Conservatives prefer socialism to 3% inflation (example #147)

I have often commented on how conservatives seem so opposed to slightly higher inflation that they’ll often end up tacitly or explicitly supporting much more statist policies instead.  The example I always think of was 1933, when conservatives were apoplectic over FDR’s attempts to bring prices back up to 1929 levels, but were OK with outrageously destructive statist policies like the NIRA.  We saw many such examples in the last year of the Bush administration, with its fiscal stimulus, auto bailouts, bank bailouts, etc, etc.  And now we see the same dynamic playing out in Britain, where the Conservatives refuse to raise the BOE’s mandate to 3% inflation, or 5% NGDP growth, but seem quite willing to socialize the banking system:

Chancellor of the Exchequer George Osborne and Bank of England Governor Mervyn King are preparing two programs to increase the flow of credit amid a deteriorating outlook in the euro area.

The U.K. central bank will activate an unused plan to inject at least 5 billion pounds ($7.8 billion) a month into the financial system. Another plan will allow lenders to swap assets with the central bank in return for money to be lent to companies and households. The Treasury will indemnify the bank for any losses.

I’m actually pretty sympathetic to the Cameron government.  They are trying to do the right thing; fiscal austerity and monetary stimulus.  Perhaps it’s simply impossible for them to sell a 5% NGDP target, level targeting.  Maybe their political base would revolt—I’m in no position to judge.  But whatever the reason, it’s very discouraging to see conservatives over and over again finding themselves forced to support outrageous statist policies, because they were unable to implement the free market solution to full employment—enough money to keep NGDP growing at a steady rate.

Conservatives need to realize that 5% NGDP growth isn’t the end of the world.  There are much worse things.  Australia has averaged 7% NGDP growth for decades and they have a very small government, virtually no national debt, and the healthiest economy in the Western world.  There are worse things than steady 5% NGDP growth.  Seriously, conservatives need to end their obsession with hard money, before there’s no more free enterprise system left to save.

Five percent NGDP growth, level targeting.

That’s all.

HT:  Evan Soltas, 123


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135 Responses to “Conservatives prefer socialism to 3% inflation (example #147)”

  1. Gravatar of dwb dwb
    15. June 2012 at 10:27

    amen.

    excellent blogging, excellent excellent blogging.

  2. Gravatar of Bill Woolsey Bill Woolsey
    15. June 2012 at 10:32

    But we have a solemn duty to maintain the gold standard…

    oh, that’s right. There is no gold standard.

  3. Gravatar of Morgan Warstler Morgan Warstler
    15. June 2012 at 10:32

    That is our bet, Scott.

    In November you can have all the easy money you deem sufficient, but until we are sure Obamacare and whatever comes after Obamacare are for nigh, I can’t promise anything.

  4. Gravatar of foosion foosion
    15. June 2012 at 10:34

    Conservatives don’t object to fiscal stimulus that goes to the rich and powerful, they only object to spending on the poor and middle class. Their objection isn’t to socialism, it’s to the failure to direct resources towards the best off.

  5. Gravatar of Becky Hargrove Becky Hargrove
    15. June 2012 at 10:36

    I have especially wondered why the conservatives have been willing to let the best and the brightest just slip through the cracks.

  6. Gravatar of Greg Ransom Greg Ransom
    15. June 2012 at 10:37

    Who? Can you give us examples?

    “I always think of was 1933, when conservatives were apoplectic over FDR’s attempts to bring prices back up to 1929 levels.”

    What economic theory were these ‘conservatives’ using, the Real Bills doctrine?

    What?

    What makes them ‘conservatives’ besides your view of their position on mney policy?

    What work is the word ‘conservative’ doing here. Is it helping us understand something, or blocking understanding.

  7. Gravatar of Greg Ransom Greg Ransom
    15. June 2012 at 10:40

    Most ‘conservative’ intellectuals were not OK with the Bush stuff.

    It was the mainstream GOP pols who supported the Bush stuff, folks without a solid ideological or intellectual or scientific bone in their bodies.

  8. Gravatar of Britmouse Britmouse
    15. June 2012 at 10:50

    I blame creditism, they are trapped in the mindset that bank lending determines AD. Treasury orthodoxy? It’s a re-run of 2008, with Mervyn King egging them on by refusing to ease the monetary policy stance, insisting that the banks have solvency issues at the same time as he allows an NGDP collapse… causing the banks to have solvency issues. Depressing.

  9. Gravatar of ChacoKevy ChacoKevy
    15. June 2012 at 10:54

    @foosion – Agree with Greg:
    Political conservatives aren’t really conservative. And besides, we’ve got our issues too. I’m a Peace Corps, ACLU civil liberties kind of liberal… and as such feel quite lonely!

  10. Gravatar of 123 123
    15. June 2012 at 11:06

    “socialize the banking system”

    I am pretty sure the BoE credit easing will preserve the free market in allocating credit, it will be similar to Draghi’s LTRO. Is he a socialist too?

    George Selgin has proposed auction scheme to buy private sector assets, is he a socialist too?

    There is a treasury involvement in the UK easing, but it is equivalent to an increase of central bank’s capital. Well, larger capital of central bank allows to reduce macroeconomic volatility.

    A better description would be “conservatives prefer a mega-sale of cheap deflation hedges to a larger inflation target.”

  11. Gravatar of D.Gibson D.Gibson
    15. June 2012 at 11:14

    The politics in regions with powerful banks seems favor monetary stimulus in the form injecting capital in banks rather than QE. Perhaps in the Southern Hemisphere central banks are not controlled by mega-banks.

    Since QE and global inflation is the only path out of this mess, it will get done eventually. It is just a matter of time and finding the right scapegoat. Romney has China. Obama has Greece/Japan.

  12. Gravatar of 2008 All Over Again « uneconomical 2008 All Over Again « uneconomical
    15. June 2012 at 11:16

    […] Scott is not impressed either. Share this:TwitterFacebookLike this:LikeBe the first to like this. Categories: Fiscal Policy, […]

  13. Gravatar of Cedric Cedric
    15. June 2012 at 11:22

    Why did so many American conservatives abandon Milton Friedman?

    1. Not all of them did. If you’ve got National Review, you’ve got a good foothold. Nevertheless . . .

    2. Correlation/Causation confusion. We have a strong currency when the economy is good; therefore a strong currency will cause the economy to be good.

    3. Classical liberalism. Many conservatives have a deep suspicion of central control, and inflation feels like currency manipulation by shadowy elites who may not have society’s best interest in mind.

    4. Moral hazard. Inflation punishes savers and bails out debtors.

    5. Taxation. Inflation is a tax — even worse, a hidden tax wrapped into high prices so the public blames corporations instead of the government.

    As a good classical liberal, I found a lot of the above very convincing. It took a lot of studying for me to join the MM camp and buy the t-shirt.
    http://www.cafepress.com/cp/customize/product2.aspx?from=CustomDesigner&number=654143869

  14. Gravatar of Negation of Ideology Negation of Ideology
    15. June 2012 at 11:22

    I emphatically agree with this post. But I think it’s even more than that – when conservatives destroy the economy with hard money like they did in the 1930’s it leads to a bigger reaction. People blamed the free market and small government for the Depression, instead of pointing the finger at hard money. That led directly to the New Deal and the massive expansion of the federal government.

    If we had ended the gold standard in 1930, no one would remember the stock market crash of 1929. No one remembers the Panic of 1920-1921 because the gold standard was suspended and Benjamin Strong loosened monetary policy. If we did the same in 1929-1930, we would have had a short recession. The federal government would have stayed small – it would still be spending less than the state and local governments in total. We could have paid off the national debt by the end of the 1930’s.

    The lesson is stable money leads to a strong economy which leads to small government. Unstable money leads to a bad economy which leads to big government.

  15. Gravatar of Britmouse Britmouse
    15. June 2012 at 11:24

    UK breakeven rates actually fell slightly today. That’s how effective this dramatic policy intervention was.

  16. Gravatar of ssumner ssumner
    15. June 2012 at 11:24

    Thanks dwb.

    foosion, Good point.

    Greg, Virtually all conservatives opposed FDR dollar depreciation policy.

    Britmouse, I agree.

    123, You said;

    “I am pretty sure the BoE credit easing will preserve the free market in allocating credit,”

    If the BOE is backstopping the loans then in no sense is the “free market” allocating credit.

    I haven’t seen Selgin’s plan, but I read a long paper he wrote recently on reforming the Fed, and I don’t recall any socialism in that paper.

    D. Gibson, But tight money doesn’t even help the banks.

  17. Gravatar of ssumner ssumner
    15. June 2012 at 11:28

    Cedric, Good comment.

    Negation, You said;

    “I emphatically agree with this post. But I think it’s even more than that – when conservatives destroy the economy with hard money like they did in the 1930″²s it leads to a bigger reaction. People blamed the free market and small government for the Depression, instead of pointing the finger at hard money. That led directly to the New Deal and the massive expansion of the federal government.”

    Yes, I’ve made similar arguments–it applies to Argentina in 2002 as well.

    The worst thing about the gold standard was that it was so hard to end.

    Britmouse. That’s not good.

  18. Gravatar of Andy Harless Andy Harless
    15. June 2012 at 11:32

    When it comes to money, inflation is, quite generally, the opposite of socialism, as Nick Rowe has shown. Less inflation means more real money demand, which means a larger central bank.

  19. Gravatar of Evan Soltas Evan Soltas
    15. June 2012 at 11:34

    Scott,

    I don’t know quite enough about the pair of Bank of England policies — I cited them in my post to make the point that doing something, anything to ease monetary policy would prove helpful — and I agree with your broader point about conservatives’ aversion to higher inflation, even when it represents the “lesser evil, but I’m not sure that the BoE policies entirely match up with your point that they constitute “socialism.”

    The first one is more or less a pre-emptive opening of the discount window, which makes sense to preserve bank liquidity against financial market pressures in Europe. (See here: http://www.bbc.co.uk/news/business-18455151) I don’t think that this is a problem temporarily higher inflation, or an NGDP target for that matter, could fix. What this boils down to is the Bank of England acting as “lender of last resort” for the banks.

    “Funding for lending” strikes me as harder to defend, because it seems like an awkward way to run around the conventional monetary policy channels. Yet to a certain extent, I think it is intended not mainly as a stimulus, but as a financial stability program — the Bank of England is trying to get Fleet Street to unload “toxic,” or at least “unsavory,” assets at a steep write-down in exchange for gilts. I’d imagine that many of these assets will be highly exposed to European risk, so to that extent “funding for lending” is reminiscent of CB programs during 2008. Again, reading this as not a stimulus policy, but as a financial stability policy, I don’t think higher inflation or NGDP growth would be a sufficient fix.

    Also, inflation is 3 percent in the U.K.; headline was over 5 percent earlier this year. (http://research.stlouisfed.org/fredgraph.png?g=82E) NGDP remains way off path, of course.

    Your thoughts are appreciated.

    – Evan Soltas

  20. Gravatar of Saturos Saturos
    15. June 2012 at 11:41

    The thing is, Scott, socialism can be a lot more profitable than having your wealth inflated away…

    Perhaps I should start signing off too.

    – Saturos

    …nah, doesn’t sound as impressive

  21. Gravatar of Max Max
    15. June 2012 at 11:49

    Market Monetarists talk a lot about central banks intervening in markets, which – while far from socialism – is more heavy handed than conventional monetary policy. In conventional monetary policy, the central bank doesn’t take any risk, it just induces the private sector to take more (or less) risk.

  22. Gravatar of Major_Freedom Major_Freedom
    15. June 2012 at 11:53

    NGDP remains way off path, of course.

    That depends on how far back you’re willing to go.

    If you accept that wage rates and prices can adjust to new money and spending growth condition within 2 years, then we must say that NGDP is “on path”, because NGDP growth has been 4-5% since 2010. If you think the time needed is longer (because unemployment remains high), then you have the burden of saying how much more time is needed (or you can keep the NGDP theory nonfalsifiable and say “when unemployment filly gets below 5%, then 4-5% NGDP growth “worked”).

  23. Gravatar of Morgan Warstler Morgan Warstler
    15. June 2012 at 11:54

    “Conservatives don’t object to fiscal stimulus that goes to the rich and powerful, they only object to spending on the poor and middle class. Their objection isn’t to socialism, it’s to the failure to direct resources towards the best off.”

    This is wrong. Conservatives are the TAX PAYERS. The $ came from them, when they get it spent on shit they like, the government is not “giving” them anything, they are simply hacking the system, so the $ isn’t “given” to people who didn’t pay the taxes.

    This leads to false equivalence on Guns or Butter.

    If conservatives got to choose between “keep your taxes” or “guns” – they wouldn’t be buying as much Military.

    BUT since liberals insist the money is instead spent on BUTTER, and keeping your taxes isn’t on the table, you see conservatives choose GUNS.

  24. Gravatar of Major_Freedom Major_Freedom
    15. June 2012 at 11:56

    That last paragraph was for the US, that is, not the UK!

  25. Gravatar of Morgan Warstler Morgan Warstler
    15. June 2012 at 12:04

    Conservative political strategies work:

    http://www.redstate.com/bobbyjindal/2012/06/14/liberal-and-incompetent/

    Until MM pays its due respects to the team that intends to win at all costs, our movement still screams of the rank amateurism of DeKrugman.

    If Obama wins, then sure NGDPLT is conservatives’ best strategy, but after 32+ years of playing this thing out, only a fool wouldn’t ride to win in November.

    —-

    Perhaps we Fed watchers ought to be asking themselves, what could the FED and ECB do to just tread water till November?

  26. Gravatar of Mike Sax Mike Sax
    15. June 2012 at 12:07

    Major nothing you say is falsifiable either but you claim that as a virtue.

    Why does “NGDP theory” have to be falsifiable but Major (un)Freedom style Austrain theory doesn’t?

  27. Gravatar of Bill Ellis Bill Ellis
    15. June 2012 at 12:20

    S.S.
    “…the right thing; fiscal austerity and monetary stimulus.”

    I could have sworn that at times you have advocated for both fiscal and Monetary Stim. I know one of your regulars indicated as much.

  28. Gravatar of Major_Freedom Major_Freedom
    15. June 2012 at 12:25

    ssumner:

    Conservatives need to realize that 5% NGDP growth isn’t the end of the world. There are much worse things. Australia has averaged 7% NGDP growth for decades and they have a very small government, virtually no national debt, and the healthiest economy in the Western world. There are worse things than steady 5% NGDP growth. Seriously, conservatives need to end their obsession with hard money, before there’s no more free enterprise system left to save.

    Don’t you mean conservatives who want hard money AND more state intervention? Yes, THOSE conservatives will succeed in destroying capitalism. But it won’t be because of their hard money advocacy. Nice spoiling of the well fallacy. By attributing “hard money” advocacy to government intervention loving conservatives, you can then connect the destruction of capitalism with advocating for hard money.

    Nice try, but I can see right through that transparent tactic.

    You are completely ignoring the conservatives who want hard money AND less state intervention. THOSE conservatives will not be responsible for any destruction of capitalism. Indeed, it is those who want hard money and limited/no government who will save free enterprise from government intervention, and in that group you can include those who want more government intervention AND central bank inflation. THOSE people, which includes you, will be responsible for the destruction of capitalism.

    Only one obsessed with inflation would say that we need more central bank inflation in order to save capitalism. Hard money, limited government advocates are the ones who are gassing the peddle to free enterprise and putting the brakes on the destruction of capitalism.

    Seriously, those obsessed with loose money need to understand that there are worse things in life than a free market in money production. There hasn’t been a world central bank issuing a world fiat currency in all of human history. Decentralization of money production has empirical evidence that shows we not only don’t need central banking, but those isolated locations that deviate too far from what would have been a gold standard, end up destroying their own civilizations.

    The only reason there is some semblance of international stability is because money production is decentralized into various fiat currencies. More decentralization will only make the world market function better. The optimal of course is decentralization right down to the individual person level. In that context, world market stability is maximized.

    As it stands, we’re somewhere around past the mid-point, between total decentralization (free market in money production) and total centralization (world central bank). The reason why there are so many countries in the world with high unemployment, and volatile economies, is because we’re too close to a world central bank system.

    Just look at electronics. Almost completely decentralized. There are no systematic problems in the world market of electronics. It’s been a rousing success. The same thing can be had with money production. Decentralize money production, and we’ll have more market stability than we can imagine.

    Fiat bugs need to grasp the importance of decentralization of money production, before they end up destroying the monetary system altogether.

  29. Gravatar of Major_Freedom Major_Freedom
    15. June 2012 at 12:27

    Mike Sax:

    Major nothing you say is falsifiable either but you claim that as a virtue.

    I already told you that I am not identifying non-falsifiability in NGDP targeting theory as a pejorative. I am doing it to show that it is non-falsifiable, contrary to prevailing beliefs that it is empirical.

    Why does “NGDP theory” have to be falsifiable but Major (un)Freedom style Austrain theory doesn’t?

    I didn’t say NGDP theory has to be falsifiable.

    Way to not keep up as usual.

  30. Gravatar of Bill Ellis Bill Ellis
    15. June 2012 at 12:37

    One argument I keep hearing form the M& M’s against the government’s ability to raise AD through fiscal stim is that the FED will work to counteract it. Maybe. But why? I understand that a stubborn inflation target would work that way. But in absence of stubbornness…why ?

    What I do really Love about Market Monetarism is the Idea of level GDP targeting. It is absolutely Keynesian in its counter cyclical utility. It seem like a Great Keynesian tool.

  31. Gravatar of Eric G Eric G
    15. June 2012 at 12:38

    Cedric said,
    “4. Moral hazard. Inflation punishes savers and bails out debtors.
    5. Taxation. Inflation is a tax “” even worse, a hidden tax wrapped into high prices so the public blames corporations instead of the government.”

    I’m sick of hearing inflation is a tax, it’s not. 0% inflation is impossible if not harmful and deflation isn’t a tax return. It’s not a zero sum game. It helps debtors but hurts the banks, who in this recession can thank themselves for being the main driver of this recession. Inflation also helps wages go up, since overall wages rise with moderate inflation. Very high inflation isn’t good for anybody, but just because prices rise doesn’t mean it’s all bad. You’re just taking the position of the banks and the rich.

    I actually wanted to comment about Australia’s economy. You have praised it and so has Joseph Stiglitz (but for their fiscal stimulus program). Where can I access data on this country? Also, are there any good books on the Australian economic and political system?

  32. Gravatar of Eric G Eric G
    15. June 2012 at 12:41

    Also, Major

    Isn’t hard money a form of government intervention? Why does the government get to determine the gold standard? I want a jade standard, why should the government force me to use their measuring system? Also, how do you buy a pack of gum with a gold bar?

  33. Gravatar of Britmouse Britmouse
    15. June 2012 at 12:43

    Evan, I agree on the LOLR operation. There is not much detail on the “funding for lending” plan yet. It sounds like it will be something like the Bank’s 2008 Special Liquidity Scheme, or the ECB LTROs, but with a specific focus on the bank buying “real economy” loans. The Bank obviously thinks it is far enough outside normal monetary policy to require Treasury underwriting.

  34. Gravatar of 123 123
    15. June 2012 at 12:43

    “If the BOE is backstopping the loans then in no sense is the “free market” allocating credit.

    I haven’t seen Selgin’s plan, but I read a long paper he wrote recently on reforming the Fed, and I don’t recall any socialism in that paper.”

    There are two ways a central bank policy could be similar to socialism:

    1. allocation of credit
    2. subsidized credit

    Both new UK policy and Selgin’s recent Fed reform proposals use auctions to avoid the first kind of the problem.

    You seem to argue that because Treasury is backstopping BoE, credit will be provided to the private sector at below market prices.
    Now if the loans will be provided at fixed prices and limited quantities the charge might be correct, but it is much more likely that the loans will have full allotment and a floating rate with a small credit spread. In the case of floating rate loans there is no subsidy, because the commercial banks will be incentivized to use the credit easing facility to the extent that is most likely to achieve BoE inflation goals. If banks mistakenly believe that there is a subsidy and take too many of these loans, inflation will overshoot the BoE target and the floating rate will be unexpectedly high.

    I say the socialism is not in the UK. It is in Europe now, where Draghi is refusing to renew three year LTROs while the Rome is burning in order to avoid subsidizing the price of credit.

    To be clear, there is also an example of Bernanke’s credit easing in October-December 2008. Like you today in the case of the UK, Austrians claim Bernanke provided credit at below-market prices at the time. Market monetarists should agree that it was the opposite – the price of credit was way too high at the time as a consequence of tight monetary policy. King is trying to avoid Bernanke’s mistake.

  35. Gravatar of Bill Ellis Bill Ellis
    15. June 2012 at 12:43

    Mitt Romney wants to fire Ben Bernanke because his policy has been to LOOSE.

    For M&M to support Romney they would have to believe that Romney can not be taken at his word.

    http://www.lonerepublic.com/mitt-romney-says-he-would-fire-ben-bernanke-for-printing-too-much-money/

  36. Gravatar of Cedric Cedric
    15. June 2012 at 12:50

    Eric, you said:

    “You’re just taking the position of the banks and the rich.”

    You aren’t talking about me, right? You realize that my post you were responding to was about identifying BAD arguments against inflation … right?

  37. Gravatar of Tommy Dorsett Tommy Dorsett
    15. June 2012 at 12:50

    Scott – Do you think steady 4% NGDP from here on (basically, what we’ve had since late 2009) would be enough to ever return us to full employment. If I take the Sumner model of the nominal wage rate and subtract the nominal growth rate, I get a wage rate that is at least a few hundred basis points below the NGDP growth rate. Would this be enough to allow the labor market to fully adjust over time and eventually get us to 5.5% unemployment?

  38. Gravatar of Morgan Warstler Morgan Warstler
    15. June 2012 at 12:56

    Bill Ellis,

    1. Scott meant GOVT. SPENDING goes down. In the past he has said Fiscal Stimulus and Tax Cuts are ok.

    But technically, Tax Cuts cannot be fiscal stimulus, because the govt. doesn’t get to spend money until it actually collects it in taxes.

    Tax breaks, tax credits etc. are the govt. admitting it shouldn’t have the money (that it is better int he private sectors hands), so it isn’t going to use force to go take it.

    2. In Nov. everyone’s attitude about everything will change. Romney will make big ole cuts to spending, big ole tax cuts, and the Fed will keep the income levels growing (with easing).

    The important thing is that everyone sees the economy recover when we cut govt.

    That is the WHOLE POINT. See Wisconsin.

    Bill imagine a world where:

    1. every single public employee earns 25% less (simple example)

    2. the budget deficit stays the same / grows until the next Democrat is President

    3. with the new tax breaks, we go hire some of the unemployed.

  39. Gravatar of Morgan Warstler Morgan Warstler
    15. June 2012 at 13:00

    Tommy Dorsett,

    Good question, yes! Scott prefers more, but if you push him I think he’ll say the real upside comes from the LT credibility.

    And if we do my Guaranteed Income plan to auction the unemployed:

    http://pegobry.tumblr.com/post/21427545322/morgan-warstler-via-steve-randy-waldman

    We can be at 5% unemployment in a year – and have 30M more people working.

  40. Gravatar of ssumner ssumner
    15. June 2012 at 13:05

    Andy, I agree. I did a post a while back comparing the base/GDP ratios in Japan, the US and Australia. I think it was 23% in Japan, 18% in the US, and 4% in Australia–which has by far the easiest money.

    Evan, Yes, I saw your post and I didn’t have any problem with it because you were focusing on different issues.

    Regarding the asset swaps, someone will have to remind me if the Fed indemnified banks for any losses due to decline in asset values. I can’t imagine why a central bank would want to do this.

    I do think 5% NGDP growth (which is much higher than what they have been running in recent quarters), would help the UK banking system quite a bit. Of course I’m referring to level targeting.

    I realize inflation has been running at around 3%, although some claim that’s due to flaws in the price index (the GDP deflator has been below 2%. But inflation forecasts for the UK are for well below 3% going forward, so a 3% target, level targeting, would require much easier money. Having said that, I think 5% NGDP targeting would be better from both a political and practical perspective.

    BTW, I encourage my readers to look at all your recent posts, they are excellent. I’ll try to do a link sometime.

    PS. I think Fleet Street is for the media–perhaps our British readers can tell you the name of the banking street (it’s very long, and I can never remember it.)

    Saturos, Yes if we are talking about hyperinflation—but 3% inflation?

    Max, You said;

    “Market Monetarists talk a lot about central banks intervening in markets, which – while far from socialism – is more heavy handed than conventional monetary policy.”

    You have it exactly backward. What we have now is unconventional. I oppose that! With 5% NGDP targeting we’d just need conventional OMOs of Treasuries. I’m opposed to unconventional intervention in non-Treasury markets.

    If I use the term “unconventional” I simply mean non-targeting of interest rates. That’s all. I oppose buying non-Treasury assets.

    Bill, I think I’ve consistently favored easier money and tight fiscal, although as a second best I did support supply side fiscal stimulus, like a employer-side payroll tax cut.

    You said;

    “I understand that a stubborn inflation target would work that way. But in absence of stubbornness…why ?”

    The Fed’s been running 1.1% inflation for nearly 4 years, despite high unemployment, and you still aren’t convinced they are stubborn inflation targeters?

    There’s nothing Keynesian about NGDP targeting, but nothing anti-Keynesian either. But if that makes you like it more, then great.

    Eric, Stiglitz does realize they have almost no national debt, doesn’t he? Their fiscal stimulus had nothing to do with their success–Britain’s was even bigger.

    Sorry, I don’t know where the data is, but my commenters might.

  41. Gravatar of Cedric Cedric
    15. June 2012 at 13:11

    Morgan,

    “2. In Nov. everyone’s attitude about everything will change. Romney will make big ole cuts to spending, big ole tax cuts, and the Fed will keep the income levels growing (with easing).”

    Maybe. OR, Bill Ellis is right, and Romney appoints Ron Paul to chair the Fed and we see a massive contraction. Either way, I’m voting for him.

  42. Gravatar of ssumner ssumner
    15. June 2012 at 13:12

    123, I don’t follow any of that. Why should the BOE absorb losses earned by private banks? And how does that not affect the allocation of resources if banks know that their losses will be absorbed by the Treasury? I must be missing something. Central banks should have no involvement with commercial banking at all. They should buy and sell government debt with whoever offers the best price, and completely ignore the banking system.

    Tommy, Yes, if the government never again raised the minimum wage, and if they returned the maximum UI benefit to 26 weeks.

    But it would take too long.

  43. Gravatar of Morgan Warstler Morgan Warstler
    15. June 2012 at 13:32

    Cedric, my daydream was Ron Paul refuses to not run as independent unless Mitt publicly guarantees him the Fed chair.

    Also, we see more proof WHY Conservatives have to be so damn mean:

    http://marginalrevolution.com/marginalrevolution/2012/06/is-spain-finally-going-to-be-for-rent.html

    Such is life, if it takes absolute financial terror for Spain to change their property rental laws, then that’s what it takes.

    —–

    As I have said before, the left ought to come to terms with the weakness of their position, and CHANGE themselves, so that the aren’t forced to through pain and depredation.

    Obama chose to do this to America, simply because he didn’t want to be another Clinton.

    I firmly believe the left has to learn a incredibly hard lesson: If you want govt. to work, you have to run it like WalMart, Google, and Amazon.

    It is public employees vs. the public good locked into a death match- any only one will survive.

  44. Gravatar of Britmouse Britmouse
    15. June 2012 at 13:33

    On geography: the BoE is on Threadneedle Street, UK commercial banks were historically head-quartered on Lombard Street, but are now mostly on Canada Square, Canary Wharf.

  45. Gravatar of David Wright David Wright
    15. June 2012 at 13:35

    Appreciate Cedric’s enumeration above; it’s insightful.

  46. Gravatar of Major_Freedom Major_Freedom
    15. June 2012 at 14:53

    ssumner:

    What we have now is unconventional. I oppose that! With 5% NGDP targeting we’d just need conventional OMOs of Treasuries. I’m opposed to unconventional intervention in non-Treasury markets.

    If I use the term “unconventional” I simply mean non-targeting of interest rates. That’s all. I oppose buying non-Treasury assets.

    You’d be in a bind if the event occurs where buying treasuries fails to convince the sellers of those treasuries to spend as much money as is needed to result in a particular desired NGDP.

  47. Gravatar of Cedric Cedric
    15. June 2012 at 15:02

    Morgan,

    “As I have said before, the left ought to come to terms with the weakness of their position, and CHANGE themselves, so that the aren’t forced to through pain and depredation.”

    Agreed, but it ain’t happening. Start a “Liberals Heart Capitalism” blog and see how many page views you get. I’ll maintain my cheerful pessimism. America is Europe’s little brother. At least we have the ‘Bees.

    David Wright,

    That’s the nicest thing anyone’s ever said to me. I don’t like it. As a lawyer, I’ve grown accustomed to the cacophony of constant whining, insults, and abuse that is my life.

  48. Gravatar of Eric G Eric G
    15. June 2012 at 15:19

    OOps

  49. Gravatar of Mike Sax Mike Sax
    15. June 2012 at 15:21

    “And if we do my Guaranteed Income plan to auction the unemployed”

    Morgan your boys have the House, when do they bring it up for a vote?

  50. Gravatar of Morgan Warstler Morgan Warstler
    15. June 2012 at 15:24

    Cedric,

    We just gotta stagger through Nov.

    Over the next 4 years, public employee unions will be but a hollow shell. Nothing else will matter to Republicans.

    That ends the Europe thing once and for all. And with Greece eating it publicly, Europe makes a nice about face and chases after us the little brother.

    Deprived of $, the Democrats I believe will become the party of Blue State Fortune 1000 and the GOP will champion entrepreneurs and Red State owners of Main Street.

    So we can finally get down the real Battle Royale.

    There’s so much juice to drink in squeezing the GOV2.0 to into 3% YOY productivity gains, it’ll dwarf the late 1990s for internet gold rush.

    $1T not spent on public employees is $200B in new technology revenue.

    ——

    5 months my man, we just gotta hold the line for 5 more months.

  51. Gravatar of Eric G Eric G
    15. June 2012 at 15:26

    No, I didn’t know…

    This is where I’m getting that from, articles like this where Stiglitz talks about Australia’s stimulus:
    http://www.abc.net.au/news/2010-08-06/stimulus-served-australia-well-despite-waste/935002

    I’m not buying this idea that stimulus doesn’t work, Scott. If teachers, firefighters and policeman experienced the same job growth they did in all previous recoveries then we’d have more jobs. If unionization or stronger pro-labor/worker laws like Germany then wouldn’t have had as much unemployment as we’re seeing. If we didn’t spend so much on patent protected medicine (government monopolies) we would have more money to spend on other things. In short, if the real middle class had more money from the work we did then we’d have more jobs, more wealth, more income, better benefits and a better economy.

    You really have to explain to me why we didn’t collapse into a socialist state in the 50s or 60s, please let me know. Also, I need to know how regulation was so bad for growth and jobs when it was stronger during that era than now, and we didn’t have a financial crisis.

    Monetary policy could help, but I’m not convinced that it’s just that when the rules of the game are created to concentrate cash and wealth to a few people. Doesn’t that restrict how much money there is available to everybody else??

  52. Gravatar of Cedric Cedric
    15. June 2012 at 15:31

    Morgan, you should give at least give pessimism a shot — you’re never disappointed when things go bad, and good things are a radical surprise. It’s liberating.

  53. Gravatar of Mike Sax Mike Sax
    15. June 2012 at 15:34

    “Conservative political strategies work”

    “Until MM pays its due respects to the team that intends to win at all costs, our movement still screams of the rank amateurism of DeKrugman.”

    “If Obama wins, then sure NGDPLT is conservatives’ best strategy, but after 32+ years of playing this thing out, only a fool wouldn’t ride to win in November.”

    I’ll grant you that is admirable-that they want to win at all costs-but then so do I.

    And the President won one today. It was a pretty darn good strategy too and it’ll work.

    http://diaryofarepublicanhater.blogspot.com/2012/06/obamas-change-we-can-believe-for-young.html

    You also see all these Dem Governors easing up on the war on drugs

  54. Gravatar of Cedric Cedric
    15. June 2012 at 15:39

    Eric, all is forgiven, my liberal friend.

  55. Gravatar of W. Peden W. Peden
    15. June 2012 at 15:40

    Bill Ellis,

    “For M&M to support Romney they would have to believe that Romney can not be taken at his word.”

    For anyone other than a raving schizophrenic to support Romney, they have to not take him at his word for something he said at some point in time.

  56. Gravatar of Mike Sax Mike Sax
    15. June 2012 at 15:42

    “Start a “Liberals Heart Capitalism” blog and see how many page views you get”

    See Cedric there you go again. I don’t hate capitalsim. I’m for it what I’m not for is consrvatives who claim liberals aren’t. Do you see the differnce?

  57. Gravatar of Mike Sax Mike Sax
    15. June 2012 at 15:44

    So Major you say there conservatives out there who are for hard money at the same time as big government? Who do you have in mind? I’m curious-an example if you could.

    Do you consider the war on drugs to be big government?

  58. Gravatar of Cedric Cedric
    15. June 2012 at 15:58

    I take it back, Sax.

  59. Gravatar of Mike Sax Mike Sax
    15. June 2012 at 16:09

    Well thanks Cedric. I appreciate that! LOL

  60. Gravatar of Mike Sax Mike Sax
    15. June 2012 at 16:15

    Cedric the thing about me is I’m a liberal but I don’t really hang out with other liberals much.

    I couldn’t hack it at places like Fireoglake, Daily Kos, and even Democdratic Underground.

    I don’t realy seek agreement-I’m suspicious of it like it’s the end of thinking or something.

  61. Gravatar of Bill Ellis Bill Ellis
    15. June 2012 at 16:25

    ssumner:
    “The Fed’s been running 1.1% inflation for nearly 4 years, despite high unemployment, and you still aren’t convinced they are stubborn inflation targeters?”

    Oh no…I am completely convinced of their stubbornness. But I don’t get how MM will make them any less stubborn. If you can’t get The FED set a higher inflation target how do you get them to set the proper NGDP target ?

    And If you can get The Fed to set an effective target, inflation or NGDP, then wouldn’t the government have the ability to raise AD through fiscal stim ?

    It seems like more of political problem than a dispute between Keynesians and M&Ms

    Do Both Now !

  62. Gravatar of Morgan Warstler Morgan Warstler
    15. June 2012 at 16:25

    Cedric,

    The day I become a pessimist, I become Sumner.

    Obama wins and I take NGDP as a consolation prize.

    I will accept that Financial Crisis grows the state, that humans haven’t changed, and that conservatives best line of defense is stable growth.

    I’ll give up the raw joy of hippie punching, and the smug satisfaction of watching their dreams smashed into bits.

    Pessimism will reign. It’ll be a joyless march in a war of attrition.

    And I will become a perma-bear, grateful each and every time we but up against the NGDPLT cap, and rates go up – paying a giant insurance premium to hedge future catastrophe.

    If Americans haven’t grown smarter, or heaven’t been been trained to distrust govt. more than they distrust Businessmen then I’m far less sure about NGDPLT delivering the real hard cuts in public services I think are necessary.

    But I think Daniels in Indiana is laying the groundwork to end automatic union dues in every state, and I think once started Romney will do the same.

    The suspense is killing me.

  63. Gravatar of Mike Sax Mike Sax
    15. June 2012 at 16:29

    “The day I become a pessimist, I become Sumner.

    Obama wins and I take NGDP as a consolation prize.

    “I will accept that Financial Crisis grows the state, that humans haven’t changed, and that conservatives best line of defense is stable growth.”

    “I’ll give up the raw joy of hippie punching, and the smug satisfaction of watching their dreams smashed into bits.”

    “Pessimism will reign. It’ll be a joyless march in a war of attrition.”

    Tell you what Morgan. If that happens we’ll go out to dinner on me.

    If Romney wins you pick up the check-hopefully with the joys of hippie punching will be enough that you could afford to give a liberal one “free lunch” in such a euphoric mood!

  64. Gravatar of Mike Sax Mike Sax
    15. June 2012 at 16:32

    Yeah Bill I’m with you. I say do both, but if not do one or the other. Trouble is that they won’t do either. It’s none of the above.

  65. Gravatar of Bonnie Bonnie
    15. June 2012 at 16:46

    Morgan:

    That’s a nice dream you have, but what happens when the lower level of NGDP growth becomes more a problem than it’s worth? We’d be making a tradeoff, opportunity for political gain. I don’t really see how we end up better off or how our kids end up better off that way, especially considering that the current level of debt is already water under the bridge.

    Cedric:

    Neo-liberalism has its advantages. I certainly don’t pair it up with Austrian economics, which seems more like ultra-conservative statism, especially when they start talking about inflation-filled booms leading to malinvestment and it has everything to do with the Fed. So we get to slap a monetary tourniquet on our market system because these people are terrified of what people will do with their own money.

    There is no way to enforce a gold standard without the Fed and standardization of what is money. When we did have a gold standard prior to the Fed, which was a standardization on what was accepted in payment of taxes and fees to the government, we had very liberal use of money substitutes from free markets for everything else. Some statistics I found from 1833 were that there was $17M in gold & silver, $168M in capital and $61M in bank notes spread over 502 banks. The amount of specie in the entire banking system was flat from 1815-1833. The free market had some nice inflation-filled booms going on there, and it was the Jacksonians that kept trying to rein it in, thinking it wasn’t fit for an agrarian lifestyle. I suppose that’s good for people who want to be subsistence farmers, but I prefer the Whig approach to finance so I can dream big and live it.

  66. Gravatar of Cedric Cedric
    15. June 2012 at 17:27

    Morgan,

    “But I think Daniels in Indiana is laying the groundwork to end automatic union dues in every state, and I think once started Romney will do the same.”

    Sure, but it’s bad times, so it’s politically easier. The bad union contracts are entered into in the good times. Fear the good times.

    Mike,

    “I don’t realy seek agreement-I’m suspicious of it like it’s the end of thinking or something.”

    I agree. Oh wait. Damn . . . never mind.

    Bonnie,

    I don’t think Austrian econ is ultra-conservative, nor is it statism. But could it be ultra-conservative statism nevertheless? I’ll need to smoke on it.

  67. Gravatar of Evan Soltas Evan Soltas
    15. June 2012 at 17:56

    Scott,

    You’re right about Fleet Street — that’s for the newspapers, not the banks. Just looked this up…Lombard Street (mentioned by Bagehot) or Threadneedle Street (where the Bank of England is located) may be what we’re looking for, but neither has quite the same quality as does “Wall Street as a “metonym.” (Never knew that word before, either. Learning new things every day.)

  68. Gravatar of dwb dwb
    15. June 2012 at 18:03

    @Evan, Scott,

    In London, a lot of the banks are in Canary Wharf. The London office of Goldman Sachs is still on fleet street (and I think DeLoitte have offices off of Fleet as well).

  69. Gravatar of dwb dwb
    15. June 2012 at 18:05

    page down to Fleet Street

    http://www.goldmansachs.com/who-we-are/locations/index.html

  70. Gravatar of dwb dwb
    15. June 2012 at 18:05

    Canary Wharf

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

  71. Gravatar of Mike Sax Mike Sax
    15. June 2012 at 18:06

    Speaking of which I got some Right wing chick over at my blog right now. She’s telling me how my blog title says “so much about you and your side:”

    I love it. Is there naything more visceral than hate of Obama? It almost strains beleivability

  72. Gravatar of Mike Sax Mike Sax
    15. June 2012 at 18:07

    She also called me a “basement dweller”

    Righties always think they’re better than you too! Actually she sounds kind of cute

  73. Gravatar of dwb dwb
    15. June 2012 at 18:12

    “Actually she sounds kind of cute”

    and shes Karen the lonely conservative too. theres a pix on her blog.

  74. Gravatar of Cedric Cedric
    15. June 2012 at 18:12

    Give her my number.

  75. Gravatar of dwb dwb
    15. June 2012 at 18:18

    nevermind, that was not her pix.

  76. Gravatar of Cedric Cedric
    15. June 2012 at 18:19

    Ug, she’s from upstate NY. Never mind.

  77. Gravatar of Bill Ellis Bill Ellis
    15. June 2012 at 18:48

    I am for 100% tax credit for union dues.

  78. Gravatar of Morgan Warstler Morgan Warstler
    15. June 2012 at 18:49

    I’m not against public employee unions unless they strike, collective bargain, do Seniority pay, or have to pay dues automatically.

    If they can survive without any of those, then I support them.

    Cedric, the right will never make this mistake again, it is the unspoken handshake agreement across the entire spectrum of the party – Union Dues to elect Dems is done.

    Once you see 70% of San Jose cutting into CURRENT pensions, the jig is up.

    I think the implosion of PE unions will occur 3x faster than the private sector.

  79. Gravatar of Bill Ellis Bill Ellis
    15. June 2012 at 18:50

    I am for 100% tax credit for union dues. But I am a hippie.

  80. Gravatar of Mike Sax Mike Sax
    15. June 2012 at 18:58

    Actually she’s got a pretty well put together blog. I’m from NY too. she’s married with 2 kids though.

    She says she can’t give our her email no more because “nasty liberals” have been signing her up for all kinds of spam.

  81. Gravatar of Mike Sax Mike Sax
    15. June 2012 at 19:03

    I just left her a message-I said Obama did a great thing today for the Latinos with the amensty! LOL

  82. Gravatar of Mike Sax Mike Sax
    15. June 2012 at 19:07

    Ok this chick is great. Here’s a comment on her blog:

    “I drank gin once, when I was younger. I threw up. Every time I think of these progressive Democrats controlling our government it brings back that memory.”

  83. Gravatar of Cedric Cedric
    15. June 2012 at 19:09

    “she’s married with 2 kids though.”

    Me too. We have so much in common!

  84. Gravatar of Cedric Cedric
    15. June 2012 at 19:17

    “I am for 100% tax credit for union dues.”

    That’s the worst idea I’ve heard since Pelosi tried to repeal the First Amendment.

  85. Gravatar of Mike Sax Mike Sax
    15. June 2012 at 19:21

    Bill I’m with you on that one too.

  86. Gravatar of Mike Sax Mike Sax
    15. June 2012 at 19:22

    That’s it I’m writing a post about her

  87. Gravatar of Mike Sax Mike Sax
    15. June 2012 at 20:01

    Truth stranger than fiction with Karen the Lonely Conservative

    http://diaryofarepublicanhater.blogspot.com/2012/06/open-letter-to-karen-lonely.html

  88. Gravatar of Greg Ransom Greg Ransom
    15. June 2012 at 20:26

    “Greg, Virtually all conservatives opposed FDR dollar depreciation policy.”

    Name three — and explain the monetary doctrine they held, eg Real Bills doctrine, etc.

    And name three leftist/progressives who favored it, and their monetrey doctrine.

  89. Gravatar of Greg Ransom Greg Ransom
    15. June 2012 at 20:35

    Scott, it looks to me like you are simply labeling anyone who subscribed to the Real Bills doctrine a “conservative”.

    This tells us nothing about anyone else give that label for independent reasons, nor does it tell us anything about anything else we might want to know about people who held the Real Bills cdoctrine.

    Might as well say all who opposed devaluation were ‘minerals’, or ‘fruits, or any other term which makes a sound but has no meaning of its own in this context.

  90. Gravatar of Mike Sax Mike Sax
    15. June 2012 at 20:41

    Actually that’s a good question Greg. Nothing comes immediately to my mind.

    As for prog Dems who favored it besides FDR himself obviously Tresaury Secretary Morgenathau

    In “FDR’s Folly” the conservative writer Jim Powell hates it-obvously he’s writing today.

    I think even Friedman criticized it at one point at least

  91. Gravatar of Mike Sax Mike Sax
    15. June 2012 at 20:44

    I guess I could ask you which conservatives supported it at the time-I certainly draw a blank on that one

  92. Gravatar of Saturos Saturos
    16. June 2012 at 01:26

    What did the WSJ say?

  93. Gravatar of Saturos Saturos
    16. June 2012 at 01:28

    I remember learning in school that most Australian political figures at the time on both sides supported austerity, or even worse lunacies.

  94. Gravatar of Saturos Saturos
    16. June 2012 at 01:28

    Scott, I need to hear your thoughts on this: http://uneasymoney.com/2012/06/15/alchian-on-money-illusion-and-the-wage-price-lag-during-inflation/

  95. Gravatar of Saturos Saturos
    16. June 2012 at 01:29

    It’s the third in a series.

  96. Gravatar of 123 123
    16. June 2012 at 03:20

    Scott:”I don’t follow any of that. Why should the BOE absorb losses earned by private banks? And how does that not affect the allocation of resources if banks know that their losses will be absorbed by the Treasury? I must be missing something. Central banks should have no involvement with commercial banking at all. They should buy and sell government debt with whoever offers the best price, and completely ignore the banking system.”

    To a first approximation, according to EMH the selection of assets to acquire does not matter, we should focus on the quantity of money instead and so far BoE has done more than any other major central bank to satisfy the money demand that has increased due the Greek crisis.

    Nick Rowe has argued that central banks should purchase assets that appreciate when the central bank is successful in stabilizing AD. The two new BoE programs are major step in this direction.

    And finally, we should hope that the quantity of BoE will become endogenous according to this new credit easing proposal, thus stabilizing AD in a way that is somewhat similar to inflation-linked bond targeting proposals.

    “Why should the BOE absorb losses earned by private banks?”
    According to the EMH BoE will get a fair compensation for this risk.

    “And how does that not affect the allocation of resources if banks know that their losses will be absorbed by the Treasury?”
    BoE losses will be absorbed by the treasury in the case commercial banks will go bust. This does not affect the allocation of resources or the incentives of the commercial banks. Treasury backstop creates an incentive to King to be aggressive, it does nothing to the commercial banks except via the AD channel.
    Unless we get too much AD in the end, we will simply get higher resource utilization ratios due to stable AD without any major Austrian business cycle problems.

  97. Gravatar of Lorenzo from Downunder Lorenzo from Downunder
    16. June 2012 at 03:22

    Eric G. A good source of Australian statistics is the RBA website.
    http://www.rba.gov.au/statistics/index.html

    Also, the ABS website, but it is a bit harder to navigate
    http://www.abs.gov.au/

  98. Gravatar of Benjamin Cole Benjamin Cole
    16. June 2012 at 05:26

    It is indeed odd—we can’t get the right-wing to adopt Market Monetarism, so deeply encrusted are they in their dogmas.

  99. Gravatar of curiouseconomist curiouseconomist
    16. June 2012 at 05:33

    “PS. I think Fleet Street is for the media-perhaps our British readers can tell you the name of the banking street (it’s very long, and I can never remember it.)”

    We usually just use the term “the City” to refer to the financial sector, similar to how Americans use “Wall Street”. “The City” is short for “The City of London”, which is a small part of Greater London where many financial firms are located (although a lot are located in nearby Canary Wharf these days).

  100. Gravatar of Mike Sax Mike Sax
    16. June 2012 at 05:44

    The Morgan Warstler answer to why the Repugs wont accept MM is that it’s a Democratic President.

    The MW premise is that with a Repug Prez you can get whatever you want-NGDPT, the Guranteed Income (GI) etc.

    I guess you can take this premise far if you want. After all Nixon gave us affirmative action. The Repgus will acccept anything if it’s their idea.

    Which explains why Romney now is running against his own health care law.

  101. Gravatar of Russ Anderson Russ Anderson
    16. June 2012 at 05:46

    “Seriously, conservatives need to end their obsession with hard money, before there’s no more free enterprise system left to save.” – that should be the quote of the day!

    But where did you get the idea that conservatives oppose “statist policies”? If the last 40 years have shown anything it is that political conservatives are more than happy to use big government to inflict their agenda on the rest of us. Republican control of three branches of government gave us the Patriot Act. It wasn’t liberal hippies pushing a “War on Drugs”. Sure political conservative want to cut spending for people they don’t like, but they more than make up for it in increased spending on areas they do. Read David Stockman’s “Triumph of Politics” to learn what the Reagan Revolution was really about. Political conservative chant the phrase “Less government” when the other political party is in change, but when they get power it is suddenly unpatriotic to question the government. Just like they complain about deficit spending, but then, as Dick Cheney said, “Deficits don’t matter” when they are in charge. It truly is amazing so many people fall for it.

    In that context Cameron/Osborne being “quite willing to socialize the banking system” is perfectly consistent. They get to pick the winners and loser, reward businesses that support them and restrict credit to those that don’t. It’s all about political control. The only surprising thing about it is that some people are surprised.

  102. Gravatar of Left Outside Left Outside
    16. June 2012 at 06:26

    Geography wise, the financial district in London is confusingly just referred to as The City (The City of London Corporation was set up just after the Norman Conquest and is interesting in its own right). The City within the City, the long road running though it is called Bishopsgate. Westminster is also a City, inside London. Welcome to what a lack of town planning for over 2000 years does for you.

    But britmouse is right, most banks are in Canary Wharf now. The Bank is the old Lady of Threadneedle Street which is next to Bagehot’s Lombard Street.

    These are all down the road from me. Wall Street is a terrible, boring name, it has taken a great deal of work from everyone in finance to give such a dull name such notoriety.

  103. Gravatar of ssumner ssumner
    16. June 2012 at 07:16

    Morgan, You said:

    “Cedric, my daydream was Ron Paul refuses to not run as independent unless Mitt publicly guarantees him the Fed chair.”

    You want Romney to lose that badly?

    Britmouse, Thanks for that info–Threadneedle was what I was trying to remember.

    Eric, You said;

    “I’m not buying this idea that stimulus doesn’t work, Scott. If teachers, firefighters and policeman experienced the same job growth they did in all previous recoveries then we’d have more jobs. If unionization or stronger pro-labor/worker laws like Germany then wouldn’t have had as much unemployment as we’re seeing.”

    Having more public employees doesn’t create more total jobs, it just shifts jobs from the private sector.

    And regarding Germany, please explain to me why about 80% of the time over the past three decades Germany has had higher unemployment than the US. Is German really the model you want to point to? By the way, Germany opposes your “fiscal stimulus” ideas–they created jobs with wage cuts in the middle of the past decade.

    Regarding regulation–do you think airline regulation (which Ted Kennedy helped abolish) created jobs in the airline industry?

    You said;

    “Monetary policy could help, but I’m not convinced that it’s just that when the rules of the game are created to concentrate cash and wealth to a few people. Doesn’t that restrict how much money there is available to everybody else??”

    I have no idea what you are talking about here. Do you understand the distinction between monetary and fiscal policy?

    Bill, You said;

    “If you can’t get The FED set a higher inflation target how do you get them to set the proper NGDP target ?”

    Maybe I can’t. But explain to me why after I show to you that fiscal stimulus won’t work, you basically say “do it anyway.”

    Evan, You already know more words than I do. I think the closest metonyn for “Wall Street” is “The City”.

    Greg, I don’t have a good memory for names, but I stand by my claim. I had thought you were somewhat knowledgeable about the interwar years, and that I wouldn’t have to explain something that was common knowledge.

    If you insist on three names, I’d cite Coolidge, Hoover and Mellon–but I’m sure you’ll tell me they don’t count for some bizarre reason.

    Saturos, I’ll take a look.

    123, You said;

    “”Why should the BOE absorb losses earned by private banks?”
    According to the EMH BoE will get a fair compensation for this risk.”

    No, unless the news article I cited was wrong. They claim the banks get the gains and the BOE absorbs the losses. The EMH does not suggest that is neutral.

    It’s possible you are right, but only if the article I quoted was wrong. I would need to see a more complete article to have a firm opinion.

    curiouseconomist and Left Outside, That’s what I thought.

    Russ, Good point.

  104. Gravatar of ssumner ssumner
    16. June 2012 at 07:25

    Saturos, David’s post seems reasonable. Of course I don’t believe the price level is a useful concept, so I’d argue wages lag behind NGDP, which is a completely uncontroversial claim. Is there anything specific that you want me to address?

  105. Gravatar of James in London James in London
    16. June 2012 at 07:35

    Sadly, there is too much analysis of George Osborne’s “Funding for Lending” here. Our Chancellor of the Exchequer is often described as the Conservative’s ‘chief election strategist’ before all else. This week’s initiatives look terribly like politics rather than policy. The deflation continues and bank lending will fall, so Osborne needs to get his position clear: we’ve done all we can, even launched an £80bn “Funding for Lending” and yet those bankers still won’t lend.

    To say conservatives (and US liberals and British socialists) are too creditist is probably right, but to credit Osborne with even that amoun of thought seems to much praise.

    I am now thinking that our £250bn QE wouldn’t have used anything like that amount to (not) restore confidence if the BoE had targeted NGDP in the first place rather than the discrete lump sum interventions and pauses, to “see how they worked”. This policy of “wait and see” seems common to the BoE, the Fed and the ECB.

  106. Gravatar of Negation of Ideology Negation of Ideology
    16. June 2012 at 07:38

    If Romney promises to appoint Ron Paul Fed Chairman, or to any position on the Fed, I will enthusiastically vote for Obama. Of course, the odds of Romney doing that are exactly the same as the odds that Obama will appoint Ron Paul Fed Chairman.

  107. Gravatar of Bill Ellis Bill Ellis
    16. June 2012 at 07:55

    ssumner…”But explain to me why after I show to you that fiscal stimulus won’t work, you basically say “do it anyway.”

    I Say do both. You say it won’t work because the Fed counteracts it. I agree that the FED can counteract it.

  108. Gravatar of Mike Sax Mike Sax
    16. June 2012 at 08:24

    Right the Fed can counteract it but doesn’t have to. If Congress gave it an order not to counteract it then it wouldn’t

  109. Gravatar of Mike Sax Mike Sax
    16. June 2012 at 10:50

    Evidently at least on conservative knew about NGDPT or something like it-unconventional monetary policy-since at least March 2009

    http://www.redstate.com/redhot/2009/03/02/effective-monetary-policy-implementation-in-a-zero-interest-rate-world/

  110. Gravatar of Mike Sax Mike Sax
    16. June 2012 at 10:53

    Still this is much more typical

    http://www.redstate.com/tags/tag/monetary-policy/

    “What’s worse than Congress picking winners and losers and distorting the free-market with bailouts, stimulus, and tendentious interventions on behalf of specific industries? Unelected members of the Federal Reserve doing the same through monetary policy.”

    “It is amazing to watch how many Republicans will speak with such conviction against Keynesian fiscal stimulus policies, yet they will fervently promote monetary stimulus policies by the unaccountable Federal Reserve. Their support for near-zero interest rates, quantitative easing, bailouts, and intervention in the housing sector has muddled our message against Obama’s anti-free-market policies. Moreover, in this time of record commodity prices, pro-(monetary) stimulus Republicans preclude us from showing how government intervention on behalf of special interests distorts the markets, depletes savings, and devalues the currency – a winning political argument if there ever was one.”

  111. Gravatar of 123 123
    16. June 2012 at 12:00

    Scott: “No, unless the news article I cited was wrong. They claim the banks get the gains and the BOE absorbs the losses. The EMH does not suggest that is neutral.

    It’s possible you are right, but only if the article I quoted was wrong. I would need to see a more complete article to have a firm opinion.”

    Suppose Swiss central bank devalues the peg to 1.30 after receiving the indemnity for the potential losses from the treasury? Would you call such monetary easing “socialism”? Would you cite news articles that claim Swiss central bank will get losses from euro asset purchases and the entities that issue these euro assets will get profits? So who would be right in the Swiss case – EMH proponents or Austrians with their Cantillon effect?

    The most important news in the BoE case was provided by minister Hoban:

    “Treasury minister Mark Hoban told BBC radio today there was no cap on the lending program. The government wanted to send businesses “a very clear signal that finance is available at a price they can afford,” he said”
    http://www.bloomberg.com/news/2012-06-14/king-says-stimulus-case-growing-as-boe-steps-up-crisis-response.html

    So it is clear that the price of risky assets becomes an instrument variable for the monetary policy, as the quantity of loans is not limited. Suppose BoE sets a fixed rate of three percent for 4 year BBB loans. In this case Swiss analogy holds completely, only instead of pegging the price of risky foreign assets the central bank will peg the price of risky domestic assets – a nice variation of Svenssonian foolprof exit from the liquidity trap scheme. In this case I believe the EMH holds and Austrian Cantillon effect argument you seem to be making is very weak.

    However it is most likely that the rate on these loans will be floating, not fixed, so instead of Svenssonian type of scheme we will get a scheme similar to the peg of BBB CPI-linked bonds. In this case the EMH holds too and Austrian Cantillon effect argument you seem to be making is very weak.

    And it is most likely that the loans will be full-recourse – that is the BoE loses only if the value of collateral drops below the loan amount after the commercial bank fails.

  112. Gravatar of Morgan Warstler Morgan Warstler
    16. June 2012 at 14:17

    I suspect that Ron Paul as Mitt Romney’s Fed Chair would deliver more votes, not less. At minimum for excitement / turn-out, RP would = 1M volunteers on the streets on election day, even not on the ticket.

    But also, part of the reason that the left can’t get their own people to rally of inflation, is that everybody basically understands not printing money.

    It would definitely help neutralize the pot smoker vote.

  113. Gravatar of Matt O’Brien Matt O'Brien
    16. June 2012 at 15:46

    Scott,

    As I’m sure you’re aware, Cameron can change the BOE’s mandate himself. There’s been some talk about whether they had stealthily adopted an NGDP target, but Cameron *could* make that moot.

    Perhaps that is a bridge too far for British conservatives, as you suggested.

  114. Gravatar of Major_Freedom Major_Freedom
    16. June 2012 at 17:08

    Mike Sax:

    So Major you say there conservatives out there who are for hard money at the same time as big government?

    Of course. There are tons who want less inflation and bombing of brown people.

    Who do you have in mind? I’m curious-an example if you could.

    Visit a tea party gathering. Chances are you’ll find them.

    Do you consider the war on drugs to be big government?

    Of course. I consider the war on drugs an especially insidious intervention because one, it gives an excuse for racist cops to put non-violent black “criminals” in prison, and two, which applies to everyone, it is a completely sick, twisted, and depraved belief that we ought to be controlled by force with respect to what we put into our own bodies. It is like me walking up to you, and pointing a gun at you if I don’t agree with what you are eating, telling you that if you eat your own food, I will threaten to shoot you if you resist me throwing you into a cage.

    It is democracy that has resulted in the drug war, because the majority of busybody idiots in this country continue to vote in politicians who promise to keep the war going.

    You might consider me an a$$hole, but if I saw you ingest an illegal drug, I would not report you, nor think less of you. Compare that to the die hard democratic zombies who just love to feel empowered by making phone calls concerning behavior that is none of their business. People like me are hated by fiscal liberals, loved by social liberals, hated by social conservatives, and loved by fiscal conservatives. THIS is why I am “fringe.” I won’t attack people’s civil freedom, and I won’t attack people’s economic freedom.

  115. Gravatar of ssumner ssumner
    16. June 2012 at 18:32

    James, I agree.

    Mike Sax, You said;

    “Right the Fed can counteract it but doesn’t have to. If Congress gave it an order not to counteract it then it wouldn’t”

    This is bizarre, if Congress wanted more AD they’d just tell the Fed to do it. They aren’t telling the Fed to do it, so they obviously don’t want more AD.

    123, Your Swiss analogy makes no sense to me. They are both part of the Swiss government, so obviously there is no bailout–no distortion.

    And it says the Treasury will indemnify the banks for any losses, so it’s not correct to say they only lose if the commercial bank fails.

    Morgan, You said;

    “I suspect that Ron Paul as Mitt Romney’s Fed Chair would deliver more votes, not less.”

    Is this a joke, or are you as crazy as MF?

    Matt, I do know that, and this is why all the Keynesians who are telling Cameron to do fiscal stimulus make no sense at all. If Cameron wants more AD, the easiest and most efficient way is monetary stimulus. Why aren’t they recommending Cameron set a higher target for the BoE? The arguments put forth by the Keynesians seem so illogical that I wonder if I am missing something. Is there a hidden agenda to favor big government?

  116. Gravatar of 123 123
    17. June 2012 at 01:32

    Scott,

    The article says the central bank is indemnified, not the commercial bank.

    The Swiss analogy is correct. Today the Swiss central bank is pegging the price of risky short term forex loans to German government as recommended by Svensson, the only difference in the UK is that the forex risk peg is replaced by the credit risk peg. Yet nobody is acussing the Swiss for socializing the forex market.

  117. Gravatar of 123 123
    17. June 2012 at 01:35

    … and nobody is accusing them for subsidizing the German government.

  118. Gravatar of dtoh dtoh
    17. June 2012 at 02:45

    Scott,
    1) Given that the mechanism for increasing NGDP is through financial asset prices (and expectations), it doesn’t matter whether the Fed (or BOE) is buying assets or is getting the banks to do it.

    2) As I have argued before, TBTF should be explicit and mandatory for big banks

    3) It sounds like this is what BOE is doing, but without a strong theoretical framework.

    4) If I were the BOE, I would do 1) by setting minimum asset/equity ratios.

  119. Gravatar of dtoh dtoh
    17. June 2012 at 03:07

    Scott
    Why should the BOE absorb losses earned by private banks? And how does that not affect the allocation of resources if banks know that their losses will be absorbed by the Treasury?

    Why would you backstop the banks that way. Implement TBTF with a Fed/BOE call on bank equity with the price on the call set entirely at Fed discretion. No moral hazard. No distortion of allocation. No fuss no muss. If the banks screw up, the owners lose their equity. Why is this so hard to understand?

  120. Gravatar of dtoh dtoh
    17. June 2012 at 03:13

    Morgan,
    In Nov. everyone’s attitude about everything will change. Romney will make big ole cuts to spending, big ole tax cuts, and the Fed will keep the income levels growing (with easing).

    I agree, and I think in that scenario Mitt is the monkey and Ben is the organ grinder.

  121. Gravatar of Mike Sax Mike Sax
    17. June 2012 at 03:15

    Well Major we agree on the war of drugs at least. Usually the same conservative who hates big government loves the war on drugs and military spending.

  122. Gravatar of Mike Sax Mike Sax
    17. June 2012 at 03:17

    Probably if we talked more social issues we’d agree more-though abortion is the big one.

    Almost all Righty haters of big governbment nevertheless see abortion differntly. There they can intrued.

  123. Gravatar of ssumner ssumner
    17. June 2012 at 06:06

    123, OK, I misread the article, I thought commercial banks were being indemnified. But in that case what good does it do?

    They can already sell their dodgy assets for safe assets like government bonds at fair market value. How does swapping them with the central bank at fair market value help the commercial banks?

    dtoh, To eliminate moral hazard you have to stiff the equity holders and the creditors (actually depositors too—but that’s a lost cause.) But in that case the bank would have “failed” in any meaningful sense of the term.

    It’s better if the central bank has no involvement at all in the banking system—let the Treasury handle that issue. The central bank should focus 100 percent of its attention of monetary policy, and ignore banking.

  124. Gravatar of 123 123
    17. June 2012 at 08:01

    Scott, the point is to change the market price of the pound. Just like Swiss have devalued their currency against the dodgy German euro bonds, BoE has agreed to devalue the pound against dodgy BBB (or maybe A) bonds.

  125. Gravatar of dtoh dtoh
    17. June 2012 at 15:25

    Scott,
    Be realistic.

    1) Practically, it’s difficult to define an effective distinction between creditors and depositors.

    2) Politically it’s difficult or impossible to stiff depositors/creditors.

    3) Stiffing equity holders with our current system (implicit expected guarantee) is capricious and ineffective.

    4) NGDP targeting works through the mechanism of financial asset prices so the distinction between monetary policy and credit policy is false one. You can’t create money without exchanging it for assets.

    5) I don’t see why the Fed needs to confine itself to buying Treasuries. It’s just a lever to move overall asset pricing. If there is a more convenient lever, there’s no reason not to use it.

    The idea that you’re going to have an unregulated banking system is Paulesque in it’s impracticality.

  126. Gravatar of Andrew Andrew
    18. June 2012 at 05:25

    Just to pick nits, but when did Austrailia become part of the Western world?

  127. Gravatar of ssumner ssumner
    18. June 2012 at 08:53

    123, If the goal was to depreciate the pound, then the policy obviously failed.

    dtoh, Lots of banks fail in America all the time, so it certainly is a feasible policy.

    Regarding big banks, Congress just passed and the President signed a law banning bailouts of big banks. I’m having trouble processing your claim that it is politically impossible, when our politicians just enacted it into law!

    If deposit insurance is politically necessary, cut it back to $50,000 per person. Have the same cap on bank creditors.

    Asset prices move because of the increase in the monetary base, not because of what you buy. They used to buy gold, and interest rates fell just the same. It’s about the base, not the assets you buy.There’s no need to buy financial assets at all–you could buy zinc.

    Andrew, When it was settled by Europeans.

  128. Gravatar of 123 123
    18. June 2012 at 09:04

    Scott,
    The policy is to lower the value of the pound in terms of risky bonds. It will succeed when it will be announced. It is already succeeding now, as domestic non-financial UK stocks are performing really well.

  129. Gravatar of dtoh dtoh
    18. June 2012 at 12:27

    Scott,
    1) Sure banks fail all the time, but do you really want the process to be capricious and based on who has political clout. Adding arbitrary uncertainty raises the cost of capital, plus it’s not fair to creditor/depositors.

    2) If you reduce the cap on insurance it defeats the purpose.

    3) Assets. I agree the Fed can easily buy any asset, (i.e. new roads) but then it’s just fiscal stimulus.

    4) I also think you need bailouts when you have large failures which pose system risk.

    5) Also fundamentally, what is the difference between the bailing out financial firms by OMP to push up asset prices versus lending to a specific bank.

  130. Gravatar of Saturos Saturos
    18. June 2012 at 13:08

    Sorry Scott, very busy recently. I was just hoping you could say something on whether you agree with the second-last sentence in David Glasner’s post, the one where he replies to my comment. Does Keynes/Alchian have an argument for wage rigidity independent of money-illusion, or not?

  131. Gravatar of ssumner ssumner
    20. June 2012 at 06:41

    123, You need to be more specific or else we’ll go endlessly around in circles. Normally when someone says “lower the value of the pound” I assume they mean in the forex market–I responded on that basis. If you mean something different you should say so right up front.

    Stocks are doing well recently in all countries.

    dtoh, Here’s an analogy. Do I want a law that says people can’t drive faster than 90 mph, even if some well connected pols are able to bride police officers? Yes!!! Bailouts are EXTREMELY costly to the economy, we really need to minimize them as much as possible.

    Saturos, I don’t know if this answers your question, but wages might lag for reasons other than money illusion–such as costs of renegotiating contracts.

  132. Gravatar of 123 123
    20. June 2012 at 08:32

    Scott, my whole argument was based on the idea that it does not really matter which risky asset is used as an instrument peg, forex or credit. Analogy is really strong. I’d say when Swiss pegged franc at 1.20, as a consequence the price of Swiss private sector bonds is higher than it would have been otherwise. And vice versa, the exchange rate of the pound is lower now than it would have been otherwise, because BoE announced they will peg the pound to risky bonds.

  133. Gravatar of Major_Freedom Major_Freedom
    20. June 2012 at 23:58

    ssumner:

    Bailouts are EXTREMELY costly to the economy, we really need to minimize them as much as possible.

    NGDP targeting is a program of bailing out the initial receivers of the new money.

    A 100% reserve precious metals standard would minimize bail outs.

  134. Gravatar of Major_Freedom Major_Freedom
    21. June 2012 at 10:21

    In other words, NGDP targeting that relies on primary dealers remaining solvent, in order for the Fed to even use them to target NGDP, is a program of continuous primary dealer bail outs.

    If the primary dealers are owners of bad investments that will bankrupt them, then the Fed will have to give them sufficient quantities of new money (bail outs) so that the Fed can even target NGDP.

    Without the primary dealers, the Fed can’t target NGDP.

    Note, if the Fed uses institutions other than the primary dealers, then THAT group will just become the new set of primary dealers the Fed needs for NGDP targeting, and the continuous bail outs will just move to them.

  135. Gravatar of An Open Letter to Karen the Lonely Conservative | Last Men and OverMen An Open Letter to Karen the Lonely Conservative | Last Men and OverMen
    26. February 2017 at 05:12

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