Currency demand at Christmas

My dissertation looked at currency demand at Christmas.  Here’s what I discovered:

1.  Between December and January of each year real currency demand falls.

2.  The Fed accommodates that drop by decreasing the supply of currency by a roughly equal amount.

3.  Hence prices change very little between December and January

4.  The seasonal decline in percentage terms was much larger in the 1920s and 1970s than the 1940s.

5.  The seasonal decline as a share of GDP is fairy stable.  That’s because the cash/GDP ratio was far higher during the 1940s.

6.  The seasonal decline was concentrated in coins and small bills.

Here’s what I concluded.

1.  The seasonal variation in currency demand is due to transactions balances, not hoarding balances.

2.  Hoarding demand (and thus total cash demand) rose sharply between the 1920s and 1940s due to falling interest rates (op. cost of holding currency) and rising tax rates (benefit of hiding wealth from government in the form of currency.)  Between the 1940s and 1970s the ratio fell back to 1920s levels due to rising interest rates. The transactions demand for cash as a share of GDP varies relatively little over time.

3.  In the 1920s people shopped with coins and small bills.  By the 1970s coins could no longer be used to make significant purchases and were merely used for change in non-seasonal transactions (parking meters, phone booths, Coke machines, etc.)  I seem to recall that coin seasonality dropped due to inflation, but am not certain.  But big bill seasonality did not rise as much due to inflation as you’d expect, as consumers switched to credit cards and checks for big transactions.

4.  Because the total cash ratio to GDP was high during the 1940s, but transactions use of cash was not particularly high, the seasonal drop-off was much lower in percentage terms.  But still about the same in absolute terms, as a share of GDP.

5.  Because large bills are hoarded they wear out much more slowly than small bills.

There was one policy implication that I did not discuss (or indeed realize until much later.)  If we were going to go the “old monetarist” route of targeting the money supply, the optimal policy would not have been to target the quantity of money in value terms (which is distorted by hoarding), but rather the quantity of money by volume.  I.e., the actual the number of green pieces of paper in circulation.  Dollar bills and $100 bills each count as “one bill.” In the graph below you’ll notice that the value of currency produced by the government (purple line) actually rises in 2009.  So money was not “tight” in that sense. But the volume of new currency notes issued (green bars) falls between 2000 and 2002, and also between 2007 and 2009.  (Ignore the 1999 build-up for Y2k.) So money was tight in volume terms but not value terms.  Why the difference?  

Between 2007 and 2009 the interest rate fell to zero, making it much more attractive to hoard $100 bills as a way of avoiding taxes.  In contrast, transactions fell during the recession; so fewer small bills were “needed.”  I used the scare quotes because of course in a macro sense more small bills were “needed.”  More precisely, a monetary policy regime was needed which would have produced a steady production level of bills by volume. That production is endogenous given the monetary regime, but responds to changes in goods and services transactions produced by changes in the policy regime.  This post explains the idea in more detail, using coin production.

Screen Shot 2013-12-25 at 9.41.26 AM

 

Have a Merry Christmas and Happy New Year.  Or to my readers who do not celebrate Christmas, just a Happy New Year.

PS.  Dylan pointed me to this funny satire by John Carney, which includes this blog.


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88 Responses to “Currency demand at Christmas”

  1. Gravatar of Philo Philo
    25. December 2013 at 09:06

    Two Money Illusion posts on Christmas — what a nice present! Thank you, Scott.

  2. Gravatar of ssumner ssumner
    25. December 2013 at 10:58

    Thanks Philo.

  3. Gravatar of Geoff Geoff
    25. December 2013 at 11:33

    Well, I’m an atheist who doesn’t celebrate Christmas, so to me it’s just another Wednesday.

    “1. Between December and January of each year real currency demand falls.

    2. The Fed accommodates that drop by decreasing the supply of currency by a roughly equal amount.

    3. Hence prices change very little between December and January”

    Real currency demand is a rather oxymoronic concept.

    What I know: If I want to hold more (less) money, then I accomplish this by seeking another individual (or individuals) to hold less (more) money.

    The less (more) cash I want to hold, requires another individual to hold more (less) cash.

    In the aggregate, the demand to hold cash is always a constant, ceteris paribus. The only way this ceteris paribus does not hold, is if there is an increase or decrease in the aggregate money supply. For then it is not necessarily the case that one individual holding less (more) cash implies another individual (or individuals) to hold more (less) cash. Money could be added or subtracted to the total.

    The Fed is not actually “offsetting” any aggregate rise or fall in the demand for cash holding. It is only changing a constant demand to become higher or lower constant by inflating or deflating the money supply. If it did not increase or decrease the money supply, then the demand to hold cash would remain constant. The more “people” wanted to hold more cash, the more other people would have to be present to hold less cash. If everyone wanted to hold more (less) cash, then what would actually change is spending over a given period of time. For example, instead of 1000 units being spent per month on average, 800 units would be spent.

    This fall in spending would have the benevolent outcome of shifting the productive structure of the economy to be more in line with the new preferences: Prices would be lower relative to cash balances, i.e. a rise in purchasing power of money. This is incredibly important and should not be interfered with by political force. If it is so interfered, and the money supply is forced upwards, then individuals would not be able to acquire the increased purchasing power they desire. An increase in the supply of money would, in an environment of people wanting a higher purchasing power, lead to further desires to hold more money, which is what we see happen when the Fed inflates. The additional money the Fed creates is typically not destroyed by the people. It is held, and then exchanged via the same offsetting desires to hold less and more money among the populace.

    The central bank is not doing the totality of individuals any good by increasing the money supply in a context of some individuals wanting to hold money for less time and other individuals wanting to hold money for longer time, nor is it doing the totality of individuals any good by increasing the money supply if everyone wanted to hold money for longer, such that total spending (and, eventually, prices) declined. Do people want unemployment and declines in output? That is not for any single individual to decide on behalf of everyone else. If individuals behave in such a way in the market that there are some individuals who lose their jobs, then that is in fact what should occur. Each individual gets what they want GIVEN the wants of everyone else. No individual exploits another.

    This is the best outcome, because it maximally encourages saving and planning for an uncertain future. The more the individual is faced with the consequences of his own actions and everyone else’s actions in a voluntary market, the more sensitive the individual will be to the desires of other individuals in the market. Demand could evaporate overnight. To protect against it, individuals would seek higher savings to consumption, which can provide insurance against other individuals choosing to reduce their spending because they don’t want to trade the same this month, as they did last month.

    This will not cause fascism.

    This will not cause depressions.

    This will cause the most safe, the most secure, the strongest insurance against the seeming whims of a laissez-faire market.

    Most relevantly, it will eliminate the need for the sudden increases in the demand to hold money we see today with political force constrained (as opposed to the more conservative market constrained), irrational central bank.

    Fears of another Nazi Germany in the US are unfounded. The dramatic deflation in the early 1930s there would not have occurred if the previous dramatic inflation didn’t occur. There would have been no reason for such deflation, just like there is no reason for massive deflation today (the Fed did not inflate in the recent decades like the Weimar bank did in the 1920s).

    Massive deflation simply does not occur without previous massive inflation. Consumers do not capriciously stop consuming for no reason. If we want a stable monetary order, then let us make money the way computers and clothes are made. The last time I checked, we don’t have massive volatility problems in those industries. Why? Because they’re decentralized. It’s easier to plan around a decentralized industry than a centralized one subject to the whims of small groups of individuals (with political power to boot!).

    NGDPLT will not solve the problems that NGDPLT is presented as needed to solve. The very fact that Dr. Sumner is here advocating for a different way of central banking, is actually a consequence of the existence of central banking, and not, as he believes, merely a correction or improvement to central bank laws.

    Price targeting monetary theorists thought they finally cracked the code, before price targeting was tried, until it was finally accepted as problem causing. Spending targeting theorists are suffering from the same hubris and misguided faith as the price targeting theorists. Do we have to go through another failed rule, or can we let our knowledge of economic laws grounded on transhistorical principles prevent another disaster?

    Socialism has never worked. It cannot work. Socialism only in money can’t work. It’s “unnatural.” The market will eventually expunge it as white blood cells expunge viruses. It might take a while, and during that period of time, the false self-professed messiahs will believe that the lack of dramatic and sudden expunging will mean “it’s working.” But the problems will build up over time, and those problems will, like price targeting, seem like the number targeted is “too low.”

    If NGDP is adopted, at some point it will be revealed that 4.5% is far too low to accomplish solving the problems that NGDP 4.5% itself has caused. So we will see a new generation of monetarists castigating the “orthodox” market monetarists for “allowing the market to crumble” instead of getting on board for a MORE inflationary rule, which is the new end all and be all of monetary policy: a slowly accelerating NGDP growth rate.

    Everyone, please, I implore you. If you know in your hearts that NGDPLT is not capable of being permanent, that it will almost certainly be exposed at some point as being insufficient, that it can only be a temporary stage in the “development of sound monetary policy”, then why go through the unnecessary steps of pain and suffering, and why advocate for a step in the process of steps that lead to a sudden collapse in money?

    We should work towards a free market in everything, step by step. To do that, we should advocate for abolishing just the central bank as a start, and to do it in stages. First, to vehemently declare central banking as unjust as a first principle. Then, all the while communicating that central banking must end, to reduce its inflation of the money supply over time down to the rate of the most likely free market money, precious metals. Bring the market monetarists kicking and screaming, until they wise up.

  4. Gravatar of Daniel Daniel
    25. December 2013 at 11:48

    Massive deflation simply does not occur without previous massive inflation.

    We already know you’re an idiot, you don’t have to remind us constantly.

  5. Gravatar of Don Geddis Don Geddis
    25. December 2013 at 12:47

    Geoff: Always a pleasure to read your rantings. A clever mix of vaguely rational paragraphs, tied together with unexamined rationalizations. Can you even tell the difference? I wonder.

    You know, I assume, that you’re being very rude. The large number of readers that come here, are attracted by Sumner’s insights. You’re like an econ vampire, trying to steal Sumner’s audience in order to shout your message too. I presume you know that what you really ought to do is start your own blog, to present your point of view. But of course you probably already know that nobody would come. Nobody would care to read it. Must be frustrating for you. But in your own mind, is that enough to excuse your constant, too-long, never changing, never learning, off-topic essays, posted as comments on someone else’s blog?

    Well, in any case, Seasons Greetings. Happy Festivus. I wish you well in your Airing of Grievances, and I hope that you someday get the help you so desperately need.

  6. Gravatar of Michael Byrnes Michael Byrnes
    25. December 2013 at 15:31

    Best line in that whole satire:

    “A lot of people look at the amount of presents under the tree and attempt to derive the stance of Santa. But this is wrong. You need to examine the demand for presents as well as the supply. In general, a large pile of presents is a sign that Christmas policy has been too tight, while coal in the stocking is a sign that it has been too loose.”

  7. Gravatar of Geoff Geoff
    25. December 2013 at 19:01

    Daniel:

    Again, the lack of rebuttals from you, and the childish ad hominem, is only more evidence that you have no rebuttal to my arguments.

    You are only reinforcing my convictions when you talk like that.

    Don Geddis:

    “Geoff: Always a pleasure to read your rantings. A clever mix of vaguely rational paragraphs, tied together with unexamined rationalizations. Can you even tell the difference? I wonder.”

    I see you are interpreting your own lack of understanding the rationalizations (which is not surprising of course, considering how you don’t read texts that espouse theories contrary to your own, whereas that is pretty much all I read), to be a sign that I myself have not “examined” my rationalizations.

    “You know, I assume, that you’re being very rude.”

    Yes, I know that advocating for actions contrary to your preferences is something a sensitive and hubristic intellectual would find offensive or “rude.” I get it. It is like people in church hearing an atheistic rant. Rude. Offensive. Etc. It makes sense.

    But I hope you can realize that it is I who receives rude comments. Just look at Daniel’s comment. He called me an idiot. I don’t see you telling him that he’s being rude. Why? Because you enjoy reading it. I deserve it don’t I?

    “The large number of readers that come here, are attracted by Sumner’s insights. You’re like an econ vampire, trying to steal Sumner’s audience in order to shout your message too.”

    I feel honored that you put me on such a high pedestal.

    “I presume you know that what you really ought to do is start your own blog, to present your point of view. But of course you probably already know that nobody would come. Nobody would care to read it. Must be frustrating for you. But in your own mind, is that enough to excuse your constant, too-long, never changing, never learning, off-topic essays, posted as comments on someone else’s blog?”

    I am pretty sure that those who start blogs open to public commenting, are not doing so because they want to be in an echo chamber.

    I do run a few blogs, I am just not telling you what they are, because I prefer to remain anonymous. Ideas are more important to me than cult of personality worship that you seem to prefer.

    “Well, in any case, Seasons Greetings. Happy Festivus. I wish you well in your Airing of Grievances, and I hope that you someday get the help you so desperately need.”

    What did I say that would warrant this churlish comment? All I did was post a comment saying we should work towards a free market, and the problems with central banking. Oh how horrible of a person am I, huh?

    I need to be insulted, because then my arguments would be refuted, right?

    Can’t you see how ignoring me and/or insulting me, is you communicating to me that you can’t refute my arguments, that is, they are correct, or at least more correct, than your theories and convictions? You just gave me a Christmas present with your insults.

  8. Gravatar of Geoff Geoff
    25. December 2013 at 19:01

    Daniel:

    Again, the lack of rebuttals from you, and the childish ad hominem, is only more evidence that you have no rebuttal to my arguments..

    You are only reinforcing my convictions when you talk like that.

    Don Geddis:

    “Geoff: Always a pleasure to read your rantings. A clever mix of vaguely rational paragraphs, tied together with unexamined rationalizations. Can you even tell the difference? I wonder.”

    I see you are interpreting your own lack of understanding the rationalizations (which is not surprising of course, considering how you don’t read texts that espouse theories contrary to your own, whereas that is pretty much all I read), to be a sign that I myself have not “examined” my rationalizations.

    “You know, I assume, that you’re being very rude.”

    Yes, I know that advocating for actions contrary to your preferences is something a sensitive and hubristic intellectual would find offensive or “rude.” I get it. It is like people in church hearing an atheistic rant. Rude. Offensive. Etc. It makes sense.

    But I hope you can realize that it is I who receives rude comments. Just look at Daniel’s comment. He called me an idiot. I don’t see you telling him that he’s being rude. Why? Because you enjoy reading it. I deserve it don’t I?

    “The large number of readers that come here, are attracted by Sumner’s insights. You’re like an econ vampire, trying to steal Sumner’s audience in order to shout your message too.”

    I feel honored that you put me on such a high pedestal.

    “I presume you know that what you really ought to do is start your own blog, to present your point of view. But of course you probably already know that nobody would come. Nobody would care to read it. Must be frustrating for you. But in your own mind, is that enough to excuse your constant, too-long, never changing, never learning, off-topic essays, posted as comments on someone else’s blog?”

    I am pretty sure that those who start blogs open to public commenting, are not doing so because they want to be in an echo chamber.

    I do run a few blogs, I am just not telling you what they are, because I prefer to remain anonymous. Ideas are more important to me than cult of personality worship that you seem to prefer.

    “Well, in any case, Seasons Greetings. Happy Festivus. I wish you well in your Airing of Grievances, and I hope that you someday get the help you so desperately need.”

    What did I say that would warrant this churlish comment? All I did was post a comment saying we should work towards a free market, and the problems with central banking. Oh how horrible of a person am I, huh?

    I need to be insulted, because then my arguments would be refuted, right?

    Can’t you see how ignoring me and/or insulting me, is you communicating to me that you can’t refute my arguments, that is, they are correct, or at least more correct, than your theories and convictions? You just gave me a Christmas present with your insults.

  9. Gravatar of Saturos Saturos
    25. December 2013 at 22:18

    #2 seems like a good response to Bryan Caplan’s doubts about the money demand function: http://econlog.econlib.org/archives/2006/06/what_responds_t.html

    On the other hand targeting cash by volume irrespective of denomination seems like an immensely stupid idea. As if there is a stable demand function for money in terms of its volume, growing at a steady rate irrespective of what the money is worth.

  10. Gravatar of Daniel Daniel
    26. December 2013 at 08:43

    Geoff,

    Well, either you’re a moron – and there’s no point in trying to reason with you.

    Or it could be your intelligence causes envy in lesser people.

    Take your pick.

  11. Gravatar of Chuck E Chuck E
    26. December 2013 at 09:18

    Geoff,

    “What I know: If I want to hold more (less) money, then I accomplish this by seeking another individual (or individuals) to hold less (more) money.

    The less (more) cash I want to hold, requires another individual to hold more (less) cash.”

    What if I simply wish to diversify my existing assets into real cash? I could hold my savings account in Benjamins under my mattress instead of the local bank. Who then, am I “seeking” or negotiating with?

  12. Gravatar of Geoff Geoff
    26. December 2013 at 10:08

    Daniel:

    Still lacking a rebuttal to my arguments, and still insulting like a child. How surprising. Maybe one more round of insults will finally do it.

    Chuck E:

    “What if I simply wish to diversify my existing assets into real cash?”

    “I could hold my savings account in Benjamins under my mattress instead of the local bank. Who then, am I “seeking” or negotiating with?”

    Your bank.

    There is money and there is that which is exchanged for money. If you want to diversify your assets, and you want to hold more (less) cash as a part of your assets, then you’re still in a position of requiring someone else to hold less (more) cash as a part of their assets.

    If you want to hold more Benjamins under your mattress, instead of at your bank, then in this case, in order for you to hold more Benjamins under your mattress, the bank must hold fewer Benjamins in their vault.

    Money is a scarce good. You can’t multiply a dollar by having it change hands. In the aggregate, the sum total of money does not change when an individual holds less or more money, ceteris paribus.

  13. Gravatar of Doug M Doug M
    26. December 2013 at 10:10

    Currency demand is a one of those concepts that makes Marco economics seem more like quantum mechanics.

    If a whole lot of people decide that they want to spend $100 to $1000 over the next 3 weeks, and they go to their respecive banks and take out money and more people are walking around with more money currency in their pockets than at any other time of year, that is a decrease in currency demand!

    And this is because the same people are also spending more currency, and people are hoarding less currency.

    It goes against everything that is taught about the concept of demand. If something is in demand, it is because lots of people want to use that resource. But with currency, we say demand is low, when people want to use it.

  14. Gravatar of Geoff Geoff
    26. December 2013 at 10:13

    Chuck E:

    I do enjoy reading you write that cash is “real” money in order to describe the events taking place in your thought experiment. I am not being coy here. I think it’s a significant revelation of how people think about money.

  15. Gravatar of Daniel Daniel
    26. December 2013 at 10:34

    Geoff,

    “Rebutting” austro-sadists is like “rebutting” creationists. A total waste of time, since they’re too stupid to understand the issue – and they’ll claim victory anyway.

    And thank you for proving my point.

  16. Gravatar of Geoff Geoff
    26. December 2013 at 11:47

    Daniel:

    Another swing and a miss. “I don’t have to provide a rebuttal because you wouldn’t understand it anyway.” Really? Are you really Daniel, or are you my rather spoiled 12 year old niece Danielle? She talks like that to her mother.

    Back the grown up talk though: My argument is still there unchallenged. Continuing to act like a child won’t enable you to acquire the requisite knowledge to provide a response, let alone a rebuttal. Continuing to insult me is only going to add to the evidence that you are wrong.

  17. Gravatar of Daniel Daniel
    26. December 2013 at 12:04

    I take great pleasure insulting morons.

    How do I know I’m dealing with a moron ? They tend to use phrases like “monetary socialism”.

  18. Gravatar of Geoff Geoff
    26. December 2013 at 13:41

    Daniel:

    Thank you for at least attempting to put together a coherent argument.

    OK. You feel discomforted by being advised that what you advocate is socialistic money. I get it. I mean, who else but Marxists, Proudhonists, and other radical left wingers enjoy having their ideas and/or worldviews characterized as “socialist”? Obviously I am just trying to get a rise out of you at the expense of the truth.

    But is getting a rise out of you and truth mutually incompatible? Not in this case. I don’t throw around the phrase “socialism” as an insult without substance. I use it to describe a particular economic and political situation.

    The meaning of socialism, if you have ever actually bothered to look it up, is government ownership and/or control over the means of production.

    A society can be understood as falling between two extremes. At the one end of the spectrum, there is 100% socialism (totalitarianism). At the other end, there is 0% socialism (private property anarchy). A society with a central bank but otherwise private ownership of the means of production (which is not, by the way, even an accurate description of this country), is “socialist” to the extent of money. It is not wrong to identify it as socialist.

    Why is this? It is because it is indeed the case that the government controls the means of producing money (the Federal Reserve System) in our society. Money production is not open to competition. It is not controlled 100% privately, for profit, in competition, where anyone can enter the market to compete, where the best money wins. The state enforces a monopoly of its own currency as the medium of exchange/account. As such, yes, it is monetary socialism.

    You can call me a “moron” all you want, but what I am arguing is factual, and you have yet to even come close to providing a response that I would characterise as a refutation or challenge or rebuttal.

    All you have is name calling an childish antagonism. Perhaps it would do you some good to actually educate yourself on the meaning of socialism, and capitalism.

    You don’t take please in insulting morons, in my case, for I am smarter than you. You take pleasure in insulting me because I make you feel stupid and immoral.

  19. Gravatar of Philippe Philippe
    26. December 2013 at 19:25

    From your other post,

    John Cochrane:

    “Some economists tell me, “Yes, all our models, data, and analysis and experience for the last 40 years say fiscal stimulus doesn’t work, but don’t you really believe it anyway?”

    https://www.themoneyillusion.com/?p=2219

    I find it extremely difficult to believe that any economist ever said such a thing to John Cochrane. As such my impression is that this is probably some sort of flippant lie.

  20. Gravatar of Saturos Saturos
    27. December 2013 at 01:59

    That was probably more of a summary of the conversation.

  21. Gravatar of Daniel Daniel
    27. December 2013 at 07:23

    Geoff,

    Let’s say you were feeling ill and decided to go to a doctor.

    And the doctor looks at you and says – “yes, you are indeed ill. But it is mostly because you’ve been living a sedentary and unhealthy lifestyle. And yes, I could cure you – but that would prevent you from learning your lesson about healthy living – and you’d only get ill again at some point in the future. And if you die – well, it only proves how unfit you were.”

    That would be the awesomest doctor evar, right ? Right ? RIGHT ?

    Now, back to you long-winded rant – it can be boiled down to

    “M must be kept constant, and if V decreases – and causes a recession – then so be it, for that is the will of Jeebus and the penance for our sins – as communicated unto us by his prophet Mises. Any attempt to compensate by increasing M will only enrage the True Gods further. Repent, ye sinners, before it is too late !!111one”

    (In case it’s not clear, I’m talking about M * V = P * Y)

    Yeah, dude, that’s some really tight logic there.

    Moron.

  22. Gravatar of Doug M Doug M
    27. December 2013 at 09:41

    Daniel,

    As a counterpoint to your doctor….

    Suppose your doctor says…You are reasonably healthy for a person of your age, but the latest research says that statins will lower your risk of heart attack even if you have no family history of heart disease, and show no particular elevated risk factors. So, I am going to proscribe generic Lipitor. But, we have seen elevated liver enzymes in Lipitor patients, so I am also going to proscribe something for your liver.

    Is that the best doctor ever? Most of what was said sounds reasonable taken each in its part, but as an overall strategy sounds a touch ridiculous. Sometimes treatment is worse than the illness.

    When you hand over to an economist control of all of the levers, you should be just a touch skeptical? What is the chance that his proscription will while logical on its face, will not result in side effects (unintended consequences)that are just as bad as the illness?

  23. Gravatar of Daniel Daniel
    27. December 2013 at 10:22

    Doug M

    http://media.tumblr.com/tumblr_m59jwiaz481qa0tls.jpg

  24. Gravatar of Doug M Doug M
    27. December 2013 at 10:49

    Daniel,

    Do you actually have a point? It is impossible to miss it if there was nothing to be aiming for.

  25. Gravatar of Daniel Daniel
    27. December 2013 at 11:36

    My point is that austrian economics is a pseudo-science relying mainly on circular logic and ipse dixit.

  26. Gravatar of Doug M Doug M
    27. December 2013 at 11:46

    Funny, it is the usually the Austrians who say that mainstream economics is a pseudo-science, relying upon circular logic, flawed assumptions, and unnecessarily and unrealistic quantification.

    They want to consider economics a subset of philosophy.

  27. Gravatar of Daniel Daniel
    27. December 2013 at 12:12

    Austrian economics certainly is a subset of philosophy. And, as we know, philosophy is to reality as masturbation is to sex.

  28. Gravatar of Doug M Doug M
    27. December 2013 at 12:24

    Ah, but the Austrian is more likely to realize that this is all just mental masturbation. There is nothing wrong with masturbation. In fact, I recommend that everyone should give it a try. It just isn’t particularly productive.

  29. Gravatar of Daniel Daniel
    27. December 2013 at 12:43

    Considering are fond of claiming that millions of people going unemployed is somehow a good thing (among others), I’d say there’s such a thing as TOO MUCH masturbation.

  30. Gravatar of Daniel Daniel
    27. December 2013 at 12:44

    *they (the austrians) are fond of

  31. Gravatar of Geoff Geoff
    27. December 2013 at 20:09

    Daniel:

    “Let’s say you were feeling ill and decided to go to a doctor.”

    I wouldn’t ask for the doctor to give me more of what caused me illness in the first place. In other words, I wouldn’t ask for more inflation.

    “And the doctor looks at you and says – “yes, you are indeed ill. But it is mostly because you’ve been living a sedentary and unhealthy lifestyle. And yes, I could cure you – but that would prevent you from learning your lesson about healthy living – and you’d only get ill again at some point in the future. And if you die – well, it only proves how unfit you were.”

    You’re forgetting that this doctor has been my doctor since 1913, and yet I am continually ill, and he keeps trying to convince me that “this time” he figured it out.

    Meanwhile, all I want is for this psychopathic doctor to stop pretending he knows how to control people better than they can control themselves.

    “Now, back to you long-winded rant – it can be boiled down to”

    “M must be kept constant, and if V decreases – and causes a recession – then so be it, for that is the will of Jeebus and the penance for our sins – as communicated unto us by his prophet Mises. Any attempt to compensate by increasing M will only enrage the True Gods further. Repent, ye sinners, before it is too late !!111one””

    It’s clear you don’t read free market economics. You have your conception of it, and that it enough for you. Praise Jeebus!

    In actuality, my theory “can be boiled down” to this:

    Laissez-faire in money production.

    When money is guided by market forces, there is no reason for a sudden massive drop in aggregate spending. But even if there were, then this is a signal that the capital structure and labor allocation SHOULD change, to be more in line with individual preferences, you know, those preferences you want overruled by the preferences of statesmen, because they’re more important.

    In a free market of money, M would likely rise over time. But, unlike our credit/debt house of cards monetary system, free market money is not eradicated upon debt default or repayment of debt. In a free market, once money comes into existence, it tends to stay in existence. Massive deflation would be highly unlikely.

    “(In case it’s not clear, I’m talking about M * V = P * Y)”

    Ah yes, the fallacy ridden equation of exchange. Of course you would resurrect that monstrosity. I mean, it’s not like you challenge conventional wisdom.

    “Yeah, dude, that’s some really tight logic there.”

    Is that it? You tell me “You want a recession…and…and the equation of exchange!”

    That’s some incredibly powerful reasoning you have going on there.

    “Moron.”

    That’s Mr. Moron to you bub.

    “My point is that austrian economics is a pseudo-science relying mainly on circular logic and ipse dixit.”

    You don’t even understand Austrian economics, I am puzzled at how you can even convince yourself that your opinion is informed.

    “Austrian economics certainly is a subset of philosophy. And, as we know, philosophy is to reality as masturbation is to sex.”

    Your immaturity knows no bounds.

    “Considering are fond of claiming that millions of people going unemployed is somehow a good thing…”

    It’s not a bad thing to conclude that not all jobs are net productive jobs, and that not all jobs are capable of being sustained.

    You seem to believe that jobs are the end. The goal. The finish line. In actuality, jobs are but means to ends. It is those ends that jobs should be constrained. Thus, if millions of people go into lines of work that are not conducive to the ends of consumers, then yes, they should change jobs, which of course means temporary unemployment.

    You’re arguing from emotions, not economic science. You’re essentially just trying to guilt trip economists into abandoning economic science, on the basis of feeling bad for people who lose their jobs.

    Can’t you see how you are displaying for the world to see that you are not interested in economic science, but how to feel better about yourself and everyone regardless of whether or not they are being productive?

  32. Gravatar of Daniel Daniel
    28. December 2013 at 04:12

    Yet another wall of text full of circular logic and arguments based on thought experiments in which cows are assumed to be perfectly spherical.

    Typically austrian, I might say.

  33. Gravatar of Geoff Geoff
    28. December 2013 at 11:45

    Daniel:

    Once again yet another post from you devoid of any substantive argument.

  34. Gravatar of Daniel Daniel
    28. December 2013 at 12:03

    Not sure how one can argue against a moron who claims deflationary recessions are caused by previous inflation.

  35. Gravatar of Geoff Geoff
    28. December 2013 at 12:41

    Daniel:

    If you’re not sure, and if you want to intellectually demolish those who do argue that recessions are caused by previous inflation, then usually what people do is they read the source material of those they want to intellectually demolish.

    This is so they have an actual understanding of what it is they are claiming is “moronic”. That way, they can separate themselves from those who don’t think but make conclusions based on how they feel about something.

    Yes, this is much more difficult than acting like a creationist in the face of reason and evidence, and hand waving and dismissing any and all arguments that challenge one’s views. But engaging those arguments is how we grow and become more intelligent. For me, I am not afraid of engaging counter-arguments to my fundamental convictions. In fact, it’s where I spend most of my efforts. I do this because I am more concerned about finding truth, than being surrounded by those who share my beliefs and give me encouragement and validation simply because they agree (but who themselves are wrong).

    For example, instead of just focusing on how the Fed could “save the economy” 2008-2009, ask yourself why, during 2007-2009, did the Fed find itself in a world of having to expand the money supply more than it did in the recent past, in order to reverse the consequences of rising money holding times, such as falling spending and falling prices?

    Do you take periods of rising money holding times as unexplainable, “exogenous” or “shock” events that the Fed is supposed to deal with in order to save us all? Or do you ever analyse and research the reasons for why so many millions of people across the country would suddenly desire to hold their money incomes for longer than investors and capitalists expected? In other words, why did so many investors not expect the increased money holding times, such that the Fed found itself have to “step in” and inflate the money supply to reverse the consequence of falling spending and prices?

    These are the types of fundamental questions that I don’t see you addressing. You have lots of insults, but do you really want to be that kind of a person? An unthinking thug?

  36. Gravatar of Geoff Geoff
    28. December 2013 at 12:55

    One of the best lessons in economics is that you can’t understand how to “fix” the market unless you first learn how the market works. A doctor has to know how a healthy body works without need for any medical help, before he can know how to help an unhealthy body with medical help.

    Do you know how a free market works, i.e. one without a central bank? How capital and labor are allocated? How the productive structure is determined? The function of interest rates? How they are determined?

  37. Gravatar of Daniel Daniel
    28. December 2013 at 14:04

    Not sure how one can argue against a moron who claims wage/debt stickiness is either a fiction, or a problem to be fixed by throwing millions of people out of work.

  38. Gravatar of Geoff Geoff
    28. December 2013 at 14:28

    “Not sure how one can argue against a moron who claims wage/debt stickiness is either a fiction, or a problem to be fixed by throwing millions of people out of work.”

    The same way as you would if you’re unsure “how to argue against a moron who claims deflationary recessions are caused by previous inflation.”

    You do research. You ask questions. You don’t just accept without question what you’re being told by those who are themselves responsible for the problems you observe.

    For wage stickiness, you could ask why it is that workers would be willing to forgo any wage income at all, and why employers would be willing forgo any profit at all, such that unemployment rises from the recent past.

    You could ask how is it possible for a worker to choose no wages rather than lower wages, and yet still be sustained over time.

    You could ask why virtually all workers and employers have come to the conclusion that rising standards of living are synonymous with rising nominal incomes, despite the fact that economics teaches us that rising standards of living are in fact synonymous with rising real incomes, and possibly falling or stagnant nominal income per capita?

    You could ask yourself what would people’s willingness to accept a lower price would be, if they were born into a world where money was produced in a free market, such that production in general exceeded money production, such that prices and wage rates fell over time, instead of rose over time? In this scenario, would workers and employers be more or less willing to accept lower prices as compared to the recent past?

    I am not claiming wage rates adjust instantaneously to changes in nominal demand for labor.

    What I am claiming is that printing more money in order to prevent unemployment ignores the causes of why there is unemployment in the first place, and as a result, ignores the possibility that the solution you espoused in the past to reduce unemployment in the past, is precisely the cause for why there is unemployment now in the present. If you won’t even entertain this as a possibility, then that isn’t scientific of you. You’d be behaving like a dogmatist.

    Reason and evidence should reign supreme, not your emotions regarding people losing their jobs. Jobs are not the goal. They are not the end. They are a MEANS to ends. The ends are individual consumer/saver preferences. Jobs should be made and unmade based on those ends. It’s why we produce and work in the first place. We don’t work for work’s sake. If work never had any payoff, none of us would work.

  39. Gravatar of Daniel Daniel
    28. December 2013 at 14:35

    Not sure how one can argue against a moron who blames people for not acting according to his/her ideology.

  40. Gravatar of Geoff Geoff
    28. December 2013 at 14:42

    Daniel:

    “Not sure how one can argue against a moron who blames people for not acting according to his/her ideology.”

    The same way as you would if you’re unsure “how one can argue against a moron who claims wage/debt stickiness is either a fiction, or a problem to be fixed by throwing millions of people out of work.”

    Notice a pattern yet?

    In this case however, a little self-reflective analysis might help you. You say you’re unsure how to argue against one who blames others for not acting according to his ideology. Well, ask yourself why you blame people for exactly that very thing. You blame the last recession on the Fed not acting in accordance with your set of ideas (ideology is defined as a set of ideas) about how money production “should be” run.

    You blame the millions of people losing their jobs on the Fed not acting in accordance with your particular ideology regarding money.

    Now, we’re already way past your bedtime, so I don’t expect you to be able to grasp, let alone be convinced, of anything I has said above, but what I do request is for you to please accept the truth that you will continue to be “unsure” of how to respond to certain arguments, if you never research those arguments in various papers, books, and articles.

  41. Gravatar of Geoff Geoff
    28. December 2013 at 14:54

    I think I get it now Daniel. You don’t even understand what you yourself are saying and believing.

    You believe it is wrong to put the blame on incorrect means to achieve desired ends, as the reason for why those ends were not achieved.

    You say those who do say such a thing are “morons.”

    Well, as I showed you, that kind of makes you a moron, Sumner a moron, basically everyone a moron. For everyone puts the onus for why the economy went into recession on people not acting in accordance with certain ideas, i.e. an ideology. You blame others for not acting in accordance with your anti-austerity ideology.

    You’re quite the hypocrite. Flawed character all over the place. No wonder you have trouble dealing with my posts. You need a psychological boost derived from hatred against those who disagree with your ideology you want imposed on them by force.

  42. Gravatar of Daniel Daniel
    28. December 2013 at 14:55

    Yes, I tend to be unimpressed/unconvinced by circular logic and ipse dixit.

    Must be why I’m not partial to the austrian worldview. Unlike certain brainiacs around here.

  43. Gravatar of Geoff Geoff
    28. December 2013 at 15:34

    Daniel:

    “Yes, I tend to be unimpressed/unconvinced by circular logic and ipse dixit.”

    How is your comment right here something other than ipse dixit?

    “Must be why I’m not partial to the austrian worldview.”

    You’re not partial because you’re afraid of even reading it.

    You have to actually read the literature you claim is wrong, before your claim is to be convincing and/or informed.

    What I said above is not limited to “Austrian worldview.” Papers out of the Federal Reserve have shown that there are non-Austrians who are saying the same thing. But even if there weren’t, it wouldn’t mean the theory is false.

  44. Gravatar of Geoff Geoff
    28. December 2013 at 15:36

    Daniel:

    And where is anything I said “circular logic”? You haven’t shown that either.

  45. Gravatar of Daniel Daniel
    28. December 2013 at 16:06

    Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, a priori. They are not subject to verification or falsification on the ground of experience and facts.

    It’s true because we say it’s true.

  46. Gravatar of Geoff Geoff
    28. December 2013 at 16:30

    Daniel:

    “It’s true because we say it’s true.”

    No, they’re true because of painstaking reflection and consideration. They aren’t just assumed without any consideration, the way it is blindly assumed by self-professed empiricists that the laws of nature do not change over the course of time, such that empiricist methodology is structured in accordance with that assumption (hypothesis tested, then some time later data is collected, then some time later analysis is carried out, then some time later the hypothesis proposed in the past is now, in the present, considered falsified or confirmed by experience.

    A priori argumentation does not imply ANY argument is permitted. Those that “pass” are those that are consistent with logic constrained to human action, whereas all those arguments not so constrained, are rejected as not applicable to human life and thus rejected as not economically valid.

    They’re not true simply because they’re stated as true, or psychologically believed to be true. They are true because they are logically deduced from the incontrovertible axiom of action. It has been discovered as incontrovertibly true, because any attempt to refute it, would itself be an action. Refutation is an action, and action cannot of course refute action. It seems trivial to us today, but I can assure you that it took many thinkers many centuries to make this simple truth explicit, because it cannot be observed the way pears and trees and birds can be observed. It doesn’t take much mental stamina to know one is looking at an object. It takes a lot more mental stamina to think about what it means to observe, and how we come to know what observation really is.

    It’s not very helpful to yourself to mischaracterize single passages.

  47. Gravatar of Daniel Daniel
    28. December 2013 at 16:34

    blablabla, I’m right because I say so, yadda yadda yadda

    Try changing the tune.

  48. Gravatar of Geoff Geoff
    28. December 2013 at 16:55

    Daniel:

    “blablabla, I’m right because I say so, yadda yadda yadda”

    I just said it’s not true simply because someone says so.

    How can repeating the falsehood that I believe it’s true simply because I say so, make it something else?

    “Try changing the tune.”

    But you’re obviously tone deaf. The tune is there, an A in C major is being played, but you claim it’s an F.

    What WOULD I have to say in order for a particular proposition I am claiming is true, such as “the law of marginal utility”, which cannot be observed, to in fact be true?

  49. Gravatar of Geoff Geoff
    28. December 2013 at 17:00

    Daniel:

    I hope you realize that you are really just communicating your own beliefs for how truths are established when you insist, despite my protestations, that I believe X is true “simply because I say so.”

  50. Gravatar of Daniel Daniel
    28. December 2013 at 17:02

    they’re true because of painstaking reflection and consideration.

    Those that “pass” are those that are consistent with logic constrained to human action

    They are true because they are logically deduced from the incontrovertible axiom of action

    http://www.youtube.com/watch?v=oVOZPlqrRcQ

  51. Gravatar of Geoff Geoff
    28. December 2013 at 17:11

    Daniel:

    I would love to see you refute the axiom of action, without presenting nor intending your refutation to itself be an action.

    Because I’m generous, I’ll give you a thousand attempts to do it.

    Now’s your opportunity to disprove the premises of Austrianism!

  52. Gravatar of Daniel Daniel
    28. December 2013 at 17:17

    Sure, right after I disprove the existence of invisible gnomes.

  53. Gravatar of Geoff Geoff
    28. December 2013 at 17:19

    Daniel:

    “Sure, right after I disprove the existence of invisible gnomes.”

    Why do you have to disprove that first? Are you afraid of trying to disprove action?

  54. Gravatar of Don Geddis Don Geddis
    28. December 2013 at 17:21

    First, I need to apologize to any readers that have made it this far down the comments. I was one of the first to respond to our resident troll, far above — even though I know better, and that trolls only seek attention, and a better community is made by starving them, not feeding them. My bad.

    That said, this comment thread (like many before) has once again been taken over, by a discussion that never was relevant to the original blog post. It’s too late, now.

    Geoff, you keep asserting that you’re the good guy here. That you’re trying to have a rational argument, but nobody will engage you on the issues. Please understand that we have lots and lots of counters, but long experience with you has shown that you are not an honest debater. And, despite your claims, you are not seeking truth. I myself have had long comment debates with you in the past. It isn’t that I’m right and you’re wrong, on the issues. It’s that your behavior never changes, even when it is explained to you why your arguments gain so little traction here. It’s clear that you don’t care that nobody is convinced by you; you love thinking of yourself as a martyr.

    But now that this thread is already ruined, I’ll bite. Let me respond (just this once) in detail, to some of your claims. Let me be completely clear: I am not going to try to argue substance, try to argue that you are “wrong” and Sumner is “right”, on economics. I’m just going to explain to you why your long posts are so useless and unconvincing here, and try to guide you as to what you would need to do, in order to make some progress convincing people. Perhaps Sumner is wrong, and you are right! But you haven’t presented anything convincing yet.

    Of course, I don’t believe that you are actually seeking truth. I believe you are a dishonest debater. So I expect no change in your behavior at all, and on some future post you will repeat much the same useless essays as you’ve posted here. But what the hell. Let’s pretend that you’re actually just ignorant (not understanding why your essays are not convincing), rather than evil (understanding that you aren’t constructive, but not caring).

    Geoff, you write: “Laissez-faire in money production.

    That only addresses money as the Medium of Exchange. Surely you’ve read this blog long enough to realize that the whole concern is about a change in value of the Medium of Account. So it is completely beside the point to rant on about a free market in production of the Medium of Exchange.

    Now, I know in the past that you’ve talked about a gold standard, or perhaps an Account of a basket of precious metals. You need to realize that all the action on the blog, is about the Medium of Account. Stop wasting our time with free market “exchange” production. If you want to make a proposal, make a Medium of Account proposal. That’s the one that matters, for the ideas on this blog.

    When money is guided by market forces, there is no reason for a sudden massive drop in aggregate spending.

    We completely disagree. So you can’t just express this as an axiom. You need to support it, to defend it. Our historical evidence over the centuries, is that even when there was a gold standard, aggregate spending was highly volatile. So nobody believes your pure statement of this claim as an axiom. Surely you know, if you and your audience disagree about your “axioms”, then constructive communication is not possible. To be constructive, you need to back up to general principles that we all agree with, and being your argument from there. We don’t agree with this claim.

    In a free market, once money comes into existence, it tends to stay in existence. Massive deflation would be highly unlikely.

    And here, like most Austrians, you only think about supply. But any market has both a supply side, and a demand side. And floating prices (or, in the case of money, “value”). You’ve read this blog long enough. Surely it cannot escape your notice that Sumner’s big emphasis is the demand side.

    You’re arguing that, in your design, that supply will be stable. That’s super. But the whole concern in this blog, is that money demand is not stable. And thus money value is not stable. Sumner’s NGDPLT is an attempt to stabilize money value over time, and thus avoid the negative consequences of volatile money value.

    If you want to make a serious proposal, you must at least address the question of unstable money demand (and thus value). Going on and on about stable supply is completely irrelevant.

    if millions of people go into lines of work that are not conducive to the ends of consumers, then yes, they should change jobs, which of course means temporary unemployment.

    You’ve brought this up many times in the past, and already received the response (from me, among others): if your theory was true, then we would expect greater unemployment in some industries (the “lines of work that are not conducive…”), but simultaneously, increasing employment in other industries.

    But that’s not the pattern we saw, in 2008. Instead, we saw increasing unemployment in every industry, at the same time. That doesn’t match your story, of “misallocation” of investment. But it does match the story of depressed NGDP and a sharp rise in the value of a dollar.

    You can’t keep claiming your theory of misallocation, so in contrary to observed history, without at least acknowledging that we’re unable to find any of the jobs that these people should “change” into, you just sound completely out of touch and irrelevant.

    You could ask how is it possible for a worker to choose no wages rather than lower wages

    That’s not how the theory of sticky wages works. Instead, the scenario is: a company employs 10 workers at a given salary. Suddenly revenues drop by 10%. One choice is to give all workers a 10% pay cut. Instead, the choice selected (by both firms and employees) — for possibly complex reasons — is generally to maintain even wages for 9 employees, and to fire/layoff one employee. Who then cannot find a job at any wage.

    Well, this comment has already gone on far too long. (Polite blog protocol is to keep comments short, on topic, and relevant to the original post. This very comment is an example of bad behavior.) So I’ll stop with my responses to your writing. But know that essentially every other sentence you write, is broken in a way very much like the ones that I’ve outlined. This is why you are unconvincing to this audience: because you’ve put so little effort into trying to construct a convincing argument. You just like to lecture, but not to convince.

    Now, I assume that you actually aren’t a constructive, honest debater. But if by some miracle I’m wrong, then I expect your future posts to: (1) talk about the Medium of Account, rather than (just) the Medium of Exchange; (2) focus on the (shifting) demand for money (even if you think it will be stable) rather than just the supply of money; (3) explain why “malinvestment” causes unemployment throughout the whole economy, rather than just in the “wrong” industries; (4) show that you understand the details of the sticky wages (& prices) theories.

    Note that none of this is about whether you are right, or Sumner is. It’s only about whether you’re honest enough in debate, to actually listen to the other side, and respond to their concerns. Are you actually trying to be constructive? Or are you just a troll?

    Perhaps your writing will change, in the future. I won’t hold my breath.

  55. Gravatar of Daniel Daniel
    28. December 2013 at 17:42

    Don Geddis,

    First of all, it’s not like there was some high-level debate going on. It’s a web-page, a bit of trolling won’t change anything.

    Second of all – like I said above – you do not debate the austrians, just like you don’t debate creationist. Or pigeons (they’re in the same ballpark). They do not play by the same rules. They already have the answers, facts are irrelevant – I believe they call it “praxeology”.

    And third of all – this Geoff fella is clearly missing (more than) a few nuts and bolts. Notice how he responds with a wall of text to a every single insulting sentence you throw at him.

    Might as well have a little fun with him.

    Wanna bet he’ll respond with another wall of text ?

  56. Gravatar of Geoff Geoff
    28. December 2013 at 18:21

    Don Geddis:

    Your apology is accepted.

    “Geoff, you write: “Laissez-faire in money production.””

    “That only addresses money as the Medium of Exchange. Surely you’ve read this blog long enough to realize that the whole concern is about a change in value of the Medium of Account.”

    Surely you’ve seen my countless posts explaining how medium of account is derived from medium of exchange. Money is that commodity which is exchanged indirectly for other goods, which has the consequence of people using it to tally their gains and losses in terms of that commodity, i.e. medium of account.

    We do not require a central plan on what is to be the medium of account. A free market in money is the same thing as a free market in medium of account. People are not so stupid that they will use Bitcoins or gold as medium of exchange, but be totally clueless as to what commodity to use as a medium of account.

    “So it is completely beside the point to rant on about a free market in production of the Medium of Exchange.”

    No it isn’t. It is not besides the point at all. We don’t have to design a medium of account. A free market in money IS a free market in medium of account.

    “Now, I know in the past that you’ve talked about a gold standard, or perhaps an Account of a basket of precious metals. You need to realize that all the action on the blog, is about the Medium of Account. Stop wasting our time with free market “exchange” production. If you want to make a proposal, make a Medium of Account proposal. That’s the one that matters, for the ideas on this blog.”

    Do you even know what money is? Money is not the commodity that people track on their balance sheets that differs from the commodity they use as a medium of exchange. If some European companies are using US dollars as a medium of account, then this requires US dollars to be used as a medium of exchange.

    People don’t use potatoes as a medium of account because they’re not a medium of exchange anywhere.

    Your rebuttal is 100%, completely and totally irrelevant to the argument I am making. When I advocate for a free market in money, I am not claiming that any and all free market mediums of account are excluded. Let individuals decide how they want to calculate their gains and losses no less than allowing them to choose their own medium of exchange.

    You are being misled by Sumner regarding this alleged dichotomy between medium of account and medium of exchange.

    “When money is guided by market forces, there is no reason for a sudden massive drop in aggregate spending.”

    “We completely disagree. So you can’t just express this as an axiom. You need to support it, to defend it. Our historical evidence over the centuries, is that even when there was a gold standard, aggregate spending was highly volatile.”

    What historical evidence are you talking about? The historical evidence that has been conducted has shown that precious metal monetary systems do not undergo sudden massive drops in supply or spending. But even if it did, which it didn’t, then that would not in itself constitute justification to point weapons at innocent people preventing them from continuing to use such a commodity for money.

    The evidence actually shows that when states interfere in money, by drastically increasing the supply of non-free market money, such as Greenbacks, or Continentals, or gold-backed pyramid scheme paper, that’s when we get those large deflationary periods.

    “So nobody believes your pure statement of this claim as an axiom.”

    That wasn’t an “axiom.” That was a historical argument subject to falsification by evidence, which doesn’t exist.

    The only “axioms” that exist in economics are very modest. Action, costs, profits, losses, etc.

    “Surely you know, if you and your audience disagree about your “axioms”, then constructive communication is not possible. To be constructive, you need to back up to general principles that we all agree with, and being your argument from there. We don’t agree with this claim.”

    You don’t agree with action?

    “In a free market, once money comes into existence, it tends to stay in existence. Massive deflation would be highly unlikely.”

    “And here, like most Austrians, you only think about supply. But any market has both a supply side, and a demand side.”

    And here, like most anti-Austrians, you conflate demand for quantity. Any individual who demands more money, requires another to demand less money. I can’t hold more money unless you agree to hold less money, and vice versa.

    If both of us wanted to hold more money, then what we both want can be accomplished by falling prices. We don’t want more money to eat, we want more purchasing power.

    If you wanted more money, but prices and spending rose all around you to the exact same extent, then your desires would be frustrated. You would have exactly the same purchasing power as before.

    “And floating prices (or, in the case of money, “value”). You’ve read this blog long enough. Surely it cannot escape your notice that Sumner’s big emphasis is the demand side.”

    It is precisely the lack of respect for the demand side that Sumner wants the central bank to reverse the effects of changes on the demand side. He wants money printing to be unlimited, to counteract ANY rise in demand for money holding no matter how large it is.

    In this respect, he is willing to ignore the causes for why people would want to hold more money, by risking his solution to be more of what caused the sudden rise in the first place.

    “You’re arguing that, in your design, that supply will be stable. That’s super. But the whole concern in this blog, is that money demand is not stable. And thus money value is not stable. Sumner’s NGDPLT is an attempt to stabilize money value over time, and thus avoid the negative consequences of volatile money value.”

    That’s precisely why it is so destructive. Free market valuations of money are good. They are beneficial. They are needed. They should be allowed to run freely. Valuing money is an integral part of the function of money. If market actors are not free to value money, then market coordination is seriously hampered, and the desired outcome of “stability” is actually compromised. It is counter-productive.

    The reason why the state “stabilizing” the exchange value of flour, or penicillin, would be so destructive, is the same reason it is destructive in money.

    Stabilizing money is just an ex post rationalization that people have GIVEN that naked aggression has taken place in regards to money for the benefit of the aggressors. Sumner is intellectually compelled to come up with some intellectual reason, any intellectual reason, to justify the existence of the Fed, because if he didn’t, then his intellectual investment would be exposed as nothing but an apologia for aggression.

    It’s why he is so relentless in getting people to believe in the gobbledygook of “stabilization.” Free association is not stable. Trying to force it as stable will only make it more unstable.

    “If you want to make a serious proposal, you must at least address the question of unstable money demand (and thus value).”

    Address it HOW exactly? Am I supposed to treat fluctuations in demand as an inherent evil the way you do before I am “approved” here?

    Fluctuating money demand coordinates the economy in beneficial ways. I don’t see how violence is justified to stop people from peacefully making changes in their valuations in exchange.

    “Going on and on about stable supply is completely irrelevant.”

    No it isn’t. It is completely relevant. You just don’t want to hear it. That’s the difference.

    “if millions of people go into lines of work that are not conducive to the ends of consumers, then yes, they should change jobs, which of course means temporary unemployment.”

    “You’ve brought this up many times in the past, and already received the response (from me, among others): if your theory was true, then we would expect greater unemployment in some industries (the “lines of work that are not conducive…”), but simultaneously, increasing employment in other industries.”

    And as I have repeatedly pointed out to you in response, many times in fact, no, that is NOT what is implied at all. When I say temporary unemployment, I mean it. I don’t argue that when someone loses their job, they will instantly and without any delay whatsoever, find work in another project.

    It takes time for not only workers, but employers, to find the best uses for resources and labor, given that errors have been revealed.

    When you assert that my theory requires zero drops in employment, that is, like I have argued before, a straw man.

    It is a good thing when corrections are made to existing errors. I find it baffling how you can disagree with that. I also find it baffling that you expect no dips in employment before you call for the guns to be taken out of their holsters.

    Seriously, what is so incredibly evil about someone temporarily losing their job due to consumers finding better products elsewhere, but living in a maximally free market in everything, such that they have maximal opportunity to find new employment as quickly as possible? What is so evil if more than one individual goes through this at the same time?

    You’re not convincing me why guns are justified to keep people in jobs they should not be in.

    “But that’s not the pattern we saw, in 2008. Instead, we saw increasing unemployment in every industry, at the same time. That doesn’t match your story, of “misallocation” of investment.”

    Actually it does. You can’t expect misallocation of resources to take place alongside a counter-factual world that really exists, that enables those misallocated resources to instantly find new deployments.

    Your counter-argument is untenable. Misallocation is fully consistent, indeed requires, “aggregate” idle resources and “aggregate” unemployment.

    “But it does match the story of depressed NGDP and a sharp rise in the value of a dollar.”

    It matches that story AS WELL.

    “You can’t keep claiming your theory of misallocation, so in contrary to observed history, without at least acknowledging that we’re unable to find any of the jobs that these people should “change” into, you just sound completely out of touch and irrelevant.”

    Misallocation is not “contrary to observed history.” The evidence is fully consistent with it.

    You just have the mistaken notion that because there is a correlation between NGDP and employment, that falling NGDP causes falling employment. How do you know that falling employment doesn’t cause falling NGDP? Because the Fed can always reverse NGDP? NGDP contains consumer spending. NGDP can rise by increases in inflation induced addition to consumer spending, and no additional wage payment is made. That is possible. NGDP is not the finance source of wages. Wage payments precede that which those who receive wages spend their money on after. NGDP is a function of wage payments, not the other way around.

    But even if unemployment did arise by virtue of a decline in aggregate spending, this is not sufficient justification to point guns at innocent people. If spending falls, then this means what is being produced, should not be produced in the way it is being produced. People hold money for longer because they’re waiting for better alternatives. Those alternatives are hampered when spending is forced back upwards.

    “You could ask how is it possible for a worker to choose no wages rather than lower wages”

    “That’s not how the theory of sticky wages works.”

    That’s not how to answer questions. You don’t answer questions about economic theory by refusing to answer on account of it not fitting into your existing understanding.

    “Instead, the scenario is: a company employs 10 workers at a given salary. Suddenly revenues drop by 10%. One choice is to give all workers a 10% pay cut. Instead, the choice selected (by both firms and employees) “” for possibly complex reasons “” is generally to maintain even wages for 9 employees, and to fire/layoff one employee. Who then cannot find a job at any wage.”

    Why would the employer and/or employee agree to cease trading for any wage, instead of a lower one? Again, you’re not even asking the why that I said to Daniel he should be asking.

    “Well, this comment has already gone on far too long.”

    Too bad. Your points are still as flawed now, as they were back when you said them the first time.

    Maybe you’ll eventually do some more research.

    “Now, I assume that you actually aren’t a constructive, honest debater.”

    False. I am honest and constructive.

    “But if by some miracle I’m wrong, then I expect your future posts to: (1) talk about the Medium of Account, rather than (just) the Medium of Exchange; (2) focus on the (shifting) demand for money (even if you think it will be stable) rather than just the supply of money; (3) explain why “malinvestment” causes unemployment throughout the whole economy, rather than just in the “wrong” industries; (4) show that you understand the details of the sticky wages (& prices) theories.”

    I am still waiting for you to show you understand how a free market in money works.

    “Note that none of this is about whether you are right, or Sumner is. It’s only about whether you’re honest enough in debate, to actually listen to the other side, and respond to their concerns. Are you actually trying to be constructive? Or are you just a troll?”

    Are you someone who will continue to refuse to engage the ideas, and instead demand that I accept your ideas?

    Time will tell.

    Perhaps your writing will change, in the future. I won’t hold my breath.”

  57. Gravatar of Geoff Geoff
    28. December 2013 at 18:22

    Daniel:

    Another post, another absence of rebuttals.

  58. Gravatar of Don Geddis Don Geddis
    29. December 2013 at 10:01

    Re: Medium of Account. OK, so you also want a free market in MOA. So some currency will use gold, some a basket of metals, some fiat, etc. It is my intuition that a lack of standardization will cause friction in transactions, much like the arbitrary difference between English and metric measurements. So I don’t yet support this change, but I’m open to being convinced. You should start your own blog and try to present your case.

    In any case, this doesn’t need to be a source of disagreement, right? Why can’t you consider Sumner’s NGDPLT with fiat money, merely as one possible competing form of “money” among all the ones that might be created? There’s a whole separate question of your “guns” and “force” complaints, but you can easily imagine that the government merely offers dollars, but doesn’t force a monopoly. (Except perhaps for taxes, but then, even in your world, everybody is allowed to choose the kind of money they want to use for transactions. The US government will choose fiat dollars. Surely that is still allowable, even in your free market money world.)

    The historical evidence that has been conducted has shown that precious metal monetary systems do not undergo sudden massive drops in supply or spending.

    Demonstrably false. I see a huge number of historical recessions, just in the US, just in the last couple centuries, despite being on a gold standard or free banking. Now, you may believe some crazy ABCT explanation for the “sudden massive drops” in output (and spending), but the fact that the drops happen is not at all controversial.

    People here believe that carefully managed fiat money can greatly reduce these business cycles and thus improve the welfare of society. Your claim that a steady money supply would have the same effect, is disproved by historical evidence. To be taken seriously, you need to at least address this evidence.

    Any individual who demands more money, requires another to demand less money.

    Not at all. Do you know simple MICROeconomics? A demand curve is just an individual’s preferences, about how much quantity they would want, at various possible prices. And individual’s demand curve can change on its own, without affecting anyone else.

    The point is that money itself has demand as well, and you never seem to consider that in your writings, but it’s the primary concern here.

    And it’s easily possible for everyone’s demand for money to rise at the same time. (Velocity goes down.)

    Free market valuations of money are good.

    Nobody believes you. You can’t just assume this. If you want to make progress in communication, you need to present convincing arguments for those areas where there is not yet agreement.

    In this case, taking out a 30-year mortgage, the homeowner and the bank agreeing on a nominal repayment three decades from now … and then making the value of that repayment highly volatile and unpredictable … I can see no benefit, only harm, from money value volatility. Perhaps your idea of unpredictable value is better, but you can’t just assume this; you need to explain and convince.

    The reason why the state “stabilizing” the exchange value of flour, or penicillin, would be so destructive, is the same reason it is destructive in money.

    I wonder if you’ve really thought this through. One obvious difference, is that there is no separate market for money value, so if the value of the MOA changes, this can only happen by the hassle of millions of individual prices changing. (There is tremendous wage and price stickiness in the money value market, unlike the liquid markets in commodity trading.)

    Secondly, flour and penicillin supply is constrained by real-world limited resources. But the nominal quantity of money is arbitrary. The Fed can produce any amount we choose, at no cost.

    It is precisely because there are important differences between money, vs. flour and penicillin, that the best approach to managing them is so different.

    Am I supposed to treat fluctuations in demand as an inherent evil

    All this time you’ve spent on this blog, and you still don’t understand the basic problem that is being solved?

    Total spending is MV. Velocity is unstable. When spending drops, the value each dollar rises. To bring every market back into equilibrium, all posted prices must fall, in order to return to the same real value being exchanged. But some prices (esp. wages, but also others) are “sticky”, and slow to change. The obvious, natural result of wages being too high in value, is a significant drop in labor purchases (i.e., massive unemployment). And thus also a drop in productive output.

    We can see no benefit, to people being forced to be idle instead of productive, due solely to the value of money rising, but wages having too much inertia to quickly adjust to equilibrium.

    This problem appears to be easily solved, merely by keeping the value of money more stable. (By adjusting M, to match any changes in V.)

    None of your proposals address the unnecessary unemployment and fall in output. You make proposals that don’t solve this problem, and so of course everybody ignores you as irrelevant.

    Fluctuating money demand coordinates the economy in beneficial ways.

    This assertion just isn’t believed. We see the pain of forcibly unemployed people. We see the drop in productive output of valuable goods. We know that is suffering. We don’t see any benefits, much less sufficient benefits to overcome the obvious costs.

    You can’t just assume these things. If you want to be constructive, when your perspective is so different from that of your readers, you need to explain and convince about these underlying assumptions.

    I don’t argue that when someone loses their job, they will instantly and without any delay whatsoever, find work in another project. … When you assert that my theory requires zero drops in employment

    It seems that you didn’t read very carefully. I never said that unemployment should have zero delay, nor that there should be zero unemployment. You completely missed the criticism. Let me highly the important part again: “we would expect greater unemployment in some industries, but simultaneously, increasing employment in other industries”

    The problem with your malinvestment theory, is not the unemployment in some industries. It is the LACK of extra employment in ANY industry. There is no industry that people were moving “in to”. EVERY industry suffered increasing unemployment. THAT is what you need to address and explain.

    Unemployment is fine. Economy-wide unemployment is not a prediction of your theory, yet is what we observed historically. But you constantly repeat your claims, never even acknowledging or addressing the obvious contradiction.

    People hold money for longer because they’re waiting for better alternatives.

    Another unsupported assertion that we don’t believe. Velocity changes, yes … but for complex reasons. Your simple sentence doesn’t capture it.

    I am still waiting for you to show you understand how a free market in money works.

    I’m not an expert on a money free market. But that isn’t the topic of this blog. This blog compares possibly structures for the Fed, e.g. discretion, or inflation targeting, or a Taylor rule, or NGDPLT. Look at the pros and cons of each choice, and try to figure out what would be best for the US economy and its citizens.

    You are rudely hijacking this space for your own pet interests. If you have an off-topic passion, you should start your own blog space to argue and discuss, not disrupt the space here, which is trying to be productive and constructive on a much more narrow and focused topic.

    Are you someone who will continue to refuse to engage the ideas, and instead demand that I accept your ideas?

    This is not the place, to engage your ideas. I also don’t demand that you accept my ideas. All I’m suggesting, is that if you really intend to be polite and constructive, you need to take efforts to meet the readers here halfway, instead of just repeating off-topic lectures based on assumptions that nobody here shares.

  59. Gravatar of Geoff Geoff
    29. December 2013 at 13:17

    Don Geddis:

    “Re: Medium of Account. OK, so you also want a free market in MOA. So some currency will use gold, some a basket of metals, some fiat, etc.”

    Put it this way. I want you, Don Geddis, to be able to use whatever commodity you own to make exchanges, and, as a corollary, what commodity you use to track your gains and losses. I would find it terribly uncivilized for me to impose my preferred money commodity on you by force, by threatening you with violence if you don’t comply. That includes demanding that you pay me a percentage of your income to me, in the form of the commodity I prefer, say gold or Bitcoins, at the punishment of your ultimate death if you should defend yourself from my aggression.

    If you are free to choose your own money, then it doesn’t matter what commodity you choose to use to track your gains and losses.

    “It is my intuition that a lack of standardization will cause friction in transactions, much like the arbitrary difference between English and metric measurements.”

    Yes, there will be frictions, just like there are frictions in the software industry (Apple OS versus MS Windows). But these “frictions” do not justify Apple or Windows, or you or me, or anyone else, to point their guns at people to force them into using the same operating system.

    The question you have to ask is why would people in a free, voluntary exchange context, prefer to use a money that might differ from the money that others use. To me efficiency is defined by the outcome of pure individual laissez-faire production and exchange. If you use fiat paper to make your transactions, and I use gold or Bitcoins, then this is because we find it in our respective self-interests to use different currencies. If you and I want to trade with each other, then we’ll have to make judgments as to what the other wants back. If you want fiat paper, but I don’t have fiat paper, then we won’t be able to trade at that moment in time. Perhaps in the near future, when either of use realize how much more marketable one of the choices is compared to the other, we will start to seek that commodity in exchanges instead.

    There is no one right answer that I nor you have a right to impose on everyone else by force. Just because it might be more “efficient” if everyone used the same operating system for their computers, it doesn’t mean force should be used to compel everyone to use the same system. If you have to use force to compel everyone to use the same system, then that should tell you that what you believe is an improvement, is actually not an improvement after all. You should be more humble and ask yourself why it is that people would willingly use different operating systems, without accusing them of being too stupid for their own good, and in need of a good beating to force them into submission to what you believe is better.

    That’s what you and I do when it comes to everyone else, right? Money should be no different.

    Moreover, if the same currency is in fact an improvement, then you don’t need to force people into using the same currency. People will voluntarily choose commodity X on their own, while there are individuals who disagree, and should be able to disagree, and use their own currencies, at their own peril and cost. That is how a free market works. We choose as individuals, and we incur the gains and costs as individuals.

    In addition, your position logically implies that the US population should be threatened with violence in order to force them into using a world currency. After all, if your argument is that gains in efficiency justify violence, then the US population should be threatened with ultimate death, the European population should be threatened with ultimate death, Japan, China, everyone, should be threatened with death to force them into using the same world currency. No, you can’t argue that this is not the logical implication of your beliefs on the basis that you want to constrain things to “optimal currency areas.” You don’t know what the optimal currency area is. I don’t know what it is. Nobody knows what it is. The only way to know what these OCAs look like, how big they are, is the market process of production and voluntary exchange. If there are gains to be made by some individuals to start using a different commodity that others are using, then they can choose to adopt it as individuals. No force is required, and no force can improve their situation.

    “So I don’t yet support this change, but I’m open to being convinced. You should start your own blog and try to present your case.”

    The case has already been presented. What I am telling you is nothing new. It’s been around for ages. Live and let live. Laissez-faire. Free market economics.

    You don’t need me to show you what is already available. I don’t believe you’re open to being convinced, because if you were, you’d already be demolishing my arguments by posting the source material that supposedly shows its benefits, against me and showing me step by step where errors are being made, and then declare victory.

    But you’re talking to me like you’ve never read any of it. Do you really believe that I would be convinced that you would be open to being convinced in the future, considering how you are not even aware of the existing material now? I am not trying to convince you. I am not trying to have you agree with me. Agreement is not the path to enlightenment. I want you as an individual to enlighten yourself. Self-motivation. I can’t do it. Only you can. You have to be willing to stand alone and be ridiculed, laughed at, insulted, sneered at, and ignored. If you think that’s counter-productive, then just consider the most powerful texts and works of intellectual inquiry the world has ever seen. Do you think most of those writers wrote what they did to fit in, to seek agreement, or to break new ground despite what the rabble might say? I am nowhere close to the level of intellect that they are at in terms of content of knowledge, but I believe I know HOW to think in the best way.

    “In any case, this doesn’t need to be a source of disagreement, right? Why can’t you consider Sumner’s NGDPLT with fiat money, merely as one possible competing form of “money” among all the ones that might be created?”

    Sorry, but when the issuer of such currency USES GUNS to “compete”, it’s not competition at all. It would be like Microsoft hiring goons to threaten people with kidnapping or shooting if they don’t use Windows.

    I would very much consider Sumner’s “NGDPLT” if we were all free to choose whether to use US dollars or not. But he knows, and you probably know, and I definitely know, that we cannot control NGDP if every individual is free to choose their own money. It’s precisely why he isn’t here talking about national gross domestic car targeting. It’s because car production is not a monopoly. Thus, the aggregate supply growth of cars cannot be controlled by a single consciousness. The supply growth will fluctuate in accordance with the various marginal utilities of each car type and manufacturer, and in general, car driving as such.

    “There’s a whole separate question of your “guns” and “force” complaints, but you can easily imagine that the government merely offers dollars, but doesn’t force a monopoly.”

    That is not what is taking place now. They threaten people with ultimate death if they don’t PAY the government taxes in dollars. The government threatens people with ultimate death to stop them from setting up private courts with enforcement powers, in which case the monopoly courts enforce contracts and debt settlements in US dollars. All of this destroys competition.

    But yes, IF you consider a world where the government merely “offers” those pieces of paper, and yet everyone are free to choose whether to accept them, and as a result the government finds it much more difficult to take people’s wealth by force (taxes), then that should tell you even more that US dollars are unwanted. We only accept them to avoid violence. Many have convinced themselves that they are accepting them because they are the best money that can be. However, the very fact that the government has to threaten people with violence to maintain the dollar hegemony, proves that US dollars should not be the money. In a free society, paper would likely not be the money of choice.

    “(Except perhaps for taxes, but then, even in your world, everybody is allowed to choose the kind of money they want to use for transactions. The US government will choose fiat dollars. Surely that is still allowable, even in your free market money world.)”

    Of course. I am not against paper money per se. It’s the guns and violence that backs them that I am against. Allow individuals to opt out of the dollar. Allow people to opt out of the “services” the government “offers”. It’s a radical change yes, but we have been living with this rotten violence for so long, as well as the continuous booms and busts of arbitrary inflation and deflation, that justice demands a rise of freedom in money.

    “The historical evidence that has been conducted has shown that precious metal monetary systems do not undergo sudden massive drops in supply or spending.”

    “Demonstrably false. I see a huge number of historical recessions, just in the US, just in the last couple centuries, despite being on a gold standard or free banking.”

    No, the history of the US shows no such thing. What you call the gold standard was not a gold standard, because of pervasive violence in the market of money. From government backed banks, to issuing paper notes, to imposing bank holidays, to government backed cartelization in the northeast, the history of money, at least in the US, is crystal clear. When money is without violence, we just don’t see the massive inflation and deflation that we have seen in US history that does contain that violence.

    But, like I said above, even if we did, that very fact can be improved by the market process and does not need, nor justify, introducing third part guns into people’s voluntary production and trading. If there are periods of volatility, and individuals incur the costs of their own malfeasance, including “trusting” fractional reserve banks, then that will encourage more safety measures in money. At no time am I justified in pointing a gun at you because you keep using a money that experiences volatile inflation and deflation. I would much rather talk to you, and discuss how you can avoid experiencing heavy losses going forward. Yes, it sounds utopian doesn’t it? Me and you having a civil conversation about how to plan your medium of exchange choices, medium of account choices, and insurance against future losses. Crazy!

    “Now, you may believe some crazy ABCT explanation for the “sudden massive drops” in output (and spending), but the fact that the drops happen is not at all controversial.”

    You’re right, the drops in output are not controversial, but I can direct your attention towards where, when, and how money was manipulated by state coercion prior, which caused malinvestment and subsequent correction. Every single one. This isn’t fishing for justification to prove my worldview. It is directly observable in the historical record. The problem is that those who a priori reject free market in money, seem to have a penchant for claiming that the state coercion that occurred in the market for money during the 19th century, is somehow representative of a free market in money. That we can use this historical data to conclude that there are booms and busts in a free market. I’ve done lots of research on the US monetary system of the 19th century, and I can assure you that with the major discombobulations that occurred, all, and I mean all, had demonstrable government interference prior that led to undue inflation and undue credit expansion, undue meaning more than what would have occurred without the coercion, that is, what would have occurred in a free market, that shifted investment that could not be sustained without accelerating intervention, which of course did not take place, and so corrections transpired. Sumner’s theory would claim that the malinvestments are normal, justified, desired, and to stop the corrections, to print whatever quantities are necessary to reverse people trying to correct the errors by, among other things, holding onto their money for longer, reassessing the situation, replanning, recalculating, and readjusting. Painful yes, but needed IF the government interferes. That’s the injustice about government interference. They interfere, but we’re left with incurring the costs of correction.

    “People here believe that carefully managed fiat money can greatly reduce these business cycles and thus improve the welfare of society.”

    People also believe that violence can fix complex social problems in healthcare, roads, and education. What is your point? That I am supposed to defer to people’s religions because they are too dimwitted to understand how a free market would improve it?

    Fiat money, both in theory and as shown in history, exacerbates business cycles. The whole purpose of central banking is to generate more money for special interest groups that what a free market would have allowed them, by introducing coercion against innocent people. This naked aggression was then reinterpreted by economically ignorant historians as having an intellectual foundation, as if central banks arose in order to “help society”, to save people from themselves.

    “Your claim that a steady money supply would have the same effect, is disproved by historical evidence. To be taken seriously, you need to at least address this evidence.”

    No, it is not disproved by the historical evidence. The historical evidence is fully consistent with the theory that free markets in money are justified, and avoid the kinds of malinvestments that plague coercive banking economies.

    The money supply, defined not only as gold/silver, but gold/silver backed notes, was not increased steadily during the 19th century. The War of 1812 for example was in large part financed by inflation in the form of paper notes issued by the Treasury. It’s precisely why there was a banking “panic” in 1819 later on. The Civil War was also financed by paper inflation, which of course culminated in the panics of the 1870s.

    The record of history does not prove the thesis violence against innocent people makes people better off. And yet that is what you would have me believe!

    “Any individual who demands more money, requires another to demand less money.”

    “Not at all. Do you know simple MICROeconomics? A demand curve is just an individual’s preferences, about how much quantity they would want, at various possible prices. And individual’s demand curve can change on its own, without affecting anyone else.”

    That is not a rebuttal to what I said. An individual’s demand for money holding can change yes, but in order for that individual to hold one dollar more or less, he has to convince someone else in the economy to hold a dollar less or more, ceteris paribus. The only time this isn’t true, is if there is a change in the money supply. For example, a bank can issue a loan out of nothing, and that loan once deposited becomes legal tender enforced by the state. Thus, the borrower has more money, but nobody else had to decrease their money property.

    But if we assume regular exchanges between two parties, goods for money, then if you accept a dollar more, then it requires the buyer to accept a dollar less.

    It’s all offsetting in the aggregate.

    “The point is that money itself has demand as well, and you never seem to consider that in your writings, but it’s the primary concern here.”

    As I mentioned above, it is precisely the lack of respect that individuals demand money for holding, that is one point that undercuts NGDP targeting. NGDP targeting disrespects the consequences of changes in money holding times. It attacks these consequences. Even if individuals want to hold money for longer, which would have the effect they want of increased purchasing power, then NGDP targeting calls for a reversal of the consequences. I’m supposed to support initiations of violence to stop individuals from having to adjust their actions to best serve their fellow individuals’ desires.

    If one individual wants to hold money for longer, such that everyone else has to readjust their actions, for example setting somewhat lower prices if they want to sell what they have available, then I am supposed to get on board with you and Sumner in welcoming death threats against innocent people so that you can succeed in bringing about an exactly equal and offsetting increase in “spending” by some other random people close to the aggressors, so that an arbitrary statistic that adds up everyone’s spending doesn’t fall.

    Seriously, for someone in my position who is pro-laissez-faire, pro free markets, who believes in peaceful cooperation and only defensive force, what you are calling for is nothing short of psychopathic. You think you’re just being normal and helpful, but if you peel back the payers of what you want, it’s bloody horrific. Please, just think about individual people instead of sterile statistics on paper. Humans are not numbers. Try to view your fellow mankind with honor and integrity, and save the violence for those who initiate it. You’re not helping people by introducing violence into otherwise peaceful activity.

    “And it’s easily possible for everyone’s demand for money to rise at the same time. (Velocity goes down.)”

    Correct. But that still does not justify threatening people with death so that the money that is used, can be arbitrarily increased at will, so that certain arbitrary “targets” can be met.

    “Free market valuations of money are good.”

    “Nobody believes you.”

    Excuse me, but it is not belief that is required, and it’s intellectually dishonest to assert that you know the thought processes of millions of people across the world, including free market economists, such that you can actually assert NOBODY believes me!

    Nobody? NOBODY? Do you have any idea how hubristic that is? To speak on behalf of millions of people you have not even met? You’re out of touch with reality dude. You’re sitting in your armchair, fiddling with equations and statistics, and you believe you have a “scientific knowledge” of everyone. Puhlease. Wake the frick up and smell the roses why don’t you. You’re so deluded that it’s no wonder you’re so supportive of violence.

    “You can’t just assume this. If you want to make progress in communication, you need to present convincing arguments for those areas where there is not yet agreement.”

    Are you serious? You just told me that “nobody believes me”, and you’re telling ME not to assume things? For real homeboy?

    It’s not necessary that people who would otherwise use violence to “believe me” before what I said is correct. Individual economic freedom, that includes individual money demand valuations, is in fact good, and I don’t even have to convince you that it is. Why? Because if you disagree with me on this, then the only way you can manifest your disagreement with me would be if you initiate violence against me, or any other individual who freely chose to value demand for money differently, which of course is unjustified.

    You’re sitting there declaring to me that you know what’s best for millions of people regarding their demand for money valuations. You want to eliminate individual demand for money valuations, and replace them through violence with an elite who will erase and consequences of changes in individual demand for money.

    Why should I be “convinced” of your psychopathic desires, huh? You tell me. You tell me why I am obligated to prove to you that NOT initiating violence is the proper activity to take, such that if I don’t “convince” you, then you have concluded that introducing violence is justified.

    Do you read what you write? You’re telling me that if I don’t convince you to not support the threatening innocent people with violence, then that means you have proved that your actions are justified. That I failed to prove my case. That the onus was on me all along.

    Please understand that if anyone wants to use violence, let along initiate it, the onus is on them to prove it justified, not their intended victims.

    If we lived in a free society, and every individual was free to choose what money they used, and you saw various statistics move in ways you don’t approve, then the burden of proof would be on you to show why threatening people with death if they don’t use a different money, is justified.

    The reason I am so “animated” on this blog, is because I cannot help but feel like I am walking through an insane asylum of bats#&t crazy freakshows, who walk around their cities as if they are normal. Yet as they go about their daily lives, they don’t themselves initiate violence against others to force them to use dollars. And yet they spend their days trying to intellectually justify such violence through statistical gobbledygook and depraved “second best” rationalizations.

    To me a true intellectual does not necessarily go with the mainstream or the conventional wisdom. To me the true intellectual has to be open and honest at the risk of ridicule from idiots and thugs. To show honest people there is a better way that does not include threats of death against peaceful people. That you’re all just shooting yourself, AND OTHERS, in the foot when you relentlessly advocate for a new rule backed by the threat of death.

    “In this case, taking out a 30-year mortgage, the homeowner and the bank agreeing on a nominal repayment three decades from now … and then making the value of that repayment highly volatile and unpredictable … I can see no benefit, only harm, from money value volatility.”

    The benefit is to teach ourselves that we should agree to different prices NOW, and different rates NOW, to guard against and provide insurance against future changes.

    I see no benefit, only harm, in threatening people with death if they don’t use the money of a monopolist who can inflate it at will, to finance all sorts of horrors in secret, and to bring about massive anti-individual valuations of money demand.

    “Perhaps your idea of unpredictable value is better, but you can’t just assume this; you need to explain and convince.”

    No, YOU need to explain and convince me why you or anyone else initiating violence against me, and millions of others, is justified. The whole reason you’re putting the onus on me, is because you know you can’t convince people unless they are threatened with violence. You talk about convincing and persuasion, but you’re not interested in those at all. You want there to be violence against people to force them into the dollar hegemony. You’re already past the point of persuasion and convincing. You’re just pretending to be about convincing and such, because you know that if I can’t “convince” you, then you STILL get what YOU want, at my expense, and at the expense of everyone else who is threatened with violence if they dare act on their own monetary terms.

    You accuse me of being dishonest, but your whole approach towards me, your whole worldview, everything you stand for, is totally dishonest. You claim persuasion and convincing is the path you take, and yet that is exactly what you deny the victims of the dollar hegemony. There is no asking of individuals what they want when it comes to money. There is no convincing or persuasion. There is “Use this as money, or we will steal from you, and if you resist that theft, we will kidnap you, and if you resist that kidnapping, we will shoot to kill you.”

    How can you possibly put the burden of proof on the victims?

    Also, unpredictability is UBIQUITOUS in human life. Are you for real still? I have NO IDEA what the next electronic gizmo will be. I have no scientific prediction what will replace the age of oil.

    Does that mean that I should start advocating for violence against innocent people so that they can KNOW that they will always use stone age technology? That they are better off knowing they’ll be victimized, then not knowing how they will deal with the world in the future?

    Stability, certainty, these are your Gods that you want to impose on people because YOU’RE afraid of living in the world. You want to feel safe and secure even if that means social exploitation. You want to stop the changes and the uncertainty, through violence.

    “The reason why the state “stabilizing” the exchange value of flour, or penicillin, would be so destructive, is the same reason it is destructive in money.”

    “I wonder if you’ve really thought this through.”

    Oh I have, very much so. Incredibly in fact. Years of thinking about it, researching it, never being afraid of going against my profs, the state, parents, you name it.

    I wonder if you have thought through the implications of imposing a monopoly in anything, including money.

    “One obvious difference, is that there is no separate market for money value, so if the value of the MOA changes, this can only happen by the hassle of millions of individual prices changing.”

    What you call “hassle” is the very coordinating mechanism of division of labor societies. That is how humans live in a sustainable way with many people they have never met and don’t know about. The price system is so incredibly sensitive to distortions and yet so very powerful in regulating disparate interests into a cohesive harmony.

    Individuals SHOULD be “hassled” IF they want to partake in the division of labor, and their fellow human beings change their money holding times unexpectedly. I see no benefit in shooting at people for engaging in otherwise voluntary market activity.

    But more to your point: In actuality, if there is a change in the demand for penicillin, then there is indeed a “ripple effect” that requires many others to change their prices, production, and behavior. It just happens so effectively all around you that you’re like a fish in a waterbowl who doesn’t know he’s in water until the bowl is shaken or if there is water poured into the bowl.

    That “hassling” takes place every day by millions of people.

    If the specific issue of changes in money demand have more pronounced effects that do become more noticeable to the dull witted, then if it becomes an issue worth dealing with, I see no reason why people can’t hold higher cash to assets ratios as a matter of course. Instead of the current average ratios WITH inflation, which leads to lower cash to assets ratios, people can instead hold higher cash to assets ratios WITHOUT inflation.

    Then, if there are future unexpected changes in money holding times, then individuals who don’t want to reduce their spending, can tap into their cash balances. And that would have the effect of mitigating the very money holding “shocks” in the first place, which is to say, holding a higher cash to asset ratio would make sudden and drastic changes in money holding times much less likely.

    You want to believe people are too stupid to be able to deal with such an easy solvable problem. There is ALWAYS a peaceful, rational solution to any complex social problem. Why should I defer to those who are so stupid, they can only think to bring out the guns to solve it? Any moron can demand that violence solve the problem. It’s a hammer solution.

    What I ask of you, and everyone else on this blog, is how we can deal with “money holding” problems, “medium of account” problems, and other social problems, in a peaceful manner that doesn’t require violence against grandma.

    “(There is tremendous wage and price stickiness in the money value market, unlike the liquid markets in commodity trading.)”

    Have you even asked yourself WHY wage rates do not instantly adjust to changes in nominal demand, in our inflationary society?

    Do you believe imposing by violence a constant growth in spending would make wage rates more or less sticky?

    “Secondly, flour and penicillin supply is constrained by real-world limited resources. But the nominal quantity of money is arbitrary.”

    But money has to be scarce in order for it to function as a money. It has to be constrained. That constraint is not known by me or you or anyone else. The market process is the best method to find the constraint money should be under.

    “The Fed can produce any amount we choose, at no cost.”

    Absolutely false. The cost of monopolizing the monetary system includes far more than just the pennies it takes to issue a new dollar bill, or digital entry. The costs of maintaining the state itself is required, for the only way to impose a central bank is through a state. The costs of the state are in the trillions. No, you can’t argue that I am including too many costs when the context is only central banking. This is because a state cannot exist if the ONLY thing it did was enforce a particular currency as standard. People would rightly view it as a criminal enterprise and seek to abolish it. So a state has to cater to the people in some respects, by offering “basic necessities” and other goodies, to convince them the state is just a net beneficial social institution.

    So you have to take into account the full costs of the state if you want to know the costs of imposing a monopoly.

    Think about the trillions of dollars that could have been invested privately to produce consumer goods (including private defense).

    “It is precisely because there are important differences between money, vs. flour and penicillin, that the best approach to managing them is so different.”

    No, that is not correct. The differences you claim are differences, are not only not differences at all (since changes in demand for cars and medicine ALSO affect the prices and coordination of everything else in the economy through price adjustment “hassles”), but there is no justification for introducing violence where there is otherwise peace.

    All you’re doing is trying to convince yourself that the naked aggression you have to live with, has an intellectual justification. There isn’t any.

    “Am I supposed to treat fluctuations in demand as an inherent evil”

    “All this time you’ve spent on this blog, and you still don’t understand the basic problem that is being solved?”

    I understand it more than you, I can tell you that. It is clear to me that you don’t really think deeply about money. You think superficially. It makes sense, because if you did think about it deeply, you know you would go to a place that would make you have to drop your intellectual investment, and side with “the troll”.

    “Total spending is MV. Velocity is unstable. When spending drops, the value each dollar rises. To bring every market back into equilibrium, all posted prices must fall, in order to return to the same real value being exchanged. But some prices (esp. wages, but also others) are “sticky”, and slow to change. The obvious, natural result of wages being too high in value, is a significant drop in labor purchases (i.e., massive unemployment). And thus also a drop in productive output.”

    I get all this. It’s flawed. It considers employment as an end, instead of a means.

    You don’t know how to “bring every market into equilibrium” except through market forces, which do not exist in the production of money. So your point is moot here. If output drops in a free market, then it’s supposed to drop. If employment drops in a free market, then it’s supposed to drop. I reject the notion that it’s better to produce something through violence, than nothing at all at this moment in time through peace. I reject the notion that it’s better to employ people in unsustainable lines of work through violence, then no work at all at this moment in time through peace.

    You are implicitly arguing that the status quo capital structure and labor allocations are “correct”. But that’s not true. If millions of people are in unsustainable lines of production, and through peaceful market exchange they become temporarily unemployed, then they SHOULD become temporarily unemployed.

    Unemployment is a minimal problem in a free market. We see 25% unemployment and 99 weeks of no work, because of state intervention in money and in welfare.

    If wage stickiness prevents instant re-employment, then allow individuals to figure out that they have to change their asking wage rate if they want to work. Allow employers to figure out that they have to offer a lower bid rate if they want to employ more people for the same cost.

    “We can see no benefit, to people being forced to be idle instead of productive, due solely to the value of money rising, but wages having too much inertia to quickly adjust to equilibrium.”

    The value of money rising due to people holding money for longer is a crucially important aspect of economic coordination. It is counter-productive to reverse the increased value of money through inflation. If people want increased purchasing power, and they get it through higher cash balances and less than higher prices (due to any output drop) then there is no reason at all to threaten people with death to make them use a monopolist currency that can be inflated according to your desires.

    I can see no benefit of initiating violence into otherwise peaceful production and exchange.

    Prove me wrong.

    “This problem appears to be easily solved, merely by keeping the value of money more stable. (By adjusting M, to match any changes in V.)”

    Merely? MERELY? Aren’t you ignoring the massive state cost? The violence? The economic discoordination? Putting people into production lines that are not in line with individual consumer preferences?

    You think what you want is so sterile, and so one dimensional. You are ignoring fifty elephants in the middle of the room.

    “None of your proposals address the unnecessary unemployment and fall in output. You make proposals that don’t solve this problem, and so of course everybody ignores you as irrelevant.”

    It’s not “unnecessary” unemployment, and it’s not “unnecessary” fall in output.

    You make proposals that don’t solve the problem of coordination, and introduce new problems such as violence, and you expect me to just happily go along?

    “Fluctuating money demand coordinates the economy in beneficial ways.”

    “This assertion just isn’t believed.”

    It doesn’t have to be believed to be true. It is true. If money holding times increase, what do people want? Do they want to have guns pointed at them to force them into using a different MOE? Or do they want something else?

    What people want when they hold money for longer is for prices to not rise as much as they otherwise would. And if people are free to act in peace in this way, they will get it. Others will have to accommodate their actions if they want something positive out of the cash hoarder. The cash hoarder is not harming anyone. If you believe there is a problem of cash hoarding, then hoard cash yourself, and ensure that if others do the same in unexpected ways, such as your employer, then you will have a nest egg to live off of while you and your employer agree to a new wage rate. If you don’t have any exploitation source of money, if you have access to neither welfare nor 99 week paid vacations, then I see little reason why you would choose no wage at all, than a reduced wage rate.

    Wage stickiness is not a problem of markets. It is a created problem of anti-market activity.

    You never think of the causes of wage stickiness. You just take it for granted and implicitly assume it’s due to a flaw in the market.

    “We see the pain of forcibly unemployed people. We see the drop in productive output of valuable goods. We know that is suffering. We don’t see any benefits, much less sufficient benefits to overcome the obvious costs.”

    You’re deluding yourself. You speak of “forcing” people? The very monetary system you advocate is forcing people against their will. You see destruction in people changing jobs to be more in line with consumer/saver preferences. I see that as a benefit. We each work our asses off so that we best produce for our fellow men. We incur costs for making bad predictions, such as bad predictions in money holding times.

    We can learn. We can adapt. You are assuming people are so stupid they will never adapt. That they will never learn. That for millions of years, people will continue to hold insufficient money balances and set incorrect prices that leads to permanent high unemployment.

    You are just trying to justify an unjust system, by turning logic upside down and claiming employment is an end.

    “You can’t just assume these things. If you want to be constructive, when your perspective is so different from that of your readers, you need to explain and convince about these underlying assumptions.”

    They’re not just “assumed”? YOU can’t just assume that introducing violence is a benefit and it’s up to me to prove you otherwise!

    “I don’t argue that when someone loses their job, they will instantly and without any delay whatsoever, find work in another project. … When you assert that my theory requires zero drops in employment”

    “It seems that you didn’t read very carefully. I never said that unemployment should have zero delay, nor that there should be zero unemployment. You completely missed the criticism. Let me highly the important part again: “we would expect greater unemployment in some industries, but simultaneously, increasing employment in other industries””

    Again, the point went over your head. What you just descried as allegedly true for my theory is not true at all. What you just described requires zero employment delay. The only way that an individual losing their job in one industry won’t lead to an aggregate rise in unemployment as such, would be if that individual instantly finds work at another company. For if he didn’t, then unemployment will rise, for here is one individual looking for work who isn’t working right at this moment.

    My theory does not require or imply that people losing their jobs in one industry is instantly matched by a corresponding rise in jobs in other industries (namely, those who just lost their jobs).

    You should read more carefully before you make claims concerning the theory you’re attempting to criticize.

    “The problem with your malinvestment theory, is not the unemployment in some industries. It is the LACK of extra employment in ANY industry.”

    But there is extra employment in particular industries. Just because there is less than full employment in the aggregate, it doesn’t mean there isn’t extra employment in certain industries.

    There does not have to be full employment, nor does there have to be zero output gaps, before there can be partial relative over and underproduction, and partial relative over and under allocation of labor.

    What you are describing as a “problem” of malinvestment theory, isn’t a problem at all.

    “There is no industry that people were moving “in to”. EVERY industry suffered increasing unemployment. THAT is what you need to address and explain.”

    That is precisely what the malinvestment theory expects. Every industry is connected, and production takes time. If there was too much of some things produced, and not enough of other things produced, then a correction period would consist of an aggregate rise in employment and aggregate fall in output. This is expected.

    Imagine too many houses were produced, and that more of other things should have been produced with those resources and labor. If the errors are revealed, then it would be absurd to expect the fall in employment in housing to instantly be matched by a rise in employment in other industries, and for the fall in house output to instantly be matched by a rise in output of other goods.

    Production takes time. Planning and calculation takes time. Labor allocation takes time.

    “Unemployment is fine. Economy-wide unemployment is not a prediction of your theory, yet is what we observed historically.”

    No, that’s wrong. Aggregate unemployment is very much expected in my theory. That’s because TIME is a factor in my theory of production.

    Besides, unemployment is economy-wide unemployment. If an individual loses their job, then aggregate unemployment has risen. There is no difference between unemployment of the individual, and “economy wide” unemployment.

    What you probably meant to say is that my theory allegedly does not account for “significant” or “large-scale” numbers of unemployed. But as mentioned, that’s wrong. It does.

    “But you constantly repeat your claims, never even acknowledging or addressing the obvious contradiction.”

    It isn’t a contradiction. You just don’t understand the theory, because you have educated yourself on it through the misrepresentations of third parties. You’ve read the Coles Notes, not the original source material.

    “People hold money for longer because they’re waiting for better alternatives.”

    “Another unsupported assertion that we don’t believe. Velocity changes, yes … but for complex reasons. Your simple sentence doesn’t capture it.”

    Saying “complex reasons” doesn’t refute the argument that people hold money for longer because they’re waiting for better alternatives. You’re just taking a simple conception, adding “complex” to it, and pretending you’re saying something more profound than what I said.

    It’s not enough to simply deny what I argued. You have to show why it is wrong. You have to show why the argument that people hold onto money for longer because they’re waiting for better alternatives is false. I argue it because it’s grounded on why people hold money in the first place: to spend later on. On goods and services. Prove that wrong.

    “I am still waiting for you to show you understand how a free market in money works.”

    “I’m not an expert on a money free market. But that isn’t the topic of this blog.”

    That’s precisely the problem. You can’t possibly expect to know how to “fix” problems of a free market in money through monopolization rules of money, if you don’t understand free markets in money. It would be like expecting a doctor to know how to fix a human body that is diseased, without knowing how a healthy body works without disease.

    “This blog compares possibly structures for the Fed, e.g. discretion, or inflation targeting, or a Taylor rule, or NGDPLT. Look at the pros and cons of each choice, and try to figure out what would be best for the US economy and its citizens.”

    You see? You don’t even ask individuals what they want, and you don’t even deal with others in a way that respects what they want. You want to IMPOSE on others, through violence, what you BELIEVE is best for them, despite the fact that their resisting to your ideas proves they’re not good for them.

    You don’t know what’s best for others unless you engage them, learn about them, and treat them in a way that grants them their independence from you.

    You’re deluding yourself if you think you’re helping people by justifying the naked aggression being waged against them.

    Central banking isn’t meant to help everyone. It’s meant to help some at the expense of others.

    “You are rudely hijacking this space for your own pet interests. If you have an off-topic passion, you should start your own blog space to argue and discuss, not disrupt the space here, which is trying to be productive and constructive on a much more narrow and focused topic.”

    I am not being rude. Being rude would be to call people names, to insult them, and to chastise people for posting comments on a blog whose owner allows public posting.

    You’re being counterproductive to not only to peaceful production and exchange, but to idea progression. You don’t even understand the underlying free market in money upon which central banking is supposed to fix!

    “Are you someone who will continue to refuse to engage the ideas, and instead demand that I accept your ideas?”

    “This is not the place, to engage your ideas.”

    You don’t decide which ideas should and should not be engaged on a blog not owned by you.

    “I also don’t demand that you accept my ideas. All I’m suggesting, is that if you really intend to be polite and constructive, you need to take efforts to meet the readers here halfway, instead of just repeating off-topic lectures based on assumptions that nobody here shares.”

    I don’t meet rapists and murderers halfway, why should I meet your particular advocacy of violence halfway? To meet with people like you halfway, is to meet you all the way. You want me to accept your idea that introducing violence against innocent people helps them. That we need to be aggressed against to save ourselves from our own stupidity. That we can’t possibly know how to guard against fluctuations in money, but for some reason we can guard against fluctuations in everything else. All the smoke and mirrors about the imperfections and frictions and so forth are all just to distract from that.

    Nice chatting with you.

  60. Gravatar of Don Geddis Don Geddis
    29. December 2013 at 15:54

    Geoff: “…Guns blah blah Violence blah blah Death…”

    You’re a cheery fellow, aren’t you?

    I was trying to get you to focus, on the very very narrow topic of constructive communication, in comments on this blog. But you don’t seem capable of such focus.

    And, for the record: you clearly still didn’t understand my point about the simultaneous rise in unemployment in every industry, even on the second attempt. Perhaps you could try to get a friend to read it and explain it to you?

    Daniel: you obviously were correct. I apologize for making the attempt.

  61. Gravatar of Don Geddis Don Geddis
    29. December 2013 at 16:02

    Geoff: by the way, masterful idea to devolve our society back to a barter economy, where there is no shared money, but every transaction is an individual negotiation. I think I’ll try your approach with driving my car! Just like you, it annoys me that government uses the force of guns and threat of death, to make me drive on the right side of the road. I demand my individual freedom to choose which side of the road I want to drive on. And when I meet any oncoming car, we should both stop and negotiate whether we’ll pass on the left or the right.

    I may not have time to reach my actual destination, but by god at least I’ll have my freedom! Nothing is more important than that!

  62. Gravatar of Geoff Geoff
    29. December 2013 at 16:13

    Don Geddis:

    “Geoff: “…Guns blah blah Violence blah blah Death…”

    You’re a cheery fellow, aren’t you?”

    Are you serious? Who’s the “cheery” fellow? The one who advocates for it, or the one who wants it to stop?

    You have got to be joking. Should I instead put the wool over my eyes on purpose, so that you and I can laugh and joke at the violence?

    “I was trying to get you to focus, on the very very narrow topic of constructive communication, in comments on this blog. But you don’t seem capable of such focus.”

    I am more focused than you. I am capable of focusing on the core issues that you dismiss and sarcastically label as “cheery”.

    Your conception of what “construction communication” consists of, is not something I am interested in.

    “And, for the record: you clearly still didn’t understand my point about the simultaneous rise in unemployment in every industry, even on the second attempt. Perhaps you could try to get a friend to read it and explain it to you?”

    I’ve already shown you that I understand your point about a rise in unemployment in every industry (which is not actually true, but I let you assume it is to keep you focused).

    EVEN IF unemployment rose in every industry, that would not constitute a falsification of the malinvestment theory. Production takes time. Do you understand the implication of that? There is no reason why or how an unexpected rise in money holding times, which may lead to unemployment, should be immediately followed by a rise in employment in “other” industries.

    I fully and completely understand your false point about unemployment. Just because I disagree with it, it doesn’t mean I misunderstood. I know what you are trying to say, but unfortunately for you it is wrong.

    In a division of labor society, where production is interconnected, if errors are revealed, and corrections are made, it is expected that unemployment will temporarily rise, as workers and employers alter their activities and figure out how to best serve their customers given their new preferences.

    When individuals hold money for longer, they are telling producers to reduce production of current goods, and increase production of future goods. And that is exactly what will tend to occur if people are not victimized by needless violence that YOU continue to ignore and pretend is irrelevant.

    And what does such a shift in production require? A cessation of production in present goods, and an introduction of new, presently not produced, future goods. That require labor and resources to be reallocated. That means unemployment in existing industries that are all catered towards a particular degree of present goods production. Of COURSE aggregate unemployment should occur if everyone has to adjust to sudden, unexpected, changes to temporal preferences of goods (i.e. changes to money holding times).

    I say gun violence, and your response is “blah blah blah.” In other words, you won’t even address or engage the argument I am making.

    “Daniel: you obviously were correct. I apologize for making the attempt.”

    I am so sorry that you felt you could wipe the floor with me. Maybe next time when you’re a little more educated and sophisticated, you’ll be able to actually engage the argument, instead of sarcastically telling me that I am cheery.

    I am not dismissing your arguments. I continue to engage them. I am not afraid of doing so. But you are afraid. You spew straw man after straw man about malinvestment theory, and then you actually believe you have provided arguments against it!

    Malinvestment theory does not require or imply full employment nor zero resource idleness.

    Please, next time you choose to criticize a theory, I suggest you actually read up on it.

  63. Gravatar of Geoff Geoff
    29. December 2013 at 16:18

    Don Geddis:

    “Geoff: by the way, masterful idea to devolve our society back to a barter economy, where there is no shared money, but every transaction is an individual negotiation.”

    I am not advocating a barter society you liar. I am advocating a free market in money. Just because individuals may choose to use different mediums of exchange with that economic freedom, it doesn’t mean I am advocating for barter.

    You’re so incredibly intellectually dishonest.

    “I think I’ll try your approach with driving my car! Just like you, it annoys me that government uses the force of guns and threat of death, to make me drive on the right side of the road. I demand my individual freedom to choose which side of the road I want to drive on. And when I meet any oncoming car, we should both stop and negotiate whether we’ll pass on the left or the right.”

    Hahaha, what ignorance. So to you, in a free society, if the owners of the road should set rules that their customers must follow while on those roads, is the same thing as me forcing people at gunpoint to use the money I want them to use, on their own property and using their own property

    Outstanding Don. Way to conflate what I had no idea could be conflated.

    Next thing you’ll tell me is “who will build the roads!”

    You are essentially communicating to me and to everyone else that you can’t argue against what I said above.

    All you have are straw men, sarcasm, and evading the arguments.

    “I may not have time to reach my actual destination, but by god at least I’ll have my freedom! Nothing is more important than that!”

    You mock freedom while those without it are wishing they were in your position of mocking it.

  64. Gravatar of Geoff Geoff
    29. December 2013 at 16:25

    Don Geddis:

    I guess we can chalk up you being historically ignorant in addition to economically ignorant.

    Money arises in a market. Without any mommy and daddy state, which I am sure baffles you, people actually developed generally accepted mediums of exchange. Gold, salt, nails, copper, etc. They did so because they found that certain commodities are more useful for monetary purposes (store of value) than other commodities. That made those commodities more marketable, which in turn expanded the use of that commodity as a medium of exchange.

    Also, according to your logic, since you advocate for nationalistic central bank monopoly (based on threats of death, of course, which you desperately want to avoid thinking about), you must be favoring barter on the world stage. Hundreds of different national currencies. Oh you barter advocate!

    The funniest thing is that if we had a free market in money the world over, it is almost guaranteed that there would be fewer than 200 friggin currencies!

  65. Gravatar of Geoff Geoff
    29. December 2013 at 19:51

    This is interesting:

    “Finally, inflation does not affect all revenues and costs uniformly. The company’s after-tax cash flows will be better or worse than expected depending on how particular sales outputs or cost inputs are affected. Furthermore, contracting with customers, suppliers, employees, and sources of capital can be complicated as inflation rises.”

    That’s out of the CFA Level II curriculum.

    I’ve been saying that on this blog for quite some time. It’s incredibly important to understand that because inflation does not affect all revenues and costs uniformly, it affects the productive structure (both in the short run and long run).

    That’s the source of malinvestment.

  66. Gravatar of Daniel Daniel
    30. December 2013 at 01:47

    source of malinvestment

    Remember folks – for an austrian, the entrepreneur is both the engine of progress – and a brain-dead moron (hi Geoff) unable to include inflation into his/her calculations.

    Makes perfect sense !

  67. Gravatar of Doug M Doug M
    30. December 2013 at 10:40

    “Total spending is MV. Velocity is unstable.”

    Monetarist theory, or at least the Friedman theory is that V is fairly stable, and hence a stable and moderate and predictable rate of growth of M is the best way to “manage” the economy, and attempts to manipulate P and Y are a waste of time.

    “In this case, taking out a 30-year mortgage, the homeowner and the bank agreeing on a nominal repayment three decades from now … and then making the value of that repayment highly volatile and unpredictable … I can see no benefit, only harm, from money value volatility.”

    Who says that a centrally managed currency will be less volatile than a free currency. Certainly when central banks try to manage F/X rates it creates platykurtosis. That is short term stability at the expense of longer-term volatility.

    “We can see no benefit, to people being forced to be idle instead of productive, due solely to the value of money rising, but wages having too much inertia to quickly adjust to equilibrium.”

    I think that this gets to the guts of it…

    The Scott Sumner school says that recessions are purely a monetary phenomenon — actually that is a bit of an exaggeration. Sumner would say that in his ideal world with NDGP growing at a constant 5% clip, it would still be possible for real growth to fall and the economy fall into recession. But with the inflation that necessarily accompany a fall in real growth the recession, the sticky wage phenomenon would cause the real wage to quickly fall, lowering employment costs and quickly putting people back to work.

    Austrians and RBC theorists would say that recessions will happen regardless of the central bank. The Austrians will go a step further and say that nearly any central bank policy can make recessions worse. When jobs are destroyed some are destroyed permanently, and those folks will have to change careers and learn new skills. This takes time. High inflation in that intervening period does no favors to anyone — makes everyone poorer, increases uncertainty, and likely makes the recession worse.

  68. Gravatar of Jim Glass Jim Glass
    30. December 2013 at 12:25

    It’s incredibly important to understand that because inflation does not affect all revenues and costs uniformly, it affects the productive structure (both in the short run and long run). That’s the source of malinvestment.

    As recovered Austrian Bryan Caplan points out, this “incredibly important” point is (one of the several places) where Austrian theory falls apart (section 3.4.2)…

    “Why does Rothbard think businessmen are so incompetent …? He credits them with entrepreneurial foresight about all market-generated conditions, but curiously finds them unable to forecast government policy, or even to avoid falling prey to simple accounting illusions generated by inflation and deflation.”
    ~~~

    Monetarist theory, or at least the Friedman theory is that V is fairly stable…

    Friedman abandoned that idea in his later years, in light of all the factual evidence since the 1980s.

    Austrians and RBC theorists would say that recessions will happen regardless of the central bank.

    Everyone knows recessions will happen.

    The Austrians will go a step further and say that nearly any central bank policy can make recessions worse.

    The Austrians *here* seem to go even further yet and be saying that any central bank policy *will* make a recession worse. But not all Austrians say any such thing.

    Hayek was a pretty good Austrian, and said the central banks should have intervened to prevent the deflation of the 1930s, preserve nominal spending, and that if they had the Depression and all the unemployment and destruction you describe would have been a lot less bad.

    High inflation in that intervening period does no favors to anyone “” makes everyone poorer, increases uncertainty, and likely makes the recession worse.

    What “high inflation”? Where does destructive “high inflation” come in during a period of *historic low* inflation?

    If as per Hayek the Fed had averted the 25% deflation of the early 1930s, and kept the price level stable, are you saying this would have been destructive “high inflation” that would have made the Depression *worse*?

    If so, you have something to sort out with a pretty notable Austrian there.

  69. Gravatar of Geoff Geoff
    30. December 2013 at 14:13

    Daniel:

    “Remember folks – for an austrian, the entrepreneur is both the engine of progress – and a brain-dead moron (hi Geoff) unable to include inflation into his/her calculations.”

    It’s not sufficient to merely add a CPI growth percentage to one’s calculations. Investors are not brain dead morons. They, indeed everyone, cannot discern from nominal interest rates how much of it is caused by voluntary investment consumption ratios in the market, and how much of it is caused by purely nominal factors. There is only one set of observable interest rates. As a result, it is not necessary to assume that investors are “brain dead morons.” It is only necessary to assume they do not possess superhuman intellect.

  70. Gravatar of Doug M Doug M
    30. December 2013 at 14:18

    Jim Glass,

    It appears that you didn’t understand what I meant when I made this statement:

    “High inflation in that intervening period does no favors to anyone “” makes everyone poorer, increases uncertainty, and likely makes the recession worse.”

    you said:

    What “high inflation”? Where does destructive “high inflation” come in during a period of *historic low* inflation?

    If the economy is in recession, and the central bank is committed to 5% NGDPLT, then inflation must necessarily be above 5%. In 2009, we would have been looking at closer to 10% inflation.

    An unexpected increase in inflation is good neither for producers, nor consumers, nor investors. But, an unexpected increase in inflation is particularly cruel to the newly unemployed. They find their savings are eroding in value at exactly the time that they need them. If you don’t go for the sticky wages theory of unemployment, then you would say that you are smacking these people when they are down.

    I am not advocating for tight monetary policy in a recession as was implemented during the great depression.

  71. Gravatar of Geoff Geoff
    30. December 2013 at 14:27

    Jim Glass:

    “It’s incredibly important to understand that because inflation does not affect all revenues and costs uniformly, it affects the productive structure (both in the short run and long run). That’s the source of malinvestment.”

    “As recovered Austrian Bryan Caplan points out”

    Your point is not made any stronger by insinuating Austrian economics is a disease like alcoholism. That’s immature and puerile. But I didn’t expect more from you.

    “this “incredibly important” point is (one of the several places) where Austrian theory falls apart (section 3.4.2)…”

    No, it doesn’t fall apart. Caplan’s point was refuted by Walter Block:

    http://mises.org/journals/qjae/pdf/qjae2_4_2.pdf

    The rest of his essay is refuted here:

    http://archive.mises.org/841/caplan-and-responses/

    In short, Caplan fails to take into account the desire to profit in particular industries despite knowing that interest rates are artificially low.

    “Why does Rothbard think businessmen are so incompetent …? He credits them with entrepreneurial foresight about all market-generated conditions, but curiously finds them unable to forecast government policy, or even to avoid falling prey to simple accounting illusions generated by inflation and deflation.”

    They’re not incompetent. They, like you and I, are just not superhuman to be able to separate every interest rate into market factors and central bank factors.

    “Austrians and RBC theorists would say that recessions will happen regardless of the central bank.”

    Depends on which Austrians.

    “Everyone knows recessions will happen.”

    Most argue they would be far less pronounced, because the chances of an inflationary boom are so much less likely.

    “The Austrians will go a step further and say that nearly any central bank policy can make recessions worse.”

    Of course. It is the same thing as saying any anti-market activity makes the market worse off.

    In order for the market to be better off, it has to be allowed to function.

    “The Austrians *here* seem to go even further yet and be saying that any central bank policy *will* make a recession worse. But not all Austrians say any such thing.”

    What does this have to do with my arguments above that you seem to think can be refuted by citing a problematic essay?

    “Hayek was a pretty good Austrian, and said the central banks should have intervened to prevent the deflation of the 1930s, preserve nominal spending, and that if they had the Depression and all the unemployment and destruction you describe would have been a lot less bad.”

    Hayek also said money should be decentralized, and that IF national central banks are to exist, then they should behave as if they are in a world currency system, which means national NGDP fluctuations, which you reject, which means you’re citing Hayek purely for promoting your agenda, and not because you think it’s right because Hayek days it’s right.

    At any rate, Hayek was a social democrat. He was OK with introductions of violence to a positive degree.

    I see you didn’t cite Rothbard or Mises or any of the other Austrians who thought the central bank could not help the porblems it itself causes.

    “High inflation in that intervening period does no favors to anyone “” makes everyone poorer, increases uncertainty, and likely makes the recession worse.”

    “What “high inflation”? Where does destructive “high inflation” come in during a period of *historic low* inflation?”

    Historically high inflation as defined by the increase in money the Fed directly creates through OMOs.

    You’re just defining low inflation in terms of NGDP or prices, but Austrians define it in terms of money supply.

    “If as per Hayek the Fed had averted the 25% deflation of the early 1930s, and kept the price level stable, are you saying this would have been destructive “high inflation” that would have made the Depression *worse*?”

    Yes. It would have not only postponed the errors built up during the 1920s, but would have created new problems besides. The inevitable depression would have been delayed, but would have been even worse than the actual depression of the 1930s.

    “If so, you have something to sort out with a pretty notable Austrian there.”

    Hayek won a Nobel prize for arguing that central bank intervention causes the business cycle. He wrote a book on the decentralization of money. And yet you’re citing him as justification for central banking.

  72. Gravatar of Daniel Daniel
    30. December 2013 at 14:59

    interest rates are artificially low

    “Artificially” as opposed to WHAT ? What’s the counterfactual ?

    Austrians define inflation in terms of money supply.

    One of the reasons nobody should take them seriously.

    The inevitable depression would have been delayed, but would have been even worse

    And you know that, how exactly ?

    Oh, that’s right – PRAXEOLOGY. Another name for how to get from the “axiom of human action” to policy prescription without looking at any facts, solely through thought experiments in which humans are presumed to be perfectly spherical and frictionless.

  73. Gravatar of Geoff Geoff
    30. December 2013 at 15:49

    Daniel:

    “”Artificially” as opposed to WHAT ? What’s the counterfactual?”

    A free market without a central bank intervening of course.

    “Austrians define inflation in terms of money supply.”

    “One of the reasons nobody should take them seriously.”

    That is not how to argue against someone. Even if that person uses a definition that you believe would encourage other people to take them less seriously, you are still obligated to understand their definitions first before you criticize them, because in your case, you criticized them with an argument that assumes they hold a different definition than they actually do.

    “The inevitable depression would have been delayed, but would have been even worse”

    “And you know that, how exactly?”

    Economic theory, which is the only ultimate foundation for knowing economics. We can’t know ultimate truth in economics through observation alone, because history, all of it, everything that has ever happened, is perfectly and completely consistent with mutually incompatible theoretical explanations. For example, if we observe all of history, we consider two theories to explain what happened:

    1. Economic growth and increases in prosperity occurred because of growth in government activity.

    2. Economic growth and increases in prosperity occurred despite the growth in government activity.

    If you posit the first theory, and I posit the second, there is no way we can reconcile our disagreement if all we did was observe history. For history is not enough to separate wrong economic theories from correct economic theories. In the natural sciences, it is possible, but not for us.

    “Oh, that’s right – PRAXEOLOGY. Another name for how to get from the “axiom of human action” to policy prescription without looking at any facts, solely through thought experiments in which humans are presumed to be perfectly spherical and frictionless.”

    That’s false. Free market “policy prescriptions” do not imply, require, call for, nor assume, “perfectly spherical and frictionless markets.”

    Not only that, but you don’t seem to be able to grasp the fact that frictions in the market do not justify state intervention. Just because it takes time for me to find a better job, just because I can’t know everything instantly, it does not justify you or anyone else pointing their guns at people. But that’s what your worldview consists of. Frictions and imperfections and slack and asymmetries and all the rest, and to you that means the guns should come blazing. At who? Who cares! Somebody is doing something somewhere, so it’s better than doing nothing!

    Daniel, please accept when I tell you that what you are criticizing, is something that is obviously so far over your head that you have no business criticizing it. You’re like a drunken fool who wander into a quantum mechanics laboratory yelling out churlish insults based on one liners you’ve picked up in Dr. Seuss books.

  74. Gravatar of Philipp Philipp
    30. December 2013 at 16:26

    You really do write a lot of crap, Geoff.

  75. Gravatar of Philippe Philippe
    30. December 2013 at 16:47

    You really do write a lot of crap, Geoff.

    Why do you bother?

  76. Gravatar of Geoff Geoff
    30. December 2013 at 18:07

    Philippe:

    The same reason you’re asking that question.

  77. Gravatar of Philippe Philippe
    31. December 2013 at 02:16

    I asked that question because I think you’re a delusional buffoon.

  78. Gravatar of Daniel Daniel
    31. December 2013 at 06:45

    Geoff,

    Thank you for proving, once again, that you’re too stupid to understand falsifiability.

  79. Gravatar of Daniel Daniel
    31. December 2013 at 07:02

    Doug M,

    Once again, you completely miss the point.

    If the economy is in recession, and the central bank is committed to 5% NGDPLT, then inflation must necessarily be above 5%. In 2009, we would have been looking at closer to 10% inflation.

    You’re assuming that, had nominal spending been kept on track, productivity would have fallen by 5% in 2009.

    You simply have no way of knowing that – and it’s a very dubious assumption (to put it mildly).

    An unexpected increase in inflation is good neither for producers, nor consumers, nor investors.

    What do you think is best – stable inflation and unstable NGDP growth – or stable NGDP growth and instable inflation ?

    Because of wage/debt/price stickiness, I’d say NGDP is the relevant factor – not inflation (which can be caused by supply shocks).

    But, an unexpected increase in inflation is particularly cruel to the newly unemployed.

    Now you’re positing AN INCREASE IN inflation AND unemployment AT THE SAME TIME !

    If you don’t go for the sticky wages theory of unemployment

    Around here we do go for sticky wages, so what was the point of this incoherent thought experiment ?

    To explain the reasoning of an austro-sadist ? We know how they think, we happen to think it’s nonsense.

    The point I’m trying to make is this – if you think inflation is the nominal variable to target, then any supply shock will be accompanied by an increase in unemployment.(due to aforementioned stickiness).

    Do you think that’s a trade-off worth making ?

  80. Gravatar of Doug M Doug M
    31. December 2013 at 09:43

    “You’re assuming that, had nominal spending been kept on track, productivity would have fallen by 5% in 2009.

    You simply have no way of knowing that – and it’s a very dubious assumption (to put it mildly).”

    Equally dubious to assume otherwise.

    “What do you think is best – stable inflation and unstable NGDP growth – or stable NGDP growth and instable inflation ?”

    Neither, really….both have potential pitfalls. A stable growth of the the expansion of credit, I suppose.

    “Now you’re positing AN INCREASE IN inflation AND unemployment AT THE SAME TIME !”

    That is what the market monetarists propose.

    “Around here we do go for sticky wages, so what was the point of this incoherent thought experiment ?

    To explain the reasoning of an austro-sadist ? We know how they think, we happen to think it’s nonsense.”

    It isn’t particularity rewarding to sit in the echo chamber. The curious person takes and open-minded point of view.

  81. Gravatar of Daniel Daniel
    31. December 2013 at 09:54

    market monetarists propose […] an increase in inflation and unemployment at the same time

    See, it’s not my fault you’re unable to grasp this “monetarism” thing.

  82. Gravatar of Jim Glass Jim Glass
    31. December 2013 at 10:58

    @ Doug M

    If the economy is in recession, and the central bank is committed to 5% NGDPLT, then inflation must necessarily be above 5%. In 2009, we would have been looking at closer to 10% inflation.

    An unexpected increase in inflation is good neither for producers, nor consumers, nor investors. But, an unexpected increase in inflation is particularly cruel to the newly unemployed.

    Doug, your numbers make no sense — but more importantly, you are missing the point of NGDP stabilization entirely.

    The recession — the bulk of the unemployment and business failures — is caused by the fall in NGDP, as the result of which ‘sticky’ wages make it impossible for employers to continue meeting their wage bills and thus forces layoffs, while fixed contract obligations drive business operating losses and declining asset values etc. (debt deflation), which feed back into further declines in demand, more layoffs, etc.

    Stabilizing NGDP when a shock hits the economy prevents this. So the bulk of the unemployment and business failures do not occur. The recession is averted.

    Thus your objection takes the form: “Smallpox vaccinations are painful, costly and can have harmful side effects. So when people are suffering from smallpox it it particularly cruel to force smallpox vaccinations upon them.”

    The vaccinations prevent the smallpox, and the stabilization of NGDP prevents the unemployment.

    BTW, this is four-square with the Austrianism of Hayek, who said the central banks should have prevented the fall in nominal spending (NGDP) that drove the Great Depression, because such recessionary collapses are caused by some disruptive event hitting the economy (caused by ‘malinvestment’ or whatever) that is then *compounded* by a “secondary” collapse in demand that it triggers via the wage bill and debt deflation mechanisms mentioned above — and while the initial event must be suffered, the secondary effects that multiply its cost several times over to create the recessionary collapse can and should be averted.

    As we might say today, a supply-side shock triggers a demand-side plunge through the sticky-wage/debt deflation/feedback effects cycle that *is* the recession, but while the supply-side shock is real the demand-side plunge can be avoided via money policy that prevents the sticky-wage/debt-deflation mechanisms from kicking in. Leaving an economic setback only a fraction of the size.

    If it is noticed at all. The economy sails through significant real shocks to major particular segments of it all the time, and when there is no “secondary” wave out of that particular segment that transmits a demand-side shock to the general economy, hardly anybody even notices.

    OK, as to your numbers…

    If the economy is in recession, and the central bank is committed to 5% NGDPLT, then inflation must necessarily be above 5%. In 2009, we would have been looking at closer to 10% inflation.

    I don’t know where you pull *them* from, but they make no sense even in your own terms.*

    In reality you’d get a little more inflation at the trigger point at the initial time of the supply-side shock event (say, the oil-price run-up in 2008) and no more after that — because the course of the rest of the recession is averted then (the debt-deflation/sticky wages/feedback chain of events never starts occurring) so there is no need for any more inflationary increase to offset anything.

    What would you prefer, an unexpected 1% increase in inflation with near everyone employed as before, or doubling the number of unemployed so the millions of people who are forced out of work are saved from that cruel 1% cost increase?

    (* If 10% inflation in 2009 dropped the unemployment rate by a full 5 points and got the economy back up to capacity years early, a lot of people would have considered that a very good deal! But you seem to be assuming some sort of masochistic policy designed to run inflation up to 10% with double-digit unemployment preserved with no benefit for anybody. Who would do that???)

  83. Gravatar of ssumner ssumner
    31. December 2013 at 11:15

    Saturos, Insanely bad, but slightly less insanely bad than targeting the base by value.

    Doug, Actually currency demand rises in December.

  84. Gravatar of Doug M Doug M
    31. December 2013 at 11:29

    “stabilization of NGDP prevents the unemployment.”

    This is a huge assumption, that you are taking as an article of faith.

    “I don’t know where you pull *them* from, but they make no sense even in your own terms.*”

    Real GDP fell 5% YOY between the middle ’08 and the middle of ’09. If RGDP contracts and NGDP expands, inflation necessarily makes up the difference.

    I know that you are suggesting that with MM policy RGDP would have contracted less. But, as I have said, this is a huge assumption. If it turns out that the RGDP was going to contact by 5% because there was something structurally wrong with the economy, would 10% inflation at the same time been a “compassionate” treatment?

    “You seem to be assuming some sort of masochistic policy designed to run inflation up to 10% with double-digit unemployment preserved with no benefit for anybody. Who would do that???”

    The Market Monetarists are suggesting a policy of double- digit inflation as the cure for double-digit unemployment.

    Who would do that??… apparently, you would.

  85. Gravatar of Daniel Daniel
    1. January 2014 at 07:10

    This is a huge assumption, that you are taking as an article of faith.

    Ok, provide one example of a quick rise in unemployment unaccompanied by a fall in NGDP.

    I mean,if we’re indeed making groundless assumptions, it should be easy to falsify them.

    If it turns out that the RGDP was going to contact by 5% because there was something structurally wrong with the economy

    By your logic, the proper response to such a catastrophic event is indeed to contract NGDP by, say, 3% (in order to maintain a strict inflation target) – thus throwing millions of people out of work.

    Because it’s better to be out of a job than to pay 10% more at the counter.

  86. Gravatar of Geoff Geoff
    1. January 2014 at 19:42

    Philippe:

    “I asked that question because I think you’re a delusional buffoon.”

    If you didn’t want an answer from me, then why ask in the first place?

    Daniel:

    “Thank you for proving, once again, that you’re too stupid to understand falsifiability.”

    Thank you for again posting a comment without any substance.

    I understand falsificationism more than you do, by the way. One of the pieces of evidence for that is that you have not provided any counter-argument. You didn’t, because you can’t.

  87. Gravatar of Doug M Doug M
    2. January 2014 at 09:00

    Ok, provide one example of a quick rise in unemployment unaccompanied by a fall in NGDP.

    1970’s — unemployment rose from 3.5 % to 9% and NGDP never fell below 5%.

  88. Gravatar of Daniel Daniel
    2. January 2014 at 09:34

    The 1970s were a unique demographic phenomenon – the baby boomers entered the labour force en masse.

    http://www.interfluidity.com/v2/4561.html

    http://www.forbes.com/sites/modeledbehavior/2013/09/08/inflation-and-the-baby-boom/

    http://worldofinterest.wordpress.com/2012/08/31/what-really-caused-stagflation-part-1-of-many/

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