately were solvent, especially the AAA tranches of CDO outside of subprime mortgages. But the AAA tranches in student loans, credit cards and car loans ABS still showed haircuts in 2008 reflective of a banking panic and not true valuation. Maybe the increase in yield was the market rationally saying a depression was about to happen, but the people who actually traded these securities talk in terms of a bank run. The first people to the bank got their money back.

    So, the FT Alphaville post. The run led to this “safe asset shortage” where even though AAA tranches of auto loan ABS have gone back down, there is not enough borrowing demand to create enough safe assets. In late-2008, Bernanke was convinced to create IOR for the money market to operate and not ground to a halt. Isabella Kraminsky argued that eliminating IOR or having negative IOR would have catastrophic effects because IOR is basically the last and only source of AAA, short-term yield.

    The post was incredibly myopic and self-unaware. I don’t think Bernanke had any sort of underhanded or selfish intention with IOR, but the finance world just cannot think through all the steps of IOR->less unemployment. That’s the goal isn’t it? Less unemployment? But almost nobody in the government or banks in 2008 could have given a direct answer to how all those things like TARP and IOR lessen unemployment. Ms. Kraminsky further repeated all those wives’ tales and urban legends regarding how Wall Street’s health leads to economic growth.

    Now, TARP pretty clearly led to economic growth or at least avoidance of a depression, however indirectly or inefficiently. The stock market’s reaction to the bill’s failure makes that pretty clear. But the stock market’s reaction to IOR was at best muted. The money market indeed needed IOR to survive, but she never answered the question: so what? CFOs and treasurers would need to do the same thing they did in the 90’s: have cash yield less (or negative in this case) in bank deposits instead of using the money market. For the economy in general, the worst that will happen is the cash will sit idle on the bank’s balance sheet, which is ALREADY WHAT IS HAPPENING with IOR.

    So, why in the world, for the sake of reducing unemployment, would we have IOR to keep the money market alive?

  13. Gravatar of Saturos Saturos
    8. December 2014 at 00:49

    Paul Krugman on the Japanese exchange rate – Scott, what’s your take?

    http://mobile.nytimes.com/blogs/krugman/2014/12/07/shinzo-and-the-invisibles/?smid=tw-NytimesKrugman&seid=auto&referrer=

  14. Gravatar of Morgan Warstler Morgan Warstler
    8. December 2014 at 03:39

    Yep Scott I read Chris Rock interview and Ezra thought same thing:

    If Ezra really put his faith in MM like I think Matty is willing too…

    Then we can let GM go bust! NDGP stays on track!

    Let banks fail! NDGP stays on track!

    But ALSO…

    Back in 2005, to make sure NDGP stays on track…. we raised rates on home mortgages over and over until we were back down at 5%…

    That hard cap at 5% means that far earlier other sectors of economy were SCREAMING at Congress to stop letting subprime mortgages eat up their cake.

    Somehow you have to get this idea across.

  15. Gravatar of emerich emerich
    8. December 2014 at 05:29

    You may be a “must read blogger” (I think you are) but that doesn’t make Klein one of the most talented writers in America. Here’s a direct quote of Klein in an interview:

    “My friends on the right don’t like to hear this, but the Constitution is not a clear document. Written 100 years ago, when America had 13 states and very different problems, it rarely speaks directly to the questions we ask it.”

    Actually, in the interview he said “dude”, but that seems to have been edited out.

  16. Gravatar of ssumner ssumner
    8. December 2014 at 07:17

    Travis, I meant that everyone knows Obama will put a dove in charge. It would not have been believed, but rather seen as a transparent attempt to tank the economy before the election.

    Matt, Izabella Kaminska has a very different way of thinking about monetary policy. I can’t imagine how increasing the IOR can be expansionary, and the markets can’t either.

    Saturos, Thanks, I’ll take a look later today.

    Emerich, There are parts of the document that are very unclear. For instance, I’m not clear on which laws the Supreme Court should declare unconstitutional because they violate the amendment that restricts federal involvement to certain activities. The experts seem to think it’s clear, but since they can’t agree with each other, I have to assume it is unclear.

  17. Gravatar of SG SG
    8. December 2014 at 07:43

    Scott,

    I think you’re 100% wrong about Obama. I think Noah Smith is right that Obama is an Austrian on monetary policy. Remember, he almost appointed Larry Summers as Fed chair, and you were one of the many outraged voices objecting on the grounds that he’s way too hawkish! And he actually did appoint Jeremy Stein, who was a disaster. And he clearly alienated Christy Romer when she worked on the CEA. So at the end of the day, if Obama had started beating the “audit-the-fed-gold-standard-price-stability” drum, I suspect markets would have known they were in for a rough time and responded accordingly.

    Also, as if on cue, Krugman doubles down on “postmodern recessions.” http://www.nytimes.com/2014/12/08/opinion/paul-krugman-recovery-at-last.html

    “But ‘postmodern’ recessions, like the downturns of 2001 and 2007-9, reflect bursting bubbles rather than tight money, and they’re hard to end; even if the Fed cuts interest rates all the way to zero, it may find itself pushing on a string, unable to have much of a positive effect. As a result, you don’t expect to see V-shaped recoveries like 1982-84 “” and sure enough, we didn’t.”

    Scott, he has to be stopped! And you have to stop him!

  18. Gravatar of collin collin
    8. December 2014 at 07:44

    How much of the 1933 turnaround just based on ending Prohibition? We could on and on about ending the Gold Standard, Keynesian economics, and bank holidays but are there any papers on how the ending Prohibition improved the economy?

  19. Gravatar of Charlie Jamieson Charlie Jamieson
    8. December 2014 at 09:23

    Let us know when Obama rescues the economy.

  20. Gravatar of Michael Byrnes Michael Byrnes
    8. December 2014 at 09:30

    Morgan wrote:

    “Then we can let GM go bust! NDGP stays on track!”

    This comment sums up my disagreement with Kevin E. and others. I think GM would prefer a lousy world in which GM continues to one of the world’s leading auto manufacturers over a better, richer world in which GM was bankrupt and gone. Why should the banks be any different?

  21. Gravatar of TravisV TravisV
    8. December 2014 at 09:34

    Prof. Sumner, thanks!

    “Italy and France hit back at Merkel over economic reforms call”

    http://www.reuters.com/article/2014/12/07/us-europe-reforms-merkel-idUSKBN0JL0NX20141207

  22. Gravatar of TravisV TravisV
    8. December 2014 at 09:38

    SG,

    Wow, wow, wow, great find, thanks!

    How can Krugman possibly both believe that and believe that Bernanke’s QE has helped (see the end of this post)?

    https://www.themoneyillusion.com/?p=27893

  23. Gravatar of TravisV TravisV
    8. December 2014 at 10:15

    Dear Commenters,

    Could someone please explain to me why the “run on the dollar” Sumner refers to in this post was bad? Why was devaluation of the dollar against other currencies necessarily harmful?

    Was it only harmful because devaluation against other currencies hurt the solvency of the banks (assets lost value relative to liabilities)? Or was it harmful for other reasons as well?

    It appears that there’s a big difference between devaluation of the dollar against gold and devaluation of the dollar against other currencies. Trying to get more clarity on what exactly the difference is…..

  24. Gravatar of Doug M Doug M
    8. December 2014 at 12:15

    The premise here is of course that GM bailouts and stimulus plans actually saved any jobs.

    Regarding GM, I know that there was several billion dollars of private funding lined up to see them through bankruptcy, but that would have come at the cost of a management sake-up and promises of union concessions. Instead we had billions from the federal government to maintain the status quo at a company that had been unprofitable for a decade.

  25. Gravatar of Majromax Majromax
    8. December 2014 at 13:01

    @TravisV:

    Could someone please explain to me why the “run on the dollar” Sumner refers to in this post was bad? Why was devaluation of the dollar against other currencies necessarily harmful?

    In a Platonic sense, if you’re attempting to maintain fixed exchange rates then the run on the $USD makes that job more difficult for the central bank.

    In a practical sense, bank failures caused by a run on the dollar are a Bad Thing.

    In an accounting sense, the devaluation against gold was a Good Thing, and since most other currencies were themselves on a gold standard that necessarily meant changes in exchange rates. However, all of the above mess could have been more simply-handled with an abrupt and explicit policy change, rather than one dragged out over months by ungrounded speculation.

  26. Gravatar of cassander cassander
    8. December 2014 at 16:42

    >Could someone please explain to me why the “run on the dollar” Sumner refers to in this post was bad? Why was devaluation of the dollar against other currencies necessarily harmful?

    At the very least, something like half of the US debt is bought by foreigners. since any run on the dollar would almost certainly reduce their desire to hold this debt, the US would be looking at massive increases in the cost of newly issued debt.

  27. Gravatar of Kevin Erdmann Kevin Erdmann
    8. December 2014 at 17:12

    Michael Byrnes, are you saying that you, like GM and the banks, prefer a lousy world where you have an advantage over the rest of us? Or are you saying that the owners and managers of GM and the banks are different than you?
    I think you could make a credible argument either way regarding growth vs stagnation. But if you’re talking about economic dislocations, there is no way that owners prefer it. Equity owners, more or less by definition, take most of the damage in a dislocation. Profits are the residual product of production – the canary in the productive coal mine. Even if you’re the strongest canary, you aren’t going to hope they close off the ventilation shaft.
    Banks are basically massive, highly leveraged short positions on call options on American real estate. They are highly short volatility.

  28. Gravatar of ssumner ssumner
    8. December 2014 at 17:33

    Saturos, I basically agree with Krugman.

    SG, You misunderstood me. I didn’t mean someone slightly more hawkish than Yellen, like Summers, I meant someone like Richard Fisher, or the blogger Bob Murphy. People would have laughed if he had said (during the campaign) that he planned to put a true hawk at the head of the Fed. Krugman would have endorsed McCain!

    And Krugman will keep saying that QE helps, but the central bank won’t do enough. Hence postmodern recessions.

    Travis, The run on the dollar caused the banking system to crash. The actual devaluation was good, but a run on the dollar without actual devaluation is deflationary.

    Collin, It did help a little, but dollar devaluation was far more important.

  29. Gravatar of TravisV TravisV
    8. December 2014 at 19:31

    What. will. Elizabeth Warren say. at. this. event??????

    http://slackwire.blogspot.com/2014/12/the-future-of-monetary-policy-according.html

  30. Gravatar of TravisV TravisV
    8. December 2014 at 20:32

    Prof. Sumner,

    You should read Krugman’s latest column. He’s not simply saying “QE helps, but the central bank won’t do enough. Hence postmodern recessions.”

    Krugman rejects the idea that the cause of recession is tight money. He thinks the cause is irrational “bubbles.” As Krugman wrote in his latest column:

    “But “postmodern” recessions, like the downturns of 2001 and 2007-9, reflect bursting bubbles rather than tight money, and they’re hard to end; even if the Fed cuts interest rates all the way to zero, it may find itself pushing on a string, unable to have much of a positive effect. As a result, you don’t expect to see V-shaped recoveries like 1982-84 “” and sure enough, we didn’t.”

  31. Gravatar of Ray Lopez Ray Lopez
    8. December 2014 at 22:00

    THE article on gold standard, as I mentioned to Major Freedom a few days ago, is found below, by Richard N. Cooper, along with a sample blurb. It’s awesome, it’s actually anti-gold (I am pro-gold) and it’s written by a Harvard economist, what’s not to like?

    Takeaways:

    1. Contrary to B. Eichengreen’s Golden Fetters, the 1920s and early 30s was not a time of the pure gold standard, just fiat money backed in theory by gold (“gold exchange”) (in theory since it fact governments later repudiated the fiat-gold promise) and controlled by central banks. Essentially it was a fixed-exchange rate regime, not a gold based money scheme (not that gold-based money does not have ups and downs, and also monetary expansion by greedy businesspeople during boom times, see R.N. Cooper’s paper).

    2. You will note the UK, France both went back to pre-WWI parity of fiat money to gold (i.e. the pre-WWI exchange rate) in 1925-26, and NOTHING BAD HAPPENED except unemployment stayed high. So you cannot blame gold for the crash of 1929 (not that anybody does), nor necessarily for the slump to get out of the Recession of 1929 that turned into a Great Depression. It was the policy response of the US Fed, created in 1913, that arguably caused that. Whether the Fed had fiat money, or fiat money backed by gold is immaterial. They arguably screwed it up by tightening the money supply.

    3. I say “arguably” in #2 above since it is possible–a physicist-turned-Bloomberg reporter mentioned this the other day–that recessions and depressions are in fact ‘normal’ akin to traffic jams and earthquakes. The only argument you could make against that is that money illusion exists (R.N. Cooper shows it existed back in the pure gold standard days of the late 19th century, as people *underestimated* falling prices, as shown by ex ante vs ex post interest rates) and the Fed, by tightening money, should have loosened it as history showed works (i.e., when UK, France, US went off the fixed exchange rates of the gold standard and depreciated it helped). But it’s possible that what worked in 1933 or so, depreciation, will not work today, but it was simply a one-off coincidence non-linear effect. You just can’t ‘sell’ that as an economist to a potential employer however, so it’s not a ‘mainstream’ argument to make.

    RL

    RICHARD N. COOPER, Harvard University, “The Gold Standard: Historical Facts and Future Prospects” Brookings Papers on Economic Activity, 1:1982

    Sample blurb: “THE INTERWAR PERIOD There is no need to examine closely the brief restoration of the gold standard during the late 1920s. The experience was so brief and unsat- isfactory that it provides no basis for an assessment of the gold standard in more normal times. Most European countries called in the gold still held by their publics before the First World War and concentrated it in the hands of the central banks. The restored gold standard was a gold bullion standard, such as had been recommended by Ricardo over one hundred years earlier, whereby the monetary authorities bought and sold gold at a fixed price only in large quantities, and did not coin the gold. Moreover, to conserve gold further (for it was recognized that at the much higher postwar price and activity levels the prewar gold standard regime could not be restored), there was strong encouragement toward a gold exchange standard, whereby the monetary authorities of countries would hold, instead of gold, currencies that were convertible into gold, notably sterling. With considerable deflation, Britain returned to gold convertibility in 1925 at the prewar gold parity (85 shillings per ounce). France returned to convertibility in 1926 at a parity one-fifth of the prewar parity. It is widely considered that these parities overvalued the pound and undervalued the French franc, in each case putting considerable strain on the pattern of international payments and, through them, on domestic economies. Britain remained depressed throughout the 1920s, with unemployment never dropping below 10 percent after 1920 1920. The system was supported for a while by international lending, but it collapsed in 1931-33 under the impact of the world depression, to which the fragile restoration of the gold standard contributed. There is probably not that much to be learned from this period about a gold standard, except that “incorrect” exchange rates can put great strains on national economies and, if they are important, on the system as a whole.”

  32. Gravatar of Adam Platt Adam Platt
    9. December 2014 at 01:08

    Travis,

    In the Krugman article you mentioned, the distinction he is making relates to the 1982 recession which (at least in his belief) was caused by intentional Fed tightening to establish credibility on fighting inflation. Thus, getting out of the recession by reversing that policy was easy.
    In the 2001 and 2008 recessions, reducing short-term interest rates to near-zero were not enough to end those recessions quickly. Professor Krugman repeats the zero lower bound mantra to explain that at that point, he doesn’t believe there’s much that monetary policy can do. What’s so bizarre about that is that he seems to fully understand that a temporarily higher inflation target would have helped, and he supported QE. In my mind that contradicts his zero lower bound obsession.
    If I’m reading Professor Sumner correctly, it seems that he’s saying that the zero lower bound is a totally arbitrary/false barrier that mistakes the Fed’s favorite tool (short term interest rates) as being its ONLY tool, which it is clearly not.

  33. Gravatar of Ray Lopez Ray Lopez
    9. December 2014 at 01:43

    Wow! Chicago U economist Lloyd W. Mints, aged 100+, who doesn’t even have a Wikipedia page, and who taught Milton Freedman among others, advocated targeting NGDP back in the 1930s (targeting price levels, which is about the same as NGDP, since GDP is the price of goods and services)! That’s the implication of this blurb from Cooper’s 1982 paper on gold. What’s old is new again.

    RL

    Robert E. Hall on Cooper’s paper: With respect to the goal of price stability, Cooper points out that discretionary policy in a fiduciary monetary system is perfectly capable of stabilizing prices. All we have to do is instruct the Federal Reserve to aim for a price target and not think about anything else. Although that authority has been accused of paying more attention to politics than to prescribed economic goals in the past, its recent behavior [early 1980s] shows con- vincingly that it can pursue a single-minded target without regard for what else is happening in the economy. A long propaganda siege from the monetarists has convinced the Federal Reserve to look only at the money stock. An equal amount of browbeating from economists believ- ing in price targets for monetary policy might swing the Federal Reserve to that form of single-mindedness. There is nothing new about the idea- it was pushed hard by Lloyd Mints in the 1930s.

    https://www.youtube.com/watch?v=ousX9KSZLQg (Lloyd W. Mints anticipated targeting NGDP, shown here advocating limiting 100% cash reserves for banks in a video where he is 100 years old!)

  34. Gravatar of W. Peden W. Peden
    9. December 2014 at 03:04

    Ray Lopez,

    Does “a price target” mean a price level target? Because that’s only equivalent to an NGDP level target if the economy is always at its LRAS curve, as far as I know.

  35. Gravatar of Michael Byrnes Michael Byrnes
    9. December 2014 at 03:59

    Kevin E.,

    I think that without question GM would prefer to remain profitable rather than go bankrupt and receive a bailout.

    That said, if GM does go bankrupt, I think they would strongly prefer to be bailed out than to disappear.

    And I don’t think a wholly binary view of the situation (GM chooses profitability vs. bailout) holds – I think a business that sees itself as a probable bailout recipient is going to make different decisions (in an attempt to be profitable) than one that does not see itself as a likely bailout recipient. (Much as some have argued that improving automobile safety has led to more aggressive driving – even thogh drivers themselves are not interested in crashing into things.)

    Personally, or think of the investment banks switching from a partnership model – where the personal wealth of the principals was on the line – to a public rationale where the personal wealth of the principals was protected. That presumabilty led to different decisions in the attempt to be profitable.

    Some of the actions of 2008 seemed to be targeted at rescuing certain institutions, or at rescuing the econmy as a whole by saving those institutions. To the extent that those institutions anticipated such relief, it would have factored into their decision making.

  36. Gravatar of Nick Nick
    9. December 2014 at 04:19

    This isn’t 100% on topic but the discussion of Obama as a frustrated Austrian or powerless to effect perceptions of monetary policy as a candidate keeps reminding me of one of my favorite recent poli sci books: The Party Decides.
    http://www.amazon.com/The-Party-Decides-Presidential-Nominations/dp/0226112373#productDescription_secondary_view_pageState_1418127311563
    It really helped explain to me why having ‘the outsider’ candidate win the democratic primary in 2008 didn’t change anything in the platform.

  37. Gravatar of Kevin Erdmann Kevin Erdmann
    9. December 2014 at 06:48

    Good points, Michael. I guess it’s a matter of how much one attributes the recession to previous recklessness from private firms and how much one attributes it to monetary policy. In principle, I think any disagreement we have is subtle, as I generally agree with your last comment.

  38. Gravatar of TravisV TravisV
    9. December 2014 at 08:22

    68 minutes from now:

    Live Stream Our Monetary Policy Event with Paul Krugman and Senator Warren Today

    http://www.nextnewdeal.net/rortybomb/live-stream-our-monetary-policy-event-paul-krugman-and-senator-warren-today

  39. Gravatar of Salem Salem
    9. December 2014 at 09:06

    @Ray Lopez:

    [T]he UK… went back to pre-WWI parity of fiat money to gold (i.e. the pre-WWI exchange rate) in 1925-26, and NOTHING BAD HAPPENED except unemployment stayed high.

    Nothing bad happened? Are you serious? How about chronic undercapacity, massive unemployment, the worst industrial unrest in British history, and a general wasted decade. The 1920s were “Roaring” in the US but they were a disaster in Britain, and the return to pre-WW1 Gold Standard was the major reason. But in the 1930s, Britain was the first major country to devalue, and as a result escaped the worst of the Depression.

  40. Gravatar of TravisV TravisV
    9. December 2014 at 09:09

    The Fed Might Drop Some Of Its Forward Guidance.

    The Federal Reserve says rates will stay near zero for a “considerable time,” language the Wall Street Journal’s Jon Hilsenrath believes may be dropped at its meeting next week, with the US economy recovering rapidly. This would be considered a hawkish move, as inflation remains incredibly low.

    http://www.wsj.com/articles/feds-considerable-time-policy-phrase-takes-focus-1418071999

  41. Gravatar of Scott Freelander Scott Freelander
    9. December 2014 at 09:42

    Scott,

    Off-topic, but very on-topic for this blog, here is a link to a post by a physicist about problems with going back to a gold standard and why libertarians should hate the idea:

    http://motls.blogspot.com/2014/12/gold-6000-year-old-bubble.html

    He even mentions NGDP targeting as potentially a superior approach to non-discretionary monetary policy than inflation targeting.

    Unfortunately, this is Lubos Motl, who is often a very nasty poster, and a racist, but this post is very good, especially for a layperson.

  42. Gravatar of TravisV TravisV
    9. December 2014 at 12:02

    Bill Woolsey:

    “Can Interest on Reserves be Expansionary?”

    http://monetaryfreedom-billwoolsey.blogspot.com/2014/12/can-interest-on-reserves-be-expansionary.html

  43. Gravatar of Ray Lopez Ray Lopez
    9. December 2014 at 21:56

    @ W Peden – yes, NGDP = Price level back in the 1930s, since the US government did not collect GDP stats back then I believe. So a price level index is as close to NGDP as you can get, and, as stated, Lloyd W. Mints advocated this back in the 1930s. Sumner trumped by a 100+ year old man over 80 years ago!

    @Salem–read the 1982 Cooper paper I cited upstream on why gold is neither bad nor good (though Cooper is anti-gold), but allowing central banks to fix the money supply (*unlike* a true gold standard, which is *not* controlled by banks but by millions of users) is indeed bad. As for your cite to the UK, Wikipedia informs us: “The 1926 general strike in the United Kingdom was a general strike that lasted 10 days, from 3 May 1926 to 13 May 1926.” Ten days. Pfft! De nada.

  44. Gravatar of Daniel Daniel
    10. December 2014 at 01:35

    Ray Lopez,

    Stop being an ignorant. The 1920s were indeed bad for the British economy, because they returned to the gold standard at an overvalued parity (mainly for political reasons).

  45. Gravatar of W. Peden W. Peden
    10. December 2014 at 02:47

    Ray Lopez,

    Hayek did much better with “stabilise the monetary flow” in the early 1930s, which is like a 0% NGDP target.

  46. Gravatar of Major.Freedom Major.Freedom
    10. December 2014 at 04:41

    States enforcing a “bad” par for gold because they tried to pretend they didn’t debauch the fiat paper, isn’t a problem of gold, it is a problem of state coercion in money.

  47. Gravatar of Major.Freedom Major.Freedom
    10. December 2014 at 04:42

    I chuckle at the ignorant calling others ignorant.

  48. Gravatar of Adam Platt Adam Platt
    10. December 2014 at 06:17

    Ray Lopez, NGDP does not = price level. They aren’t even necessarily correlated. You seem to have a fundamental misunderstanding of what these concepts mean.

  49. Gravatar of Daniel Daniel
    10. December 2014 at 07:00

    Likewise, the failure of Austrian pseudoscience is not a problem, since it is reality that is at fault.

    Ray Lopez – when you find Major_Moron taking your side, it’s time to question your ways.

  50. Gravatar of Major.Freedom Major.Freedom
    10. December 2014 at 09:37

    Daniel:

    You have not SHOWN any “failure” of Austrian econ.

    Austrian econ is a more accurate description of economic life than the fake science you peddle. The presumptions in your approach contradict the reality of economic life, which is precisely why in over 80 years of positivist/empericist “research”, economists have found zero economic laws/constants. Physicists and chemists have discovered, and continue to discover, new physical constants everyday, and yet economists have found zero using the same methods.

    Reality is actually disagreeing with your approach, and is more consistent with my approach.

  51. Gravatar of Philippe Philippe
    10. December 2014 at 10:28

    delusional.

  52. Gravatar of Adam Platt Adam Platt
    10. December 2014 at 11:56

    Daniel,

    I’m becoming increasingly convinced that Austrian econ. is not so much pseudoscience as quasi-religious belief. It can never be disproven in their minds, despite the obvious problems with all of its prescriptions as well as their demonstrated failures, because there already HAS been inflation in the past. Therefore any test of their principles can simply be dismissed. The fact that this cop-out makes their ideas completely unscientific and practically irrelevant doesn’t seem to bother them much either.

  53. Gravatar of Daniel Daniel
    10. December 2014 at 13:33

    Adam,

    I agree with you. I have long stopped trying to reason with them – but since Major_Moron insists on being an idiot, I might as well have some fun.

  54. Gravatar of Major.Freedom Major.Freedom
    10. December 2014 at 17:11

    Adam,

    Austrian econ contains no prescriptions. It is wertfrei. There is not a single ought statement in it. It is a descriptive study of individual action.

    It is a logico-deductive field of inquiry akin to mathematics. You said “tests are dismissed”. Quite right. One does not empirically test formal mathematics. Your approach is all wrong.

    It is impossible for me to be “bothered” at your false claims.

    You clearly do not understand Austrianism. In order to understand it, you must study the requisite knowledge, which is at least the history of philosophical and economic thought. Since it is based on self-reflection, a significant quantity of knowledge of what Austrianism isn’t is required in order to know what it is.

    Daniel:

    You will never vanquish your inner demons and abused, traumatized psychology by repeating the same abusive phrases to me. I will only keep feeling more and more certain of what I think the more you post comments that display a total ignorance of that which you criticize.

  55. Gravatar of Major.Freedom Major.Freedom
    10. December 2014 at 17:12

    Philippe:

    You have not SHOWN any “delusional” aspect of anything I have said. You got nothing.

  56. Gravatar of Major.Freedom Major.Freedom
    10. December 2014 at 17:17

    If any of you want to refute or disprove Austrian econ, you have to use self-reflective logical deduction.

    Ultimately you would have to refute individual action. Given that any and all refutations would themselves be actions…good luck with that. I’m skeptical, but I’d very much like to see you try.

    One more thing, the ultimate ground of your methodological approach to economics, is ALSO a non-empirical, non-falsifiable series of propositions that I am almost certain you don’t even know what they are.

  57. Gravatar of Philippe Philippe
    10. December 2014 at 17:45

    mf, you haven’t SHOWN that you are not delusional. You have only BEHAVED as if you are delusional.

  58. Gravatar of Ben B Ben B
    10. December 2014 at 17:49

    Phillipe,

    The onus is on you to show that MF has BEHAVED delusional.

    Your statist colors are showing through: guilty until proven innocent.

  59. Gravatar of Major.Freedom Major.Freedom
    10. December 2014 at 17:51

    Philippe:

    You also have not shown any of my “behavior” is delusional.

    I know you are just trying to feel better about your traumatized self. It has nothing to do with me. I am just your imagined scapegoat.

  60. Gravatar of Philippe Philippe
    10. December 2014 at 18:08

    No, the onus is not on me to do anything. Mf is a nasty, completely irrational and profoundly dishonest piece of shit, he’s lucky anyone even interacts with him.

  61. Gravatar of Philippe Philippe
    10. December 2014 at 18:10

    Oh an Ben B. You’re a total ignoramus. Even worse than crazy boy here. You’re a victim of that brainwashing cult you’re a part of.

  62. Gravatar of Ben B Ben B
    10. December 2014 at 18:22

    Philippe,

    Calm down. I’m certainly willing to admit that I’m an ignoramus when it comes to certain subjects, and I’ve only been studying economics for less than two years (although the length of my study has nothing to do with the strength of my arguments or knowledge), but MF is right when he points out that you and Daniel’s propensity to insult Austrians suggests that your own knowledge and understanding is lacking.

  63. Gravatar of ssumner ssumner
    10. December 2014 at 18:31

    Travis. Unfortunately there are only about 50 people in the whole universe who think tight money caused the 2008 recession. You, me and 48 others.

    Ray, I’m afraid your post contains a lot of misinformation. We most certainly were on the gold standard in the 1920s, and France did not go back at the pre-war parity, not even close.

    If you went back to 1920 and claimed the US was not on gold you would have been laughed at.

    Hundreds of economists favored PLT in the 1920s, and some favored NGDPLT. Which did Mints favor?

  64. Gravatar of Ben B Ben B
    10. December 2014 at 18:35

    Philippe,

    I’m not in a cult, and I’ve spent most of my life rejecting blind allegiance. I’m searching for a better understanding, and not companionship. If I develop companionship along the way, then that is just an added bonus.

  65. Gravatar of Adam Platt Adam Platt
    10. December 2014 at 19:17

    http://www.federalreserve.gov/releases/h6/discm3.htm

    “M3 does not appear to convey any additional information about economic activity that is not already embodied in M2 and has not played a role in the monetary policy process for many years. Consequently, the Board judged that the costs of collecting the underlying data and publishing M3 outweigh the benefits.” – Nov. 2005

    Interesting that it decided this just a few years before M3 began to decline even as M2 expanded at an increased rate. What specifically did they miss? Also, what is the rational basis for separating large deposits and institutional money market funds from other aspects of the money supply? They seem to be quite similar in their effect. An M3 chart explains the recent recession and slow recovery quite well, while M2 would have you think (as many hawkish monetarists did) that we should have substantial inflation.

  66. Gravatar of Adam Platt Adam Platt
    10. December 2014 at 19:41

    Sorry I meant longer deposits, not large

  67. Gravatar of Daniel Daniel
    11. December 2014 at 01:45

    Ben B,

    You’re an idiot. Really. Austrian pseudo-science is to economics like creationism is to biology.

    And yes, I’m also prone to insulting creationists. Must be my ignorance again.

    Moron.

  68. Gravatar of Ray Lopez Ray Lopez
    11. December 2014 at 02:16

    @ssumner– “Ray, I’m afraid your post contains a lot of misinformation. We most certainly were on the gold standard in the 1920s, and France did not go back at the pre-war parity, not even close.

    If you went back to 1920 and claimed the US was not on gold you would have been laughed at.

    Hundreds of economists favored PLT in the 1920s, and some favored NGDPLT. Which did Mints favor?”

    Mr. Mints is from your alma mater, so if it matters to you, find out which price level targeting he favored. If I was you, I would let sleeping dogs lie however, as it’s probably an inconvenient truth that targeting NGDP is not new. Targeting a price for a basket of commodities is analogous to GDP btw, since “The concept of GDP was first developed by Simon Kuznets for a US Congress report in 1934”.

    As for gold standard (pure) vs a gold standard based on central bank reserves, managed by central banks, read Cooper’s paper I cited, which makes that distinction. It’s a big distinction too (among other things, the central banks routinely sterilized gold inflows, contrary to the spirit of a true gold standard). As for being laughed at, I doubt most people back then or even now understand the distinctions Cooper and I are making–I hope you do. As for France not going back, and UK to, to a gold standard pre-WWI parity, yes, you are right I misspoke, it was more like a 60% return to the gold standard. Arguably a failure to go back to a 100% return was the cause of uncertainty that lead to a seizing up of world economies and ultimately the Great Depression. Recall the USA returned to 100% pre-Civil War gold exchange rates after the Civil War, with no central bank and no ill effects save a beneficial deflation of prices in the late 19th century, silver agitators aside. Speculative but there it is.

  69. Gravatar of Ben B Ben B
    11. December 2014 at 04:42

    Daniel,

    If I’m an idiot, then making the claim that Ausritan economics is pseudoscience and akin to creationism is not going to have much of an effect on me since I’m unable to understand the concepts.

  70. Gravatar of Daniel Daniel
    11. December 2014 at 05:00

    I’m unable to understand the concepts

    That was already obvious.

    But still, just in case you’re still able to fire a synapse or two, you might want to ask yourself why everybody with a hint of an economics educations treats Austrian economics like radioactive waste.

    Either Mises & co are on to some deep insights which everybody else conspires to keep hidden – or they are in fact very mistaken.

    Which do you think is more likely ?

  71. Gravatar of Nick Nick
    11. December 2014 at 05:35

    A deft retreat to authority, Daniel. You might note the comment above where prof sumner says only 49 people agree with him about the cause of the financial crisis. I’m not in any way an Austrian, but I wonder why you are posting all these angry replies to Ben. You and MF can play as rough as you like but it’s rude to treat everyone that way.

  72. Gravatar of Daniel Daniel
    11. December 2014 at 05:52

    Nick,

    In 2007, most everybody would have agreed with prof Sumner.

    Try harder.

  73. Gravatar of Charlie Jamieson Charlie Jamieson
    11. December 2014 at 09:29

    Today’s economists today are similar to doctors back when George Washington was president.
    Back then they were bleeding patients; today’s economists are obsessed by interest rates.
    Economics is really 99 percent geography and culture and politics and demographics and religion and maybe 1 percent monetary factors.

  74. Gravatar of Charlie Jamieson Charlie Jamieson
    11. December 2014 at 10:05

    The financial crisis was a result of the events of the years leading up to it.
    The Fed chairman could have tightened, loosened, set himself on fire … wouldn’t have mattered.

  75. Gravatar of Ben B Ben B
    11. December 2014 at 10:16

    Daniel,

    I didn’t say that I don’t understand the concepts. I said that IF I was an idiot, then that would IMPLY that I don’t understand these concepts, nor would I be able to learn them.
    Besides, if I were an idiot, then wouldn’t it be less obvious to me that I was an idiot since I probably wouldn’t be intelligent enough to know that I was an idiot.

    I already said above that I reject blind allegiance, so my decision to accept or reject Austrian economics would not be based on whether or not a majority of intellectuals have a favorable opinion towards Austrian economics.

  76. Gravatar of ssumner ssumner
    11. December 2014 at 10:31

    Ray, Congratulations for one of the most inaccurate paragraphs posted all year on my comment section (ignoring MF of course):

    “Mr. Mints is from your alma mater, so if it matters to you, find out which price level targeting he favored. If I was you, I would let sleeping dogs lie however, as it’s probably an inconvenient truth that targeting NGDP is not new. Targeting a price for a basket of commodities is analogous to GDP btw, since “The concept of GDP was first developed by Simon Kuznets for a US Congress report in 1934″³.”

    Where does one start? (The logic of the final sentence is breathtaking.) People favored NGDP targeting even before 1934. Hayek favored it in the early 1930s, for instance. Where did you get the idea that economists could only favor a target once Kuznets defined the concept? Have you never heard of the circular flow? Do you not know that nominal income targeting and NGDP targeting are exactly the same thing?

    Second, to claim that NGDP targeting and price level targeting are the same thing is just idiotic. There was a debate during the 1920s and 1930s about which of the two was superior. They aren’t even close to being the same thing. Hundreds of economists favored PLT in the 1920s, why do you think Mints was special?

    And why would the fact that NGDP targeting has been around for a long time be an “inconvenient truth”? I’ve said that about 1000 times in my blog.

    I’m doubtful that you “misspoke” as you seem almost completely ignorant of the monetary history of the gold standard. No ill effects after the Civil War? And are you actually claiming that central banks did not sterilize gold flows before WWI? Do you actually know anything about the pre-WWI gold standard? And no, France did not go “60%” of the way back to the old gold standard.

    There has never been a gold standard that was as “pure” as its fans would like, so that criterion is useless.

    Charlie. In 2008-09 we had the biggest fall in NGDP since the 1930s. How could that not have contributed to the debt crisis, given that most debts are nominal debts? And if it did contribute (as almost all experts would agree) are you actually claiming the Fed had nothing to do with the fall in NGDP?

    BTW, interest rates have nothing to do with “monetary factors.”

  77. Gravatar of Adam Platt Adam Platt
    11. December 2014 at 12:28

    That seems to be the Austrian debate strategy. Throw so many made up facts at the wall and demonstrate such fundamental misunderstandings of basic monetary and economic concepts that the other person isn’t sure how to respond if he doesn’t have several hours to address all of these errors before making a retort.

  78. Gravatar of Charlie Jamieson Charlie Jamieson
    11. December 2014 at 12:39

    Wasn’t the fall in NGDP the result of the debt crisis — the moment in time when institutions realized ‘Oh, crap, we lent money we can’t get back,’ and ‘Oh, crap, we borrowed money we can’t pay back.’
    Everything since then has been an exercise in trying to change that reality. All of the Fed’s actions were a result of that moment, not the cause.
    The Fed is a bystander to all of this. It is being moved by events, not the other way around, and is acting only around the margins.

  79. Gravatar of ssumner ssumner
    11. December 2014 at 13:33

    Charlie, You said:

    “Wasn’t the fall in NGDP the result of the debt crisis”

    You’ve reversed causation. Google my essay “The Real Problem was Nominal.”

    Suppose the Fed had been pegging the price of NGDP futures contracts in 2008. What then?

  80. Gravatar of Daniel Daniel
    11. December 2014 at 13:44

    Ben B,

    Do you check under your bed for statists before you go to sleep ?

  81. Gravatar of Ben B Ben B
    11. December 2014 at 14:09

    Daniel,

    Statists don’t sleep under my bed; they sleep in it. Haven’t you ever heard the saying “keep your friends close, and your enemies closer”?

    Besides, it depends on what you mean by statist. If you mean violent thugs, then yes, I always check to make sure there aren’t any violent thugs in my house; however, if you’re talking about beta-statists, which are individuals who only advocate the use of violent thugs, then no, I don’t have to worry about them; they’re harmless by themselves.

  82. Gravatar of Charlie Jamieson Charlie Jamieson
    11. December 2014 at 14:15

    My reading was that institutions assumed the Fed and/or the market would always buy their debt, but when the staggering nominal cost of that debt became apparent, the markets blinked, the Fed hesitated and we had a crisis. Since then, the Fed has done its best to cover the cost of that debt with various pretend and extend measures but the price has been a lengthy recession for the nonfinancial sector
    Now the Fed is desperately trying to signal to the financial institutions that it can’t and won’t cover their excesses. Ultimately, though, the Fed is controlled by the financial houses and will continue to back them up — at the cost to the rest of us.

  83. Gravatar of Major.Freedom Major.Freedom
    11. December 2014 at 19:26

    Both Philippe and Daniel have proved they don’t understand Austrian theory. I have shown where they have made errors. No responses on topic, no “oops I made a mistake that Austrian theory makes prescriptive statements”. Nope, just insults. I feel sorry for them. They have not shown where I made errors.

    Yet in their guts they know Austrianism wrong.

    I see the word “pseudo-science” being tossed around, I see name calling, swearing…such immaturity.

    They will never make me feel as down on myself as they clearly do on themselves. At some point they will learn that the more they attack me, the more sure will I be of what I think is right. Nobody goes through as much trouble as they do to name call unless they were insecure and had strong doubts of their own beliefs. Only if they approach me with respect, with actual arguments on topic, will they be taken seriously.

    —————–

    Sumner:

    “Ray, Congratulations for one of the most inaccurate paragraphs posted all year on my comment section (ignoring MF of course)”

    What inaccurate statement did you show I made? [Crickets]

    I have shown so many inaccurate statements made on this blog I’ve lost count.

    “Hayek favored it in the early 1930s, for instance.”

    And I favored an ugly girl when I was drunk. But then I read a book advocating for a denationalization of money, written by Hayek when he was older and more intellectually developed.

    Would you be OK if someone continually cited what you said when you were young that differs from what you think today?

    NGDP targeting was and remains as fringe as the class on this blog.

  84. Gravatar of Major.Freedom Major.Freedom
    11. December 2014 at 19:35

    Daniel wrote:

    “Either Mises & co are on to some deep insights which everybody else conspires to keep hidden – or they are in fact very mistaken.

    Which do you think is more likely ?”

    Mises was indeed on to some deep insights, but it is not necessary that people “conspired to keep it hidden” in order to explain why it is not mainstream, including your second option.

    Yes, the mainstream approach to economics is indeed mistaken. Why would that be so unsettling to you? Are you of the belief that the consensus has never been mistaken? Again, you can’t think without so many flaws because you have not studied the requisite topics. In this case, a study of history of knowledge would have helped you avoid making the error you just made.

    ———

    Philippe:

    “Mf is a nasty, completely irrational and profoundly dishonest piece of shit”

    You have not SHOWN how any of these claims are true. You’re just having another one of your intellectual meltdowns.

  85. Gravatar of Ray Lopez Ray Lopez
    11. December 2014 at 20:02

    Sumner in italics :

    Ray, Congratulations for one of the most inaccurate paragraphs posted all year on my comment section (ignoring MF of course):

    Thank you for the congrats. I see ‘new fresh blood’ stirs things up, as it should. I lurk here on occasion but usually don’t post.

    “Mr. Mints is from your alma mater, so if it matters to you, find out which price level targeting he favored. If I was you, I would let sleeping dogs lie however, as it’s probably an inconvenient truth that targeting NGDP is not new. Targeting a price for a basket of commodities is analogous to GDP btw, since “The concept of GDP was first developed by Simon Kuznets for a US Congress report in 1934″³.”


    Where does one start? (The logic of the final sentence is breathtaking.) People favored NGDP targeting even before 1934. Hayek favored it in the early 1930s, for instance. Where did you get the idea that economists could only favor a target once Kuznets defined the concept? Have you never heard of the circular flow? Do you not know that nominal income targeting and NGDP targeting are exactly the same thing?

    Answers: Yes, I’ve heard of circular flow, also (from memory) called the hydraulics economic model, reduced to an actual model involving water flows, as seen on YouTube. No, I did not know about nominal income and NGDP are exactly the same thing, though since GDP can be derived from income (as it can from production) I guess so. I would appreciate some pointers (in the future) so I could study them. I’m a programmer and a legal type, not an economist. BTW there should be a correlation, as in coefficient of, between price level targeting of a basket of commodities and NGDP. And to be fair, I don’t really care who came up with NGDP–I am pleasantly surprised to hear that you don’t claim sole authorship (as often seems to be the case in your charlatan-esque, polemic field).


    Second, to claim that NGDP targeting and price level targeting are the same thing is just idiotic. There was a debate during the 1920s and 1930s about which of the two was superior. They aren’t even close to being the same thing. Hundreds of economists favored PLT in the 1920s, why do you think Mints was special?

    No, sorry, this is clearly wrong. I’m not about to get into a pissing contest with a tenured professor who has international recognition on his own blog, but this is the kind of “polemic” I was talking about above. There is clearly a correlation, there must be, between such similar concepts, viz, as there is between ape DNA and human DNA (about 98% similar) and cotton plant DNA and human DNA (about 60% similar). You are exaggerating to make your case. Nuff said let’s move on.

    [stuff deleted]

    “I’m doubtful that you “misspoke” as you seem almost completely ignorant of the monetary history of the gold standard. No ill effects after the Civil War? And are you actually claiming that central banks did not sterilize gold flows before WWI? Do you actually know anything about the pre-WWI gold standard? And no, France did not go “60%” of the way back to the old gold standard.

    Don’t doubt, believe Dr. Sumner: I misspoke. Yes, no ill effects after the Civil War akin to the ill effects of the Great Depression. No, I am NOT actually claiming central banks did not sterilize gold flows before WWI, that was a misunderstanding based on limited prose from your ill-suited blog (WordPress…pfft), as Cooper in his paper (that I read) makes clear, central banks DID sterilize pre-Fed. But my point is that a central bank ‘gamed’ gold standard is not the same as one where millions of people own and trade gold. CSci analogy: centralized spoke-and-hub network vs decentralized, ‘crowd sourced’ peer-to-peer network. Latter is less liable to ‘hard fail’ when the “hub” gets monetary policy wrong, as it arguably did in the 1930s. Both systems are susceptible to human emotions (hence booms and busts) but at least you won’t get policy errors in the latter. That’s what I was trying to say. Sorry for not being clear.

    As for 60%, it was in fact 33% (see this chart- http://en.wikipedia.org/wiki/French_franc#mediaviewer/File:FrancEuro1907-1959.png and note 1/3 = 33%) but in a way that makes my case: France, even after a massive two-thirds devaluation of gold after WWI (that was where the 60% figure came to mind), did not fall into a Great Depression. And in fact, a revaluation of the franc during the 30s (see the chart above) occurred in France during the Great Depression and after France was off the gold standard (in the early 30s, I think it was 1932, notice the franc peaks in 1936, after France is OFF the gold standard). Conclusion: gold standard was at worse not a factor in France’s troubles, and at best arguably kept France from falling into depression, since it allowed the franc to be weaker than when it was off the standard. Again, on this last point, from the chart note that the franc got stronger in today’s money during the 1930s, when it was off the gold standard. That’s all I’m going to say in this limited space. Thanks for reading and I will go back to lurking…

  86. Gravatar of Daniel Daniel
    12. December 2014 at 02:30

    Ray Lopez,

    So apparently we never had a “real” gold standard, huh ?
    It kinda reminds of how the communists complain that proper communism was never implemented.

    Major_Moron – always an imbecile.

    Ben B – you are a very ignorant man.

  87. Gravatar of Major.Freedom Major.Freedom
    12. December 2014 at 04:10

    Daniel:

    You have not shown anything I said to be “embecilic”.

    More name calling means you lose. Again.

    Communism was implemented actually. Communists who say otherwise are wrong. Dictatorships are inevitable when the norm of banning all private property is attempted to be put into practice.

    What you are “reminded of” are just the same incorrect beliefs you believe are true. A gold standard is not taking place when there is a government that initiates coercion to pyramid its own paper as a currency, bans competition, and then devalues each redeemable ticket.

    Your inability to be able to distinguish freedom from coercion reminds me of the quote from Goethe:

    “None are more hopelessly enslaved than those who falsely believe they are free.”

  88. Gravatar of Major.Freedom Major.Freedom
    12. December 2014 at 04:47

    Daniel wrote in response to Nick:

    “In 2007, most everybody would have agreed with prof Sumner.”

    Ah the retreat to authority redux, this time retreating to one’s imagination of an authority that should have been in the past but wasn’t.

    Try harder? Not needed. It is very easy to expose the flaws in his writings.

    Daniel wrote:

    “Do you check under your bed for statists before you go to sleep ?”

    I wonder how long it is going to take him to realize he is just communicating his fears and inner demons with comments like that.

  89. Gravatar of ssumner ssumner
    12. December 2014 at 06:08

    Charlie, Not sure what any of that has to do with monetary policy.

    Ray, You are in way over your head. Your data on France is simply wrong. There was no revaluation in 1932–they left gold in 1936.

    The franc was devalued by more than 80% before returning to gold.

    So now “no ill effects” is “no Great Depression” after the Civil War? OK.

    And there is no important difference between apes and people? OK. Of course PLT and NGDPLT share 50% of their DNA, not 98%. So ??? But you still didn’t tell me why Mints’ views are important. You are the one who made the big deal out of them. I told you that 100s of economists favored PLT in the 1920s. Can you please explain to me why you keep making a big deal about Mints. Somehow you thought I’d be upset by the fact that he was one of 100s who favored PLT. But why? I’m still waiting for an answer.

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