In a universe where I never was born . . .
. . . does the follow statement get made on the internet Wall Street program called “Breakout“:
You can’t reason from a price. I think that what we have to do is expect that the Fed really could start QE3. Now the response of course, Matt, is aren’t Treasury rates low enough . . . But remember that these low rates are really the symptom of this nominal GDP shock. So I think that if the Fed starts even injecting more liquidity, I think people are going to have expectations that we are going to get [higher] velocity, and that will start edging rates higher.
That was Lee Munson at around the 1:45 minute market. Remember those magazines you’d read as a kid in the doctor’s waiting room, where you’d look for 15 hidden objects in the background? Let’s count how many signs of my existence we can find in this quotation. Put them in the comment section.
On a serious note, I thought his interview was very good, even the parts unrelated to the Fed.
Then there’s Matt O’Brien’s wonderful new piece at The Atlantic. Good to see him mentioning the amazing Evan Soltas. I didn’t get a mention, but I detect a subtle influence just the same. Here’s Matt:
EASE OR EASE NOT: THERE IS NO TRY.
The ability to manipulate interest rates is insignificant next to the power of expectations. The latter is never out of ammo, because the Fed can always promise to turn on the printing press and buy stuff until people get the message. It’s not magic, but it’s the closet thing we have to it. The only reason the Fed has failed so far is that it hasn’t been determined to succeed. It’s tentatively tried things instead. Switzerland shows that there is another path.
Use the force, Ben. Use the force of inflation expectations.
And here’s what I wrote last year:
The Fed needs to think long and hard about WHAT NEEDS TO BE DONE, and then work out the policy framework that best allows them to meet their objective. But they won’t get anywhere until they decide where they want to go. Do they think we need more AD, or not? As Yoda said: “Do or do not. There is no try.”
And even earlier. Actually Matt hadn’t read my post, this is one of those “great minds think alike” cases. But I still think Munson was influenced.
PS. People have told me that I should copyright; “Never reason from a price change.” The idea seems a bit far fetched to me. But if someone who knows a lot about copyrights thinks it’s possible, please let me know so I can start charging other bloggers.
PPS. My previous post has an update on Summers, which Summers haters might find amusing. And yesterday I predicted Yglesias would link to Soltas. It took just 24 hours. I’ll try to get off my ego trip and get my feet back on the ground tomorrow.
HT Lars Christensen.
Tags:
5. June 2012 at 16:18
Embrace the ego! Uncle Milton would have. Also, I love how Ramesh wrote a long piece that should have been titled “Scott Sumner is Right About Everything,” yet failed to mention your name.
http://www.nationalreview.com/nrd/articles/300951/monetary-regime-change?pg=1
(note: this is not an actual bash on Ramesh; he’s on of the good ones)
5. June 2012 at 17:08
I was thinking of making “Never reason from a price change” T-shirts.
A complete line of Scott Sumner Market Monetarism wear should also include:
“If you aren’t targeting the forecast, you are expecting to fail.”
“The dual mandate: It’s not just a good idea, it’s the law.”
“Sticky wages plus falling nominal income means fewer hours worked.”
and
“Interest rate targeting: A policy that only fails when you need it most.”
The fact that most people would have absolutely no idea what they mean would only add to their je ne sais quoi.
5. June 2012 at 17:16
Estonia delivers the goods… HOW?
“I can answer in one word: austerity. Austerity, austerity, austerity,” says Peeter Koppel, investment strategist at the SEB Bank.”
http://www.cnbc.com/id/47691090
5. June 2012 at 17:58
Hah, hah, hah;
‘The swaps, which assumed that interest rates would rise, proved so toxic that the 373-year-old institution agreed to pay banks a total of almost $1 billion to terminate them. Most of the wrong-way bets were made in 2004, when Lawrence Summers, now President Barack Obama’s economic adviser, led the university. . . .’
The Cambridge Whale!
5. June 2012 at 18:03
@Patrick R. Sullivan
read my posts on the previous thread. there is a lot more to the story.
5. June 2012 at 18:04
@Morgan
And yet as the article points out Estonia’s unemployment rate is 11.7%, take home pay is $870 a month, wages have been slashed, but this is the perfect model of austerity right?
The article also left out the best part: the fact that real GDP is still off by 9.2% over four years later and that according to IMF forecasts the economy is not expected to fully recover until 2015, eight years after the recession (depression?) started.
5. June 2012 at 18:14
Don’t worry Scott, you know I have said for years now that I hold you alone responsible for the world economy. Years later, I will tell my grandkids, “Yes, the second Great Depression that ran from 2008 – 2025? The man most responsible was named Scott Sumner, an obscure blogger who showed just how powerful a bad idea can be.”
5. June 2012 at 18:18
Thanks Cedric.
Mark. Good idea.
Morgan, Yup, if you’re committed to the euro, then austerity is the way to go. BTW, Looks like Walker in WI, doesn’t it?
Patrick, That’s right.
Mark. I’m in between you two. I think they’d be better off with a flexible rate. But given they opted for the euro, they’d be even worse off without the internal devaluation (which as you correctly point out hasn’t worked all that well, except relative to even worse off places.)
5. June 2012 at 18:18
I’m a firm believer in the efficiency of idea markets, so I don’t detect any evidence of your presence. If you hadn’t championed these ideas, someone else would have. (There was a $100 bill* on the ground, but if you hadn’t picked it up, someone else would have.)
* Or should I say, a $1 trillion Fed asset purchase threat?
5. June 2012 at 18:19
Bob, I’m honored that you think I’m so powerful.
And if the austerians win in Europe, I’ll return the favor by blaming you.
5. June 2012 at 18:19
PS- I learned to “never reason from a price change” in high school, so you might have to wrangle with my high school econ teacher over the rights to the phase 🙂
5. June 2012 at 18:19
Mark, you taking bets on Estonia against Euroblock? The key feature is how the YOUNG are doing. The old people in Estonia are used to far worse.
Its hard not to be deeply impressed to the point of awe, what Estonia is going through to remake themselves.
In other news:
http://www.forbes.com/sites/billfrezza/2012/06/05/governor-walkers-victory-spells-doom-for-public-sector-unions/
Walker recall proves we have to draw clear lines between “security” public employees (see Ohio) and everybody else.
Public unions are done, but we can end them quicker if we are smart in how we divide and conquer them.
—–
Scott, in the dedication, lets be really witty.
5. June 2012 at 18:21
Neal, Yup, indeed I can point to lots of other market monetarists, with new ones coming along all the time (like Soltas.)
But still; “never reason from a price change?” At least give me that one.
5. June 2012 at 18:23
Neal, How long ago in high school?
Morgan, My home state come through eh?
5. June 2012 at 18:30
7 or 8 years ago now, I think. (7 or 8 years, two and a half degrees, a wedding, two kids, three cities … time flies, doesn’t it?)
Isn’t it fascinating how the same ideas tend to arise independently, sometimes simultaneously? Aristarchus and Copernicus, Newton and Leibniz, Darwin and Wallace, Heisenberg and Schrodinger …
5. June 2012 at 18:32
Are you not getting enough attention? Don’t become as cocky as DeKrugman.
5. June 2012 at 18:34
Wisconsin just needs to post some surplus budget numbers for the fall semester at the public schools.
More teachers hired cheaper.
Obama will lose the state – that’s 10 electoral votes.
5. June 2012 at 18:42
Genius plan to save the Euro:
http://www.ritholtz.com/blog/2012/06/uncollateralized-bwdgtfbcwt/
5. June 2012 at 18:45
Genius plan to save the Euro:
what makes that post so funny is that its the sanest plan to save the euro i have seen that actually has any hope of happening.
5. June 2012 at 18:55
Actually, I’m eagerly awaiting Simon Johnson’s next blog post;
http://baselinescenario.com/2012/05/21/jamie-dimon-should-resign-from-the-board-of-the-new-york-fed/
‘In recent weeks, risk management apparently broke down completely at JP Morgan Chase. Even the most sympathetic accounts portray Mr. Dimon as out of touch with large parts of his business. There are also press reports that one or more of Mr. Dimon’s hand-picked executives failed to understand and report on risks that became greatly magnified and quickly got out of control. Puzzles remain about what exactly Mr. Dimon did not know and when he did not know it, including the question of whether he disclosed all adverse material information in a timely and appropriate manner.’
5. June 2012 at 19:06
Prof. Sumner,
I really think this website needs a running tally of which central banks are using NGDP, inflation targeting, …. with links to a graph of their results. Put it near the FAQ links. Some CBs might be unofficially doing NGDP targeting. Yglesias has an article on how Israel is doing NGDP.
It would be a lot of work, but you could crowd-source it and there is lots of time. I think NGDP targeting is more acceptable to the masses, when they see others prospering with it.
I’ll start you off:
Country Official Policy Effective Policy
—————————————————–
Australia 2-3% avg. NGDP
Canada 1% (1-3) ????
Israel 1-3% infl. NGDP
ECB 2% infl. targeting 1-2% infl. target
Fed Dual mandate 1-2% infl. target
5. June 2012 at 19:12
Morgan,
You wrote:
“Mark, you taking bets on Estonia against Euroblock? The key feature is how the YOUNG are doing. The old people in Estonia are used to far worse.”
The key feature is that the Estonian boom is really a bust. Real GDP fell in the fourth quarter and only grew at an annual rate of 2.0% in the first. The latest forecasts by Eurostat, the OECD and the IMF all put RGDP growth at about 2% this year.
By the time Estonia’s RGDP equals the its previous record in 2015 Poland’s RGDP will have grown by over 32% according to IMF forecasts. By joining the euro Estonia has hitched itself to the stern of the Titanic.
5. June 2012 at 21:13
I suspect Estonia does just fine… worst case scenario is Germany acquires them.
5. June 2012 at 22:32
For giggles, here’s my 2 cents on trying to protect, “Never reason from a price change.”
IANAL, but I do know a bit about IP law. The law specifically prevents you from copyrighting short phrases or slogans. See Page 3 of:
http://www.copyright.gov/circs/circ01.pdf
You can try to trademark them, but it is very difficult. Because the slogan is actually also generic advice, you would need to show that it had acquired a firm association in people’s mind with you or The Money Illusion. See here for a good summary:
http://www.ivanhoffman.com/slogans.html
My constructive suggestion for clearing this bar is to (1) insist that the press quote you as Scott “Never Reason from a Price Change” Sumner, (2) prominently display the slogan all over The Money Illusion, and (3) consistently use it as a tag line somewhere within every post with some distinctive typesetting–sort of as a punch line for at least one paragraph.
Then get a good IP lawyer to make your case to the USPTO 🙂
6. June 2012 at 00:54
Scott. Please. Not another round of premature celebration. Is the third or fourth?
6. June 2012 at 05:06
Neal, That’s right.
Jim, The human ego can never get enough attention.
Morgan, That’s cute. Regarding WI, if Obama loses my home state he loses the election. But I think he’ll win it.
Patrick, Thanks for the link.
DonG, Yes, I did a post on Israel a couple days ago. As far as I know there aren’t any central banks explicitly doing NGDP targeting.
Kevin, Thanks, I’m actually relieved to hear one can’t copyright that.
James, Fifth time I think.
6. June 2012 at 06:37
All the more telling… San Diego and San Jose (yep) vote in landslides to slash CURRENT public pensions, and 401K for new hires.
http://news.yahoo.com/2-california-cities-voters-embrace-pension-cuts-102049905–finance.html;_ylt=A2KLOzEdQs9PiTYApcXQtDMD
Uh oh…
NGDPLT is less filling, but hacking Democracy TASTES GREAT.
6. June 2012 at 08:53
[…] the gloom and doom of the past month, is there really cause for optimism? I don’t know, but Scott Sumner got all excited yesterday about signs that people are finally starting to get it, especially this […]
6. June 2012 at 10:55
@Morgan,
I was about to drop the Estonia matter until I noticed Krugman just posted this:
http://krugman.blogs.nytimes.com/2012/06/06/estonian-rhapsdoy/
See the boom? Neither do I.
With respect to German acquisition that’s been done twice before: in 1) 1915-1919 and 2) 1941-1944. In the latter case the plan was for the expulsion or Germanization of parts of the native population, which is pretty much the definition of a worst case scenario.
P.S. Weird how that Krugman post went up just now.
6. June 2012 at 17:28
Mark,
“Sixteen months after it joined the struggling currency bloc, Estonia is booming. The economy grew 7.6 percent last year, five times the euro-zone average.
Estonia is the only euro-zone country with a budget surplus. National debt is just 6 percent of GDP, compared to 81 percent in virtuous Germany, or 165 percent in Greece.
Shoppers throng Nordic design shops and cool new restaurants in Tallinn, the medieval capital, and cutting-edge tech firms complain they can’t find people to fill their job vacancies.
It all seems a long way from the gloom elsewhere in Europe.
Estonia’s achievement is all the more remarkable when you consider that it was one of the countries hardest hit by the global financial crisis. In 2008-2009, its economy shrank by 18 percent. That’s a bigger contraction than Greece has suffered over the past five years.”
and
“At a recent conference of European and North American lawmakers in Tallinn, Koppel was lambasted by French and Italian parliamentarians when he suggested Europeans had to prepare for an “inevitable” decline in living standards, wages and job security, in order for their countries to escape from the debt crisis.
While spending cuts have triggered strikes, social unrest and the toppling of governments in countries from Ireland to Greece, Estonians have endured some of the harshest austerity measures with barely a murmur. They even re-elected the politicians that imposed them.
“It was very difficult, but we managed it,” explains Economy Minister Juhan Parts.
“Everybody had to give a little bit. Salaries paid out of the budget were all cut, but we cut ministers’ salaries by 20 percent and the average civil servants’ by 10 percent,” Parts told GlobalPost.
“In normal times cutting the salaries of civil servants, of policemen etc. is extremely unpopular, but I think the people showed a good understanding that if you do not have revenues, you have to cut costs,” adds Parts, who served as prime minister from 2003-2004.
As well as slashing public sector wages, the government responded to the 2008 crisis by raising the pension age, making it harder to claim health benefits and reducing job protection “” all measures that have been met with anger when proposed in Western Europe.”
This is what matters, this is why some states succeed and some fail.
Everything else is silly.
You can’t see who is naked until the tides go out.
6. June 2012 at 18:56
Morgan,
“The economy grew 7.6 percent last year, five times the euro-zone average.”
The European Commission forecasts it will only grow 1.6% this year.
“Estonia is the only euro-zone country with a budget surplus.”
This year it is forecast to run a deficit and will continue to run deficits through 2014 by which time Austria, Belgium, Cyprus, Germany, Greece, Ireland and Portugal are all forecast to be running primary surpluses according to the IMF.
“National debt is just 6 percent of GDP, compared to 81 percent in virtuous Germany, or 165 percent in Greece.”
But it is forecast to double to 11.7% of GDP by 2013 according to the European Commission.
“Shoppers throng Nordic design shops and cool new restaurants in Tallinn, the medieval capital, and cutting-edge tech firms complain they can’t find people to fill their job vacancies.
It all seems a long way from the gloom elsewhere in Europe.”
Tse are foreign shoppers no doubt since Estonians can’t afford to buy anything. And isn’t in ironic that they can fill the job vacancies since the unemployment rate at 11.7% is forecast to remain in double digit territory through 2014. Unemployment among those under 25 is 22.3%. If they can’t find the gloom they obviously aren’t looking very hard.
“Estonia’s achievement is all the more remarkable when you consider that it was one of the countries hardest hit by the global financial crisis. In 2008-2009, its economy shrank by 18 percent. That’s a bigger contraction than Greece has suffered over the past five years.”
And since RGDP is still 9.2% below peak that means after five years it has still only recovered half of what it lost.
“At a recent conference of European and North American lawmakers in Tallinn, Koppel was lambasted by French and Italian parliamentarians when he suggested Europeans had to prepare for an “inevitable” decline in living standards, wages and job security, in order for their countries to escape from the debt crisis.”
That’s espcially ironic since Estonia’s public debt level is forecast to double over the next two years despite a decline in real labor compensation that the European Commission is forecasting to continue for at least two more years.
If people aren’t angry about the situation it’s because they’re voting with their feet. Immigration to other countries, even Russia, is up sharply since the recession began.
6. June 2012 at 19:01
Italy is also forecast to be running a primary surplus by 2014. Which means that although Estonia will still be running a deficit all of the GIIPS save Spain will be running primary surpluses.
6. June 2012 at 20:56
“Tse are foreign shoppers no doubt since Estonians can’t afford to buy anything. And isn’t in ironic that they can fill the job vacancies since the unemployment rate at 11.7% is forecast to remain in double digit territory through 2014.”
should read
“These are foreign shoppers no doubt since Estonians can’t afford to buy anything. And isn’t it ironic that they can’t fill the job vacancies since the unemployment rate at 11.7% is forecast to remain in double digit territory through 2014.”
Must be the diet Coke in my keyboard.
7. June 2012 at 11:12
Morgan, Good to see the Cali voters waking up—I’ll be out there in 5 years. Now if they’ll just vote massively higher tax on the rich, I’ll be able to afford that nice Westside home.
Mark, You said;
“P.S. Weird how that Krugman post went up just now.”
That’s the influence of Drudge.
7. June 2012 at 18:47
[…] When it comes to Scott Sumner, I give credit where credit is […]