I liked the cynical (realistic?) Arnold Kling better

Here’s Arnold Kling:

4. Some prominent Republican politicians oppose monetary expansion. I think they are wrong, but I assume that their motives are sincere.

Unlike Arnold Kling, I don’t assume sincere motives for politicians.  Here’s why:

1.  Perry said he opposed Fed monetary expansion between now and the election.  Why before the election?  Could it help Obama?

2.  A few months ago Romney was praising Bernanke for doing a good job, despite QE2, etc.  That was when he was the GOP frontrunner.  But now he’s fallen behind Fed-bashing Perry.  What’s Romney’s new position:

GOP candidates Newt Gingrich and Mitt Romney made it clear this week they would not hesitate to shoot down “Helicopter Ben”Bernanke for his willingness to engage in what they see as overly accommodative monetary policy.

In other words, if they somehow manage to become president, the head of America’s central bank gets an immediate pink slip, joining millions of others on the unemployment line.

Coincidence?  I report, you decide.

3.  After three years of headline CPI inflation averaging one percent, GOP House and Senate leaders send a letter to Bernanke demanding he not ease monetary policy.  I don’t recall similar letters when the GOP held the presidency and was concerned about losing elections because of the bad economy, and inflation was much higher.  Do you?

Some bloggers may err by using intemperate language like “treasonous.”  But let’s not overreact by assuming politicians have sincere motives.

PS.  Matt O’Brien of The New Republic has a good article on the politics of Fed bashing.



72 Responses to “I liked the cynical (realistic?) Arnold Kling better”

  1. Gravatar of W. Peden W. Peden
    27. September 2011 at 12:23

    Like Friedman, I don’t care much about the motives of politicians. The issues are sufficiently complex & the incentives to focus on data that supports one’s self-interest are sufficiently strong that sincere incorrectness is well within the powers of any politician (even those as intelligent as Romney & Gingrich).

    Whether they are motivated by good intentions with ignorance (whether natural or due to being mislead by self-deception) or bad intentions from cynicism, doesn’t really matter. The error is not in believing in sincerity or believing in insincerity, but in caring about politicians’ sincerity.

    The REAL lesson here is that you can’t trust individuals, especially politicians, with monetary policy. The solution is to have the direction of monetary policy determined by the market, in one way or another, because the market is informationally superior to individual politicians and market participants have a strong motivation to accept uncomfortable truths in a way that politicians don’t. We could call such an approach “market monetarism”.

    Scott, you’re wrong, because you’re right.

  2. Gravatar of Benjamin Cole Benjamin Cole
    27. September 2011 at 13:00

    More excellent blogging by Scott Sumner. It is exasperating to see the right-wing adopt anti-growth stances, at any time, but especially now. Partisan politics has trumped reason.

    Sheesh–if the economy improves, we will all benefit.

  3. Gravatar of Silas Barta Silas Barta
    27. September 2011 at 13:29

    If I held the (not necessarily insane) belief that the Fed can harmfully produce the temporary _appearance_ of economic health (read: bubble), then I could both believe that it would help Obama’s election chances, and that it would hurt the country. (And it wouldn’t be treasonous by the standard you’ve laid out before!)

    Furthermore, if I believed that “the printing money” would cause such a bubble …

    So what’s the problem?

  4. Gravatar of marcus nunes marcus nunes
    27. September 2011 at 13:33

    Ignorance can be amusing: From Dallas Fischer:
    My brother Mike recently visited this station on Jan Mayen. This is the sign that greeted him.

    In Norsk, it reads as follows:

    “Theory is when you understand everything, but nothing works.”

    “Practice is when everything works, but nobody understands why.”

    “At this station, theory and practice are united, so nothing works and nobody understands why.”

    My wry brother implied that this about summed it up for monetary policy.”


  5. Gravatar of David Pearson David Pearson
    27. September 2011 at 13:34


    OT, but I though you might find this chart useful: the CRB index going back to the 1700’s from Bianco Research. No idea where they get the data, but here goes.


  6. Gravatar of david david
    27. September 2011 at 13:48

    Morgan Warstler is going to blow a fuse.

  7. Gravatar of Lorenzo from Oz Lorenzo from Oz
    27. September 2011 at 13:53

    David P: That is interesting, thanks. Commodity prices really plummeted in 2008. And haven’t recovered back to 2006 levels yet. Puts the way the Oz economy keeps bouncing along in perspective.

    Changes in employment in the OECD: Ireland is way the worst employment performer, notably worse than Iceland. (Let’s hear it for being in the euro and guaranteeing the banks.)

  8. Gravatar of Lorenzo from Oz Lorenzo from Oz
    27. September 2011 at 13:57

    On the other hand, our terms of trade have remained at historical highs.

  9. Gravatar of OneEyedMan OneEyedMan
    27. September 2011 at 14:23

    I want to figure out what the best ideas are. To do that it really doesn’t matter what the motive of the speaker is. Let the politicians worry about winning popularity contests.

  10. Gravatar of dtoh dtoh
    27. September 2011 at 15:45

    Fed action would be less susceptible to political attack if they managed monetary aggregates more directly through bank capital reserve ratios rather than doing it indirectly (and less effectively) through changes in MB.

  11. Gravatar of Becky Hargrove Becky Hargrove
    27. September 2011 at 15:48

    On the days when Arnold assumes the motives of politicians are sincere, he gets a really good night’s sleep.

  12. Gravatar of Mike C Mike C
    27. September 2011 at 16:18

    Wait, how has Morgan not joined in on these comments yet?

  13. Gravatar of Scott Sumner Scott Sumner
    27. September 2011 at 16:26

    W. Peden, Market monetarism sounds good to me.

    Ben, Thanks, I agree.

    Silas, How does Perry think it will make things look better? More jobs? If so, why not say so?

    Marcus, That’s a good one.

    David Pearson, Thanks, Prices had no upward trend under the gold (and silver) standard.

    David, So far he hasn’t commented.

    Lorenzo, I agree about Ireland and Iceland.

    dtoh, Why should they manage the aggregates at all?

  14. Gravatar of Bonnie Bonnie
    27. September 2011 at 16:31

    Politicians do, at least to some extent, have to compete in the marketplace of ideas. Their branding doesn’t necessarily have to have any basis in reality, just some air of plausibility because very few people look beyond the surface before they go to the polling booth. As the market changes, they must also or their careers go bye-bye. These Republicans are not leading, they are being led. The Fed bashing that has been going on on the right for decades has become mainstream they are responding to it, even if in a way that doesn’t make much sense when all of the facts are laid out.

    In many cases it isn’t such a bad thing to have the politicians doing the following, as our political system is supposed to reflect the society by which it is composed. There are obviously some exceptions to that, especially when a large part of the complex central economic planning apparatus is beyond relatively simple explanations, and is dysfunctional to the point of causing harm. That is what real intellectuals and rigorous public debate are for – establishing a consensus of what the real problems are and how to best address them. As a society, we usually do arrive at workable solutions to our problems, even if we have to do everything wrong before getting there. Sadly to say, our political system is still doing all the wrong things on both sides of the isle, and is way behind the Sumner ‘curve’ (as in learning curve).

    The Fed-basher, hard-money guys are out there writing book after book about financial Armageddon and are gaining traction in the marketplace of ideas because there is at least some practical plausibility on the surface in the midst of serious economic problems; and it shows given that letter to the Fed from those Republicans. It would be nice to have someone who supports NGDP level targeting, a twist on natural market order, to balance them out and make them look like fools who beat flies with baseball bats. Blogging is a great way to get the conversation started, and I really enjoy reading this one, but those guys didn’t get the influence they have that way.

  15. Gravatar of Robe Robe
    27. September 2011 at 17:43

    I agree that for Mitt Romney, and possibly Newt Gingrich (I don’t really know enough on his views on monetary policy) that some opportunism is at work. On the other hand, being a politician is a job like any other, so some opportunism is to be expected. Indeed, if we’re defining opportunism to mean saying one thing, while knowing that another policy is the optimal policy, then we should assume that upon coming to power, Romney would repudiate his tight-money views. If he truly is being opportunistic, then I don’t even necessarily think it’s the case he would remove Ben Bernanke, unless it was to put someone even more open to monetary expansion in his place. Gingrich has no shot at being president, so why even worry about him.

    As I noted here:


    President Obama pandered to the far-left on free trade while campaigning in the Democratic primary. And although he could probably do more on promoting free trade now, President Obama has refrained from promoting anti-free trade policy, despite pressure from some corners to do so in response to the recession.

    On the other hand, what I find worrisome about Rick Perry is that I think he might really believe what he’s saying a la monetary policy. If he truly believes that, for instance, Bernanke’s QE2 policy was treasonous, then sincerity is definitely not a virtue in this case.

    As far as opportunism goes then, I don’t even necessarily know if it’s that harmful. Do you think that this rhetoric is affecting decision making at the Fed? I don’t see why it would. Furthermore, it allows more moderate candidates like Romney to get through the primary. Anyway, as you noted yourself, Romney did name Greg Mankiw as one of his two chief economic advisers, so pandering aside, it doesn’t seem like there’s much to fear from Romney if he’s elected.

  16. Gravatar of MikeDC MikeDC
    27. September 2011 at 17:45

    OK, assume the worst intentions (which I don’t, but for the sake of argument) it’s still

    Better to have a competent liar than an honest fool.

    Party R holds the true belief but the voting public holds the false belief. Party R must lie to win the election and implement their true belief.

    Party D holds the false belief and is in power. They have steadfastly refused to question their false belief to their own and their country’s great detriment.

    While I’m sure it gets you more of whatever the academic equivalent of street cred is to bash Rs, it’s a) very blinkered and b) not very utilitarian to do so.

    Following your logic, Scott, a D victory ensures no monetary expansion. Not only do they philosophically not believe in it, the public doesn’t support it and their key constituencies would be especially hurt by too much inflation if the policy fails. An R victory gets a higher likelihood of the right policy. An R campaign of honesty gets us a higher likelihood of a the wrong policy, because, again, it is extremely unpopular and poorly understood.

    And, by the way, someone write an entertaining account for us of what one of those monthly Obama-Bernanke meetings sounds like?

  17. Gravatar of John Thacker John Thacker
    27. September 2011 at 18:50

    Oh, it’s completely obvious why the politicians are doing it. It’s because it’s popular with the public; not just their base, but with swing voters.

    There’s the question of why the Fed responds to public opinion, but it does.

    I totally agree that you shouldn’t assume that politicians have sincere motives. Generally I don’t care too much about their motives, since their motives are generally to get (re)-elected, which generally means doing what the public wants.

    Remember that when FDR ran against Hoover, he (and the Democratic Party platform) specifically blasted Hoover for all the deficit spending, and said that Democrats would run a balanced budget. He said this because it was popular with the public in a similar manner to low inflation.

    Of course he did no such thing once elected.

    What does that mean that we should think about FDR?

  18. Gravatar of John Thacker John Thacker
    27. September 2011 at 18:58

    The public wants growth but doesn’t want inflation. It’s absolutely no defense to say that “but if we increase the monetary base, it would lead to growth, and that would be popular with the voters!” It would not, not so long as the voters refused to believe that the policy helped.

    Consider the similar issue of what Pelosi and Reid say while blocking the trade deals:

    “I think if you asked people in Nevada: Boy, hasn’t NAFTA helped us a lot, they would just sneer and walk away,” he said in his floor speech.

    There would be some boost in support (or decrease in opposition) if times were better, but the public maintains such beliefs until better educated. That’s part of why your blog is important.

  19. Gravatar of John Thacker John Thacker
    27. September 2011 at 19:00

    In any case, your latest series of posts simply convinces me more and more that public opinion *does* affect the Fed’s actions.

  20. Gravatar of John John
    27. September 2011 at 20:36


    The only thing I could find on a google search of Hayek and NGDP targeting involved your blog. I’m very skeptical that he would endorse any of your proposals. Here’s a quote I came across today in “A Tiger by the Tail.”

    “I cannot help regarding the increasing concentration on short-run effects “” which in this context amounts to the same thing as a concentration on purely monetary factors “” not only as a serious and dangerous intellectual error, but as a betrayal of the main duty of the economist and a grave menace to our civilization. To the understanding of the forces which determine the day-to-day changes of business, the economist has probably little to contribute that the man of affairs does not know better. It used, however, to be regarded as the duty and the privilege of the economist to study and to stress the long-run effects which are apt to be hidden to the untrained eye, and to leave the concern about the more immediate effects to the practical man, who in any event would see only the latter and nothing else.”[3]

    In this quote he appears to be saying that you aren’t an economist because you focus on the short-run, monetary factors at the expense of discussing long-run effects. The gap between your views and Hayek’s is enourmous. I can’t figure out why you cite him.

  21. Gravatar of Mark A. Sadowski Mark A. Sadowski
    27. September 2011 at 21:35

    Tonight I attended the “Special Public Session tonight with economics department faculty” at the UD. My intention was to embarrass the great Wiliam Poole with questions that exposed his political motives for encouraging tight money but I was very publicy (very nearly physically, except for my sense of self control, and dignity) denied the opportunity to venture my questions.

    Insincere motives? An Act of Treason? No doubt in my mind. And I applaud you Scott as a Republican who is still loyal to the American ideals for attempting to address all acts of denials of freedom of expression.

    And it’s no wonder why I’m allowed to open my big yap in New Jersey as a teacher but not in my home state of Delaware, despite my good teaching evaluations, hefty GPA, and my talents at drawing large crowds of students to group tutoring sessions. I speak (or at least attempt to) speak the truth.

  22. Gravatar of dtoh dtoh
    27. September 2011 at 21:43

    Why should they manage the aggregates?? Because they need the hot potato effect! Same reason they manipulate the base.

  23. Gravatar of FT Alphaville » Further reading FT Alphaville » Further reading
    27. September 2011 at 23:13

    […] – Cynical, cynical Fed-bashing. […]

  24. Gravatar of Rien Huizer Rien Huizer
    28. September 2011 at 00:31


    O’Brien wonders whether those attacks are based on genuine belief. That is a very good question (assuming that politician’s beliefs are relevant, especially once they are elected). Maybe good to dissect that “belief” (if there is only one kind, not likely, but maybe they are a mixture of the same ingerdients, in different proportions):
    – fear of inflation> Only a highly detached candidate, without adequate technical support- could believe that- or an ideosyncratic one. They tend to do not very well once the field is thinng out.
    – unfairness of the FED helping the opposition and thus maybe preventing a disaster that if unremedied, would have caused a democratic loss (=republican gain). That may depend on what focus groups are relevant for the candidate. For some, the benefit of FED policy is not great (even seen through enlightened glasses) and the fairness argument, in politics increasingly reported in “sports” mode, might resonate. The most convincing of the lot, and not necessarily problematic once elected.
    – FED engaging in quasi-fiscal policy. Not a bad argument. In fact, if the democrats had foreseen that fiscal policy (despite its vote buying benefits) would have little effect and that monetary policy would have done better, plus some supply side tweaks to taxation (but which ones are politically cheap?), it would have been much better (=better for their market share) to appoint SS to the Fed chair. I like this argument, but it is politically difficult and also dangerous (better to let the Fed police its own perimeter)

    All in all there is not a lot of usable populism in the possible “beliefs”, maybe the “fairness” one. I guess it is more a matter of this being a low cost way to piggy back on existing lower middle class anger. And suggesting that the president had to lean on the Fed and still achieve nothing that would cheer up the poor, may actually reinforce established beliefs there that voting is a waste of time for all those people who had never voted before..

    As said before , especially in the primary phase, bullying a revered but unknown institution may be effective and it is clearly being copied. Of course once they all do it, the benefits disappear since if elected, the candidate will have to deal with the fed that will be extra careful not to favor the gvt of the day, with a view to the return match.

  25. Gravatar of Martin Martin
    28. September 2011 at 01:31


    On Hayek, See page 7 of Scott’s proposal at the Adam Smith institute: http://www.adamsmith.org/files/ASI_NGDP_WEB.pdf

    You’ll find the following source there:

    2 L. White, “Did Hayek and Robbins Deepen the Great Depression?”, Journal of Money, Credit and
    Banking (40-4, 2008)

    Scott’s proposal is a long-run proposal: the point of view from which he criticizes the monetary authorities is allowing deviations from this long-run for short term reasons such as (headline) inflation.

    If you need corroboration:

    “Our proposed “Hayek rule” is a symmetrical approach that seeks to stabilize nominal income, in both good and bad times, through a system in which the annual flow of money””what we will refer to as the “circulating medium of exchange,” which is equal to nominal spending (MV)””remains at a constant level.”

    The main point of disagreement is that Hayek would have called for 0% growth of nominal spending and Scott calls for 5% because Scott believes that nominal wages are sticky downwards (based on very convincing empirical evidence). Hayek mainly attributes this to unions and Scott probably attributes this to money illusion.

    Both however agree on stabilizing nominal spending and having monetary policy conducted on the basis of a rule that predictably stabilizes spending.

  26. Gravatar of Morgan Warstler Morgan Warstler
    28. September 2011 at 05:43

    MikeDC comes closest.

    The R party SINCERELY believes in less government = growth.

    The D party SINCERELY doesn’t care about growth, they care about “fairness.”

    Obama admitted this publicly in 2008 when questioned about tax policy that didn’t promote growth, he shrugged and aid it reduced disparity.

    RAWLS makes clear that disparity doesn’t matter, what matters is what the poorest and weakest get compared to the poorest and weakest in other societies.

    Rawls gets everything ALMOST right, but I think t would be very interesting to have Rawls see the data on how the Swedish do in Sweden vs. the Swedish in the US (our Swedes kick the shit out of Sweden).

    It’s like black kids in Texas vs. black kids in Chicago, I think Rawls would redo his Justice Theory slightly.


    Anyway the above is WHY Sumner is wrong to try and do Monetary in the void.

    The purpose is GROWTH, not FAIRNESS and the anti-growth fairness party shouldn’t be judged neutrally by economists who claim they care first about growth.

    After all, we all know IMMEDIATELY when DeKrugman is most full of shit when he argues that in the near term growth = fairness.


    The current Fed equation is:

    Bankers > RIGHT > LEFT

    The the left wants to gang up on on bankers, the Tea Party WILL partner with them, but the new equation will be:

    RIGHT > Bankers > LEFT

  27. Gravatar of Becon Becon
    28. September 2011 at 06:57

    Scott wrote:
    1. Perry said he opposed Fed monetary expansion between now and the election. Why before the election? Could it help Obama?

    I give him a slightly more favorable interpretation. He might think monetary expansion undertaken between now and November will be overly aggressive or poorly devised and be motivated by an administration looking to put big gains on the board right before an election. Monetary policy should not be rash and unpredictable like that. (I think you would agree with that last sentence. You have said that an NGDP target takes narrows the Fed’s discretionary powers.)

    Unfortunately, as Nick Rowe and David Beckworth have noted. What does it mean to do nothing? Just because the short term rate stays at 0%, actions may still be seen as passive tightening of policy.

  28. Gravatar of Silas Barta Silas Barta
    28. September 2011 at 07:16

    @Scott_Sumner: Silas, How does Perry think it will make things look better? More jobs? If so, why not say so?

    More unsustainable jobs that goose the employment and GDP numbers but will eventually just be revealed as unsustainable, leaving us worse off than before.

    He doesn’t “say so” (at least not often, with most crowds, etc) because it’s too complex a message for the average voter: “The Fed’s going to improve job numbers, but it’ll just be an illusion built on sand …”

  29. Gravatar of Gabe Gabe
    28. September 2011 at 07:17

    Perry made government bigger in Texas.

  30. Gravatar of Gabe Gabe
    28. September 2011 at 07:19

    Sumner thinks that the Fed was a bad idea in 1913. Is that also fed bashing? I think it is and it is why I like Sumner.

    Let’s not confuse people by conflating all fed bashers with Romeny-Perry Demopublicans who we all know are professional liars.

  31. Gravatar of Silas Barta Silas Barta
    28. September 2011 at 07:43

    Sorry, just to clarify: I don’t want to hold up Perry as some great dude or suggest you vote for him; I’m just saying I don’t agree with these specific criticisms that he somehow opposes monetary loosing because it would lead to a good economy.

  32. Gravatar of Morgan Warstler Morgan Warstler
    28. September 2011 at 09:16

    I think it is pretty apparent Sumner is wrong on the logic here, but can’t get back from the corner he’s in.

    Overtime, if pushed he’ll grow more and more indignant at the intransigence of the GOP. So I’ll keep pushing.

    And then he’ll have a crisis moment where he either has to HATE THEM when they win with their immoral endgame OR forgive them so that his voice and his ideas can be made use of.

    It is a suspenseful narrative.


    There is a hole in the boat.

    We need to 1) fix the hole and 2) bail.

    You only BAIL FIRST if the hole isn’t that big.

    Republicans think the hole is so GARGANTUAN that bailing is Darwin-level stupid. They KNOW that talking about bailing keeps us from fixing the hole.

    Now sure you can argue the both parties put the hole there.

    I argue you are right, it is too bad Democracy is a shitty boat.

    Last Sumner note, he’s mentioned that economists are products of the age they were brought up in, I’d say that’s half right…

    It occurs to me that Sumner views the right partially through the age of Nixon.

  33. Gravatar of Greg Ransom Greg Ransom
    28. September 2011 at 09:23

    A trade cycle timed to the election cycle and controlled by the Fed IS a big problem, Scott.

    It’s dishonest for you not to address it.

    We know that Nixon and Burns exploited this in the early 1970s, causing a good deal of the economic chaos of that decade.

    There is something deeply undemocratic about the whole thing.

    And you obsessions with “fixing” the current bust don’t change the relevance of the problem.

    Again, a little more honesty would be appreciated.

  34. Gravatar of Ed Ed
    28. September 2011 at 10:24

    The political criticism of the Fed may be unwarranted, but to a certain extent this is of the Fed’s own doing.

    First, the Fed, for decades, has justified its independence in terms of avoiding the inflationary policies that politicians would supposedly pursue if given the chance. Having, since Volcker (at least) implied that politicians would behave like crack addicts if allowed near the printing press, the Fed set itself up for criticism when (in a situation it never foresaw) the politicians feared inflation more than the Fed.

    And, the Fed is also political, not in any sinister way, but in the sense that it appears at times to value its institutional prerogatives (or independence, if you prefer the term) as much as the making of correct policy. As an example: Scott has deplored Bernanke’s failure to get Obama to more quickly fill open FOMC seats to counteract the hawkish regional bank presidents. Actually, Bernanke could have done one better. The bills that ultimately became the Dodd-Frank Act included a proposal, as part of the anti-Wall Street outrage, to have the NY Fed president appointed by the President, instead of by a bank-appointed board of directors. Bernanke could have ridden the outrage and asked Congress to exclude the regional presidents from the FOMC altogether, on the ground that officials appointed indirectly by Wall Street had no place in the making of monetary policy. This would have made Bernanke more popular, the Fed more popular, and Bernanke would currently not be battling the regional presidents to accomplish quantitative easing. Instead, the Fed fought and defeated the NY Fed proposal, apparently fearing “politicization” more than the tight-money bias of the regional presidents.

    Apparently, then, Bernanke was more willing to risk incorrect monetary policy than the loss of long-term institutional independence. Perhaps that decision will cost him both …

  35. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    28. September 2011 at 10:40

    As several others have said, politicians say what they think voters want to hear. For people like Romney, it’s what Republican primary voters want to hear. Sort of the same dynamic with teen-agers in backseats of automobiles.

    Anyway, Larry Kotlikoff has some fun here:


    His first prescription is for the Fed to stop paying interest on excess reserves. I like this one:

    …the standard sticky wage and price explanation for our economic malaise offered by Keynesian economists such as Paul Krugman and James Galbraith. I think there are fewer markets suffering from this problem than Krugman and Galbraith do, but there are enough such markets to make the case for government intervention. Indeed, the president should put these economists in charge of identifying the markets suffering from this problem and helping their participants set market-clearing prices and wages.

    One example is the market for construction workers. A 1931 law called the Davis-Bacon Act effectively requires contractors using federal money to pay union wages. If the act were suspended or repealed, federal spending on much-needed infrastructure projects could create a lot more jobs.

  36. Gravatar of John John
    28. September 2011 at 11:33


    Thanks I’ll check those out. I think it’s very well known that Hayek would’ve disagreed strongly with the monetarist view of how to get out of a recession though.

  37. Gravatar of W. Peden W. Peden
    28. September 2011 at 13:58

    Greg Ransom,

    Actually, I think an explicit target (any target) DOES go some way to resolving that target. It would be better not to have the present Fed system at all, but taming it with an explicit rule would go some way to making it easier (for instance) for a Fed to engage in contractionary policy in the run up to an election. The independence of the Bank of England, coupled with explicit inflation targets, has more or less eliminated the political/monetary policy cycle in the UK (which was very noticeable from around 1955-1997). Then again, since that was a monetary policy cycle created by elected governments, maybe you don’t have a problem with it?

  38. Gravatar of JPIrving JPIrving
    28. September 2011 at 14:51

    Just a slight challenge to “But now he’s fallen behind Fed-bashing Perry.” Intrade betting markets report Romney well in the lead, at 40somthing% vs 25ish for Perry. http://intrade.com/v4/markets/contract/?contractId=652757

    Of course Romney probably still pays attention to the polls instead of the smart money.

  39. Gravatar of John John
    28. September 2011 at 15:08

    If you notice from my quote, none other than Friedrich Hayek considers focusing on monetary policy treasonous (more specifically destructive to civilization); “I cannot help regarding the increasing concentration on short-run effects “” which in this context amounts to the same thing as a concentration on purely monetary factors “” not only as a serious and dangerous intellectual error, but as a betrayal of the main duty of the economist and a grave menace to our civilization.”

    The Keynesians and monetarists are both focusing purely on short run effects, specifically the money illusion, as a solution to deep issues in the American economy. While I’d like to believe that the mainstreamers who believe that this short run focus is economically justified are just making an honest mistake, I’m not that naive.

  40. Gravatar of Cameron Cameron
    28. September 2011 at 16:02

    I just got back from a speaking event featuring Bernanke and asked if he was concerned that TIPS spreads imply an expected inflation rate of 1-1.5% over the next 5 to 10 years.

    He said that those expectations were within their definition of price stability, that those spreads aren’t perfect for liquidity reasons, and that he would only be worried if measured inflation fell to those levels.

    No surprises, but its disappointing that the Fed used higher inflation expectations to justify ending QE2 early, but won’t use lower expectations to justify acting now.

  41. Gravatar of W. Peden W. Peden
    28. September 2011 at 16:25

    Greg Ransom,

    That should read “I think an explicit target (any target) DOES go some way to resolving that problem”.


    I think that it’s unwise to focus purely on what Keynesians and monetarists say about the present, and to thereby assume that their interest is purely in the short-run. Both schools have answers to the question “What about at the next stage of the business cycle?”. You may reasonably disagree with these answers, but it is inaccurate to say that they don’t exist.

    The caricature of Keynesianism as PURELY interested in the short-run is an old one and to some extent brought on by the rhetoric that Keynesians have employed over time against their critics. It’s more rare to apply such a criticism to monetarists, mainly because it’s so much more obviously mistaken (monetarism, after all, is almost DEFINABLE in terms of a view of the long-term effects of changes in the quantity of money).

    What is an explicit rule-approach (like NGDP targeting) if not an answer to the LONG-TERM problems of economic policy? Specifically, it is founded on a scepticism about individual human knowledge/virtue, and the belief that individual judgement must therefore be constrained by rules.

    Also, in that quote, Hayek isn’t really applicable to this discussion at all, since no-one is suggesting a focus on purely monetary factors.

    You are applying a quote that isn’t relevant, within an well–poisoning accusation that economists dishonestly hold views that they don’t hold.

  42. Gravatar of JimP JimP
    28. September 2011 at 16:27

    Ben is happy where we are:

    Asked about the inflation signals from the TIPS spread over
    Treasuries, which he said is useful but not perfect as a measure of
    inflation expectations, Bernanke said they and other indicators point to
    inflation expectations “broadly consistent with about 2% inflation which
    is roughly where the Federal Reserve is trying to leave inflation.”

    Swell Ben – you are doing real well.


  43. Gravatar of Greg Ransom Greg Ransom
    28. September 2011 at 17:17

    This sounds right.

    W. wrote,

    “Greg Ransom,

    Actually, I think an explicit target (any target) DOES go some way to resolving that target.”

  44. Gravatar of Scott Sumner Scott Sumner
    28. September 2011 at 18:13

    Bonnie, I agree.

    Robe, I assure you that neither Romney nor Perry believes what he says. Didn’t Perry support HillaryCare? I agree Romney is much better.

    MikeDC, I bash both parties, and we know from 2001-09 that the GOP does not support small government, they want bigger government.

    John Thacker, There is no such thing as public opinion on monetary policy. Ask the average person whether monetary policy should be more expansionary or more contractionary. They probably won’t even understand the question. Ask them whether they favor faster or slower NGDP growth, what will they say? If the Fed is responding to “public opinion” they are idiots.

    John, Well if you’ve searched Google then I must be wrong! It amazes me that Austrians don’t even know their own model. Austrian theory says CPI targeting is bad, you need NGDP targeting. Time for me to do another post bashing internet Austrianism.

    Mark, Keep up the good work, but please don’t call me Republican.

    dtoh, They can only target one variable, NGDP or M2.

    Rien, Good observation.

    Martin, Thanks for showing John the truth.

    Morgan, You said;

    “The R party SINCERELY believes in less government = growth”

    We were told that in the 2000 election, and look what happened.

    Becon, That makes no sense, the Fed is run by Republicans.

    Silas, I don’t think Perry understands “complex” ideas. I oppose the idea that we must lie to voters because they can’t handle the truth. In any case, if he were President he’d be demanding easy money in the run-up to the election.

    Thanks Gabe,

    Greg, Yup, just like Nixon/Burns, the GOP-led Fed is pushing fast NGDP growth to create an unsustainable boom right before the 2012 election so that the Dems can win. . . . Not.

    Ed, Good observation about the regional presidents.

    Patrick, I’m glad to hear that from Kotlikoff.

    JPIrving, Yes, but did he say those things before he pushed ahead in the polls?

    John, Hayek favored NGDP targeting, as do I. We both oppose short run expedients.

    Cameron. You get to ask Bernanke questions? That’s impressive. But the answer didn’t sound very impressive. Is there a transcript?

    JimP. So unemployment is a national crisis and he isn’t concerned that TIPS spreads are a little lower than the target. Hmmm.

  45. Gravatar of JimP JimP
    28. September 2011 at 18:52


    I wish you would have asked him about the general idea of NGDP targeting – or about all that stuff his former and now long since vanished self said about Japan.

    Someone needs to really try to wake him up – make him understand that there are people around who will eventually write this disaster up in books and teach it – and he will not do well in those books.

  46. Gravatar of JimP JimP
    28. September 2011 at 18:53

    That is – books will be written if we survive this at all.

  47. Gravatar of Cameron Cameron
    28. September 2011 at 19:50

    Had I known I would actually have a chance to ask him a question I would have asked the market monetarist community first. That I was easily able to ask the chairman of the federal reserve a question in an audience of ~500+ says something about the problem we are facing right now.


    I considered asking a question about Japan, but decided against it because he already addressed a similar question in one of the Fed’s press conferences. When asked about the difference between his recommendations for Japan and his actions as a central banker he said:

    “I’m a little more sympathetic to central bankers than I was 10 years ago,”

    Which roughly translates to “HELP ME!”.

    I also assumed asking about a CPI or NGDP level target would only really result in fedspeak nonsense. Judging by his response to my question, I’d say level targeting is a long way off sadly.

  48. Gravatar of Cameron Cameron
    28. September 2011 at 19:54

    Scott, I can’t find a transcript, but this basically covers what he said.


  49. Gravatar of Mark A. Sadowski Mark A. Sadowski
    28. September 2011 at 21:04

    Scott wrote:
    “Mark, Keep up the good work, but please don’t call me Republican.”

    What do you consider yourself these days?

    Personally my impulses drive me to rounding up Republicans against a wall (especially that dimwit Perry) and (you know what comes next). If what you are saying is true I no longer need to check identity cards to make sure I am not hurting a friend.

    All in good fun,

  50. Gravatar of Martin Martin
    29. September 2011 at 00:17


    “The Keynesians and monetarists are both focusing purely on short run effects, specifically the money illusion, as a solution to deep issues in the American economy. While I’d like to believe that the mainstreamers who believe that this short run focus is economically justified are just making an honest mistake, I’m not that naive.”

    Both Keynesians and Monetarists (the old versions) have explicit long run rules. Keynes wanted to balance the budget over the cycle with a surplus in good times and a deficit in bad times. Friedman, initially wanted a k% rule for monetary aggregates and later on to freeze the monetary base and to abolish the central bank. Both therefore clearly preferred long-run solutions and in the case of Friedman this took the form of taking away discretion.

    In the short run, these ideas take the form of short-run measures depending on where the economy is at that point in time.

    For example, in 2000s Keynesians such as Krugman thought it folly to cut taxes and engage in deficit spending when times were good. Now those very same Keynesians advocate deficit spending when times are bad. Over the long run, they focus on balancing the budget.

    In the case of monetarists, depending on the brand, some are advocating monetary tightening based on the rapid money growth, others such as Scott and other Market Monetarists argue for more easing.

    In all cases, each group has a particular rule and in the short run they advocate measures to achieve goals set by the rule.

    As for Hayek:
    “If you notice from my quote, none other than Friedrich Hayek considers focusing on monetary policy treasonous”

    I gave you some links above, but I want to stress another thing. In the 70’s a whole series of interviews were conducted with Hayek and in one of them he ‘admitted’ the danger of a secular depression as occurring in the 30’s, that is MV in MV=Py not remaining stable but contributing to the contraction.

    The reason he deviated from the rule and did not advocate monetary measures was that he hoped that this secular depression would break the power of the trade unions. What he ‘admitted’ there in one of those interviews was that he at that time was mistaken. That is – I believe – where the image comes from as Hayek as a liquidationist.

    Greg Ransom knows (quite) a bit more about it than I do and you can also find the link to the interviews on his website I believe.

  51. Gravatar of Martin Martin
    29. September 2011 at 00:23

    BTW what this illustrates also is that Hayek can be accused of focusing on the short-run in that instance and to deviate from his long run rule.

  52. Gravatar of anon anon
    29. September 2011 at 00:38

    Interesting tidbit:

    ‘Bernanke said he understands the difficulties posed for savers by low interest rates but that “ultimately high interest rates and high returns and productivity require the economy to be operating close to its potential.”‘

    This really raises a question as to whether Op Twist was any good, since (among other things) the yield curve flattened so much more than what the Fed and market participants expected.

    Now this would have been a nice question to ask. (OK, maybe not really. But one thing Bernanke needs now is persuasive arguments to sway the FOMC, and this might be one.)

  53. Gravatar of James in London James in London
    29. September 2011 at 01:07

    Scott. If the Republican candidates are successful in their “strategy” then we have only a few more months of pain for the unemployed before we see expectations firm up on their likely victory over Obama, and expectations begin to rise of a Republican President teaming up with the Republican Fed to print money. And all will be well.

    Maybe, even, your blog has been too successful, read by these Republicans, convinced them and led to their tactics. So then it would be your fault that there is no monetary easing.

  54. Gravatar of MikeDC MikeDC
    29. September 2011 at 04:33

    I bash both parties, and we know from 2001-09 that the GOP does not support small government, they want bigger government.

    Perhaps, but that has nothing to do with the point I made regarding monetary expansion policy options.

  55. Gravatar of JimP JimP
    29. September 2011 at 05:19

    How bout them Red Sox !

    And that’s my team. Bummer

  56. Gravatar of Gabe Gabe
    29. September 2011 at 05:23

    The GOP was also for big government in 1980-1992. Payroll tax revenue increases and bracket crep tax increases MORE than made up for any cuts in income taxes…and governmnet spending more than outpaced even those large increases in taxes. Reagan never made any more real moves towards small government after he was shot…and Bush 1 & 2 have never been anything but big government stooges.

    Communism didn’t end in Russia because of the US buying lots of tanks and bombs…communism in Russia killed itself due to making the people their so relatively poor and unable to get what we considered basic goods.

    The big government spending increases that the US made during hte last 30 years have only acted to bring us to our current stagnation and now decline.

  57. Gravatar of Morgan Warstler Morgan Warstler
    29. September 2011 at 06:09


    PLEASE STOP making that shitty pat answer. It sucks.

    You say, “gvt. grew after 2000”

    I say and have said 100 times, “OF COURSE IT DID, Bush’s job was to spend all the money on non-Dem voting constituencies”

    This policy has led to us winning a far more conservative country since 1980.

    The NEXT STEP is gutting the public employee unions. And then finally entitlements.

    This is all the natural organic demise of “vote to get free shit” Democracy.

    And you have no response.

    You don’t like to deal with this line of thinking, you don’t like ANY form of long term political hacking of Social Democracy to ruin it the fastest way possible.

    As I say you are born of the age of Nixon.


    My point carries…

    The R party SINCERELY believes in less government = growth

  58. Gravatar of Morgan Warstler Morgan Warstler
    29. September 2011 at 06:16


    you too miss the point.

    “Smaller government” ALSO means “don’t let Dems voters get any free shit for voting”

    This is purely logical.

    Any effort by you or Scott not to recognize it, reeks of amateur naivete

    Until here is a Balanced Budget Amendment that caps spending at revenue, “smaller gvt.” is a purely theoretical exercise.

    Without a BBA, and without the GOP spending all the money on non-Dem voters stuff… you see 1913-1980 happen.

    The only choice was whether we’d have spent all the money and have a LARGER Social Democracy with more folks on the dole OR we’d have spent all the money and have what we have now.

    Hacking Democracy without a BBA is ugly, ugly, ugly.

    It’s not for the weak of heart.

  59. Gravatar of Morgan Warstler Morgan Warstler
    29. September 2011 at 06:19

    James in London!

    Let’s all re-read his genius:

    “Scott. If the Republican candidates are successful in their “strategy” then we have only a few more months of pain for the unemployed before we see expectations firm up on their likely victory over Obama, and expectations begin to rise of a Republican President teaming up with the Republican Fed to print money. And all will be well.

    Maybe, even, your blog has been too successful, read by these Republicans, convinced them and led to their tactics. So then it would be your fault that there is no monetary easing.”

    It is so much fun being better at the expectations game than egghead economists.

    There is an exact date int he near future when all Scott’s arguments point to his acceptance of the GOP strategy.

    He’ll grin and bear it.

  60. Gravatar of Becon Becon
    29. September 2011 at 06:55

    Becon, That makes no sense, the Fed is run by Republicans.

    It’s a big country, Scott. The Republicans don’t have secret monthly meeting to settle misunderstandings. And I don’t think Bernanke is running to the RNC to assuage their fear and remind them he’s part of the fold. Why should Rick Perry believe Ben Bernanke has the party’s best interest at heart?

    Rick Perry doesn’t understand monetary policy. All he knows is a central banker that’s vaguely Republican has “printed” trillions of dollars for Barack Obama in an unconventional (reckless?) fashion. And now to heighten his fears, several other Fed members are dissenting against Bernanke’s newest efforts (maybe those are the REAL Republicans).

  61. Gravatar of Gabe Gabe
    29. September 2011 at 09:22

    Bush and the other republicans grew the federal employee #’s dramaticaly, Perscription Drug care, No Child Left Behind, Americans with Disabilities act, Asset forfeiture laws in coordination with expanded drug war and more prisons.

    These expansions of government were not efforts to keep goodies away from democrats…they were an expansion of the base of support for high taxes. Cheney, Rumsfeld, Wolfowitz and other GOP bigwigs wrote and talked extensively about increasing the power of the executive branch! This was their goal since the time of Nixon…their self interest was for a stronger executive branch and to increase crony/facist cooperation between government and big business. This is how they made their millions.

    You are naive and guilty of wishful thinking if you really think that these guys helped destroy our country in a effort to bring about lower taxes, strengthen individual property rights and bring about a new age of small government.

  62. Gravatar of Gabe Gabe
    29. September 2011 at 09:24

    Are yo familiar with Strauss and who studied with him? You do know that the father of the neo-cons was a completely committed socialist right? it had nothing to do with bring about smaller government.

  63. Gravatar of Morgan Warstler Morgan Warstler
    29. September 2011 at 15:37

    Gabe, there are neo-cons that would despise the BBA, but they are not the LARGE base of the GOP.

    Once the Tea Party knows the money will be spent anyway, giving it to grandma to watch Fox News or using it to kick the worlds ass is FAR PREFERABLE to giving it to lazy do nothings.

    That’s the fact. The real goal is to make the lazy incompetents work hard and work cheap, and COME HELL OR HIGH WATER do not give them anything else for free.

    Now then this leaves a couple options:

    1. lower taxes even more – they’d take it if they could get it. meaning if you gave tea party the choice of war in Afghanistan OR tea party guys get the $ back in taxes – they’d be peaceniks.

    2. BBA, which means the fight is only over guns and butter, the Tea Party fights to lower taxes, and then has to choose between grandma and war. SURE, there still not going to be a new welfare program, but so what.

    Since neither of those is immediately likely, things will run on their current schedule: think of it as a game of “keep away” from Dem voters, it will all make sense.

  64. Gravatar of Scott Sumner Scott Sumner
    29. September 2011 at 17:07

    Thanks Cameron, I might have asked him what share of unemployment he thinks is structural, and what share he thinks is demand deficiency.

    Mark, I’ve never been a Republican. I’ve always considered myself a libertarian (although I regard the LP as rather kooky, so I am using the term in the ideological sense, not party affiliation.) I guess I am an independent.

    BTW, People seemed surprised to hear that Lucas voted for Obama. I seem to recall he voted for Jimmy Carter in 1980, so it was no surprise to me. Many people on the left simply assume that anyone with small government views is a Republican. But the GOP is not a small government party.

    James of London, Wouldn’t that be ironic!

    JimP, Ouch, I’m glad I didn’t become a Red Sox fan!

    MarkDC, I assumed you were making the Morgan argument that they’d lie their way into power then do the right thing (small government.) If not, I’m not sure what your argument was.

    Morgan, That’s too complicated for me. They spend lots of money so that the Dems won’t have any money to spend so we’ll have small government–is that right?

    Becon, Then why isn’t Perry concerned about easy money after the election? Or when Bush is President and they are printing zillions of dollars? Why now?

  65. Gravatar of Morgan Warstler Morgan Warstler
    29. September 2011 at 18:31

    “They spend lots of money so that the Dems won’t have any money to spend so we’ll have small government-is that right?”

    But first this gem!

    “That’s too complicated for me.”

    I don’t doubt that Scott, but your own “defer to experts” logic says you’ll have to live the BIG GAME to guys playing it. And since 1980, things have been going swimmingly. We’ve moved the country so far to the right, conservatives form the 80’s don’t even recognize it.

    So it is there, and it does work. EVn if it is too complicated for you.

    As I keep saying, economists are not Kings on the chess board, just pawns.

    To answer your point:

    They spend lots of money, so we have a massive DEBT, that makes paying off Dem voters impossible.

    Ask yourself what it does to Dem voters if Obamacare is torn down,and public employee unions are destroyed.

    BTW, these are both thing your FAVOR, you just don’t like being not the agent of change, or the strategist that delivers them.

    What’s weird is you find yourself rooting against the Tea Party, just so that you can be proven right.

    There’s cognitive dissonance there – as I said, your provide a suspenseful narrative.

  66. Gravatar of Morgan Warstler Morgan Warstler
    29. September 2011 at 18:34

    Here’s a question for you Scott, if the GOP could simply end taxes and only borrow until the country could borrow no more, would they?

    Of course.

    And you yourself have admitted this strategy does over time lead to bigger cuts in services than new taxes.

  67. Gravatar of dtoh dtoh
    29. September 2011 at 19:27

    They manage M2 (with capital reserve requirements) in order to hit the NGDP target.

  68. Gravatar of MikeDC MikeDC
    30. September 2011 at 04:43

    It’s easy to understand why Rs are disingenuously pushing hard money. I’d like smart people to explain to me, however, why the Ds are sincerely pushing hard money.

    The latter doesn’t have such an obvious answer, but I see most of the emphasis being placed on the former.

    It has nothing to do with big vs. small government. I’m assessing the likelihood of getting a more expansionary monetary policy. My argument is that Rs seem more likely to generate expansionary monetary policy than Ds.

  69. Gravatar of Morgan Warstler Morgan Warstler
    30. September 2011 at 06:35

    “My argument is that Rs seem more likely to generate expansionary monetary policy than Ds.”

    true. Scott just hasn’t gotten to the cutoff date where he accepts R past gameplay and starts to make more targeted R appeals.

    Sells it to them on their own terms.

  70. Gravatar of John John
    30. September 2011 at 12:21


    The whole point of the Austrian perspective is that economic management by some governmental or quasi-governmental force is wrong. Hayek later in his life favored a system of competing currencies issued by private banks while Mises and Rothbard favored a return to the classical gold standard. Furthermore, whether the central bank (which Austrians believe shouldn’t exist) should target the CPI or NGDP is totally irrelevant as both measures are completely untenable pseudoscience fraught with epistemological and data collection problems.

  71. Gravatar of Scott Sumner Scott Sumner
    1. October 2011 at 16:46

    Morgan, You said;

    “We’ve moved the country so far to the right, conservatives form the 80’s don’t even recognize it.”

    You mean they don’t recognize Obamacare, gay marriage, and a President with a middle name Hussein?

    I don’t even recall discussing the ending of all taxes–when did I discuss that?

    MikeDC, I don’t follow that comment.

    John, I favor the market setting the money supply, not the Fed.

  72. Gravatar of Scott Sumner Scott Sumner
    1. October 2011 at 16:47

    dtoh, I don’t see why M2 helps.

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