It’s always somebody else’s fault
I just saw a film about the Chinese artist/dissident Ai Weiwei. (Great film, BTW.) And it got me thinking. I’m also a sort of dissident, and I also use electronic media. But he’s a much greater man. I am doing this at zero personal and professional risk, and wouldn’t even be willing to accept the risks that Ai takes.
I get very frustrated for a number of reasons. I may be wrong in my outrage, but I’d like people to explain to me why I’m wrong:
1. We know that in the past the Fed has done great harm to the country. And we know from the Fed minutes that at times they’ve done this knowingly. They’ve refused to change course after a bad decision for fear of losing face. They’ve admitted as much.
2. We know that the Fed generally does what the consensus of economists think they should be doing. This means the consensus of economists will virtually never blame the Fed for economic disasters in “real time.” Yes, decades later they’ll blame the Fed for the Great Depression, or the Great Inflation. But they are supportive of policy in real time, because it’s basically their policy.
3. We know that the Fed takes credit for successes like the Great Moderation. But that can mean one thing, and one thing only. The Fed drives NGDP over time. If the Fed can’t drive NGDP over time, they have no mechanism for creating a “Great Moderation.”
4. We also know that the Fed NEVER, EVER, regards any (undesirable) negative demand shock as being caused by tight money. Never. And they provide no metric for us to look at in order to tell how well they are doing. They talk as if any unfortunate move in NGDP is some sort of act of nature. Even when (as in 2007-08) it was accompanied by a sudden halt in the growth of the monetary base. Or when (as in late 2008) it was accompanied by a huge surge in real interest rates on safe government bonds. Nope, it’s never tight money. Because that would mean they’d made a mistake. Not cutting interest rates two days after Lehman failed? Why would that have been a mistake? In good times they do produce clear metrics, ways of holding the Fed accountable. As in 2003 when Bernanke said that NGDP growth and inflation are the only reliable indicators of the stance of monetary policy. But those metrics are no longer operative when the Fed fails.
5. We know that the Fed strongly discourages harsh criticism from within. I’ve personally heard several reports from insiders that testify to a climate of fear. They should be encouraging dissent. Bernanke should open every meeting asking why there aren’t more Beckworths and Hendricksons and Sumners within the Fed.
6. We know that American economists as a group mocked the BOJ for their absurd claim that they were unable to boost inflation, at a time when inflation ran a fraction of a percent below the BOJ’s 0% target and unemployment in Japan was a couple percent above the normal level (for either structural or cyclical reasons.) We also know that American economists as a group have not been particularly critical of the Fed, despite inflation running 0.9% below their 2% target over the past 4 years and despite unemployment being far above the historical norm (for either structural or cyclical reasons.) A transparently obvious double standard. And yet most American economists meekly assert that the Fed has done all it could.
7. We know that the slowest growth in NGDP since Herbert Hoover would be expected to cause massive unemployment, above and beyond any that occurs for structural (housing) reasons.
8. We know the Fed could have prevented that drop in NGDP, or at the very least reversed it far more aggressively than it did.
9. We know that the unemployment triggered by the fall in NGDP has led to hundreds of thousands of babies never being born.
10. Someone sent me the following from Milton Friedman:
Friedman (1970) wrote:
[I]t was believed [in the Depression] … that monetary policy had been tried and had been found wanting. In part that view reflected the natural tendency for the monetary authorities to blame other forces for the terrible economic events that were occurring. The people who run monetary policy are human beings, even as you and I, and a common human characteristic is that if anything bad happens it is somebody else’s fault.
In the course of collaborating on a book on the monetary history of the United States, I had the dismal task of reading through 50 years of annual reports of the Federal Reserve Board. The only element that lightened that dreary task was the cyclical oscillation in the power attributed to monetary policy by the system. In good years, the report would read “thanks to the excellent monetary policy of the Federal Reserve…” In bad years the report would read “Despite the excellent policy of the Federal Reserve…”, and it would go on to point out that monetary policy really was, after all, very weak and other forces so much stronger.
So Brad DeLong complained in the comment section of a recent post that I was being rude. (Insert joke in comment section. My feeble imagination can’t get beyond pots and kettles.) If so I’m sorry. It’s not personal; I’m frustrated with the entire profession, not any one economist. But perhaps this post gives you some idea of why I feel strongly about this issue. I think if you hooked up all the top macroeconomists to a lie detector, at least 90% would say we could use some more demand in America (and Europe.) And if they don’t realize that a fiat money central bank can boost NGDP, then that’s just sad. Ironically Brad DeLong is one of the relatively few macroeconomists in America who is not part of the problem right now.
Even Obama’s six Fed appointees are refusing to press for more monetary stimulus. And yet I’ll bet at least a couple of them are quietly critical of the evil Republicans for blocking additional fiscal stimulus.
There are no “costs and risks” to monetary stimulus. The tight money that produced the slowest NGDP growth since 1932 also produced the near zero rates, and caused the base to jump from 6% of GDP to 18%. All the costs and risks are in doing nothing and seeing fiscal deficits continue to pile up, in following the road paved by Japan.
Friedman and Schwartz produced a fierce critique of interwar Fed policy, and Bernanke produce a heartfelt and passionate critique of passivity at the Bank of Japan. I’m just echoing what they said. Nothing more.
PS. I promise to never again mention missing babies. That’s low even for me.
Update: I forgot this recent Evan Soltas post, which made the point much more eloquently:
It’s one thing to say that the Fed understands and accepts that without real action and policy commitment, real GDP growth will be slow and the unemployment rate will remain high. That would be an intellectually legitimate, though I think economically inappropriate, course for policy, especially if the marginal cost of NGDP growth at this point is perceived as high. It’s another thing to pretend that the sun is coming out tomorrow, use that as a pretense for no further action, and then dodge responsibility when the real economy fails to improve. What the Fed has done for the last three years makes a mockery of central bank credibility and accountability and avoids true consideration of policy required to meet the dual mandate.
Also check out his graphs.
Tags:
10. August 2012 at 07:21
And THAT is how you do moral outrage. (Take heed, progressives.)
10. August 2012 at 07:21
“Missing babies” is a very Hansonian critique, or at least suggests a philosophical utilitarian debate. Anyway, you might as well bring up Roe v. Wade while you’re at it 😛
10. August 2012 at 07:24
Also, Ai Weiwei may be a “great man” (ie, the sort of guy who gets peace prizes), but there’s no questioning who’s going to have the greater marginal impact on this earth. (Well, there is, for now…)
Neal, I thought it was more Caplanian. (Read Selfish Reasons to Have More Kids and you’ll see what I mean.)
10. August 2012 at 07:43
Yes – the whole thing is grossly sickening.
And I myself continue to blame Obama. Roosevelt DEMANDED that something be done – and he kept at it till something worked. Obama simply does not have the backbone to do that.
We have more creditors than debtors now – more people who are worried about inflation than worried about deflation. Obama as a practical politician simply reflects that reality. Debtors no longer have any political voice at all.
10. August 2012 at 07:45
Saturos – Overcoming Bias tends to spotlight abstract moral-philosophical questions like “Should potential persons be considered persons in utilitarian calculations?” and “Is it harmful to deprive a potential person of existence?” That’s what I mean. I get the feeling that Caplan’s “Selfish Reasons to Have More Children” is an argument at the personal level, not at the cosmic social scale. (But it is on my reading list!)
10. August 2012 at 08:01
Bernanke should open every meeting asking why there aren’t more Beckworths and Hendricksons and Sumners within the Fed.
bwahahahahaha, oh man, I think this one is going to make me giggle all day long.
10. August 2012 at 08:06
That quote is paraphrased in (or from) this speech of Friedman’s, which I love:
http://www.youtube.com/watch?v=dgyQsIGLt_w
particularly the part about how the Fed’s annual report “how much worse things could be if the Federal Reserve hadn’t behaved so well”, exactly as central bankers argue today:
http://uneconomical.wordpress.com/2012/06/15/how-much-worse-things-could-be/
10. August 2012 at 08:31
Oh, the sweet, sweet irony!
“I am doing this at zero personal and professional risk, and wouldn’t even be willing to accept the risks that Ai takes.”
And then let’s trot out a quote from Milton Friedman!
And top it all off with a quivering lip because the donut eater calls you rude.
—–
STOP BEING A PUSSY.
The FACT is you KNOW how to get the Fed to give you as much QE3 as you want.
YOU KNOW that the Fed will print $$$ to offset large cuts in Fiscal.
You have even created the meek version of this argument by saying that the Fed can neuter Fiscal / moves last etc.
We know:
1. Uncle Milty would scream for BOTH cuts to Fiscal AND Monetary Stimulus.
2. DeKrugman would COWER in the face of Uncle Milty bashing the government while using Monetary to make shrinking the government easier to do.
3. That SCOTT SUMNER would love to shrink the government.
and Finally we are left with:
Scott Sumner is a giant pussy who doesn’t put his own personal anti-government agenda front and center to WIN the support of conservatives, so that Sumner gets the Monetary policy he wants.
Sometimes being rude isn’t just the only way to get a correct point across, it is the best strategy for getting a policy adopted.
10. August 2012 at 08:31
‘Success has many fathers, failure is an orphan.’
So, as I said in an earlier post, change the incentives facing the Fed BoG. Reward them for success, penalize them for failure. Financially.
10. August 2012 at 08:40
I wonder why talking about the effects of monetary policy on social well being is considered rude. It should be front and center given what we know happened to people in the Great Depression. That should be reason enough to not repeat those same mistakes, especially if one favors the retention of the monopoly on money. Surely it has to have an upside, a benefit that outweighs the effects of not having it, otherwise there is very little purpose to it other than providing government power to control for the sake of it and to abuse. And I have to add that the abuse of such power is quite devastating to the general population, accomplishing things that only standing armies could do otherwise. Maybe I am misunderstanding the whole purpose of macroeconomics, but it seems to me that if we leave that part out, it becomes quite detached reality and of very limited practical use.
10. August 2012 at 08:47
Scott, you do so badly want to become a central planner, don’t you? Of course you have to deny the immorality of inflation (rewards those who get the new money first and punishes the ones who get it last), but it seems you have no qualms about morality. You, like Friedman, care more about pragmatism than principles. Even Friedman near his death seemed to realize he was dead wrong about his monetarist views. I wonder if you ever will.
10. August 2012 at 08:48
Econbrowser has a guest post from the authors of an IMF working paper: http://www.econbrowser.com/archives/2012/08/guest_contribut_20.html
Conclusion
While there are several conflicting channels through which monetary policy may affect the allocation of wealth, income and consumption, our results suggest that, at least in the U.S. between 1980 and 2008, contractionary monetary policy actions tended to raise economic inequality or, equivalently, expansionary monetary policy lowered economic inequality.
Occupy the FED, anyone?
10. August 2012 at 08:56
The ten point passionate critique can be summed up in one single point:
“I want the Fed to print more money NOW, and from then on, the Fed should follow MY money creation rule, not anyone else’s rule!”
That would have been as equally substantive and as equally grounded on a sound economic footing.
Here’s harsh rule number 587 of socialism:
“No matter what central plan is carried out, the actual plan necessarily precludes all other possible plans from being carried out that some socialists somewhere or another would be convinced are desirable. Thus socialism will always contain passionate dissenters who are truly convinced that prevailing economic ills are caused by the lack of THEIR plan being carried out, rather than the existence of central planning itself.”
We know that the unemployment triggered by the fall in NGDP has led to hundreds of thousands of babies never being born.
So….there are unborn babies feeling alienated and lonely? Potential babies are not born every second of everyday, due to people doing all kinds of things besides procreating 9 months prior. The law of opportunity costs is ubiquitous. It’s ingrained into human life. Every individual has their own values and every individual makes choices that precludes all other choices. Why should anyone desire something (e.g. central banking) that would harm their own interests? You have not a leg to stand on by claiming that your money printing rule, since it would benefit special interest group X at the expense of individuals in Y, should be imposed on individuals in Y by force. That is what you are doing when you say “If it is going to exist, it should follow my rule.” You are effectively saying to millions of other individuals “Screw you, we’re going to benefit at your expense. Sorry, if you have a problem with it, then just try to take control of the state yourselves.” In other words, there will always be victims created in your version of “utilitarian” ideology.
Humans choose and act sequentially, one at a time, and over time all other possible courses of action are forever precluded. We’re temporal animals. For the mind inspired by Plotinus, Augustine, and Platonists in general, the primary deficiency in human life is its temporal character. This is intolerable, and so aggression at the world is justified, even if other humans are collateral damage.
I can tell that your philosophy is one that contains the experience/feeling that there is something “off” in the world, that there are limitations which are intolerable, and oppressive on the spirit that desires to be free from even ontological constraints. Economic depressions are especially intolerable, because the limitations become all the more acute. Hundreds of thousands of babies that could have been born, are not born. How dare us! What arrogance, what hubris, what irresponsibility! Something somewhere must be feeling incredible pain on account of our transgressions: Geist.
If only YOU were in charge of the counterfeiting racket of the state! Then you can rid others (i.e. yourself) of the feeling of limitation and alienation.
But then, in your thirst for more power which is to abate that intolerable feeling of limitation, Milton Friedman, from beyond the grave, who is babysitting hundreds of thousands of unborn baby spirits, tells you:
“Money is too important to be left to central bankers. You essentially have a group of unelected people who have enormous power to affect the economy.”
and
“A real gold standard is thoroughly consistent with liberal principles and I, for one, am entirely in favor of measures promoting its development.”
and
“[The Fed] having something like 500 economists is extremely unhealthy. As you say, it is not conducive to independent, objective research. You and I know there has been censorship of the material published. Equally important, the location of the economists in the Federal Reserve has had a significant influence on the kind of research they do, biasing that research toward noncontroversial technical papers on method as opposed to substantive papers on policy and results.”
10. August 2012 at 09:02
Morgan
The way you talk – the words you use – are disgusting. I am real tired of reading you and then ignoring the way you talk.
And if this were my website I would lock you out in one second.
10. August 2012 at 09:12
Excellent post.
But as to #6, it’s not so meekly. For whatever reason, I keep seeing strident insistence that no more can be done with monetary policy.
10. August 2012 at 09:17
Razer:
Scott, you do so badly want to become a central planner, don’t you? Of course you have to deny the immorality of inflation (rewards those who get the new money first and punishes the ones who get it last), but it seems you have no qualms about morality. You, like Friedman, care more about pragmatism than principles. Even Friedman near his death seemed to realize he was dead wrong about his monetarist views. I wonder if you ever will.
Ah but Razer, a philosophy of selfishness that presumes victims of aggression, e.g. “pragmatism”, is a principled philosophy. The principle is do whatever furthers one’s interests at the moment even if it harms innocent people. As long as your list of victims is somewhat smaller than the current list of victims, then you are allegedly acting justifiably.
According to this philosophy, if a serial killer goes from 20 victims a week to 15 victims a week, then we’re supposed to positively support that serial killer, and work day in and day out protecting his interests from true criticism, and we’re supposed to work day in and day out convincing the rabble that if this serial killer dies, then another one will pop up and kill 20 people a week, or 30 people a week, so we should be “pragmatic” and support the existing serial killer, and not being dogmatic ideologues who try to stop him, because he has been given the gift of Providence and historical inevitability.
You mentioned Friedman changing his views late in his life.
Keynes also changed his views late in life. Keynes said this 10 days before he died:
“I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago.”
——————–
If only economics had more free market RADICALS, and fewer opportunists and government/elite attention seeking whores, then we would never have had to endure decades of statist marco-economics that has had devastating consequences.
All these weak minded “pragmatists” ought to be ashamed of themselves. Parasites. Why anyone would take them seriously is strong evidence that social parasitism is not limited to the economics profession.
I blame the ideology of democracy. It has corrupted many into believing that they somehow have a right to the wealth of others, as long as their mob is sufficiently large enough. Once democracy leads to an emptying of accumulated wealth, then just like in ancient Athenian Greece, a hard choice will have to be made: private property anarchy, or dictatorship. After centuries of statist indoctrination, it is a challenging task, but I hope the radicals can educate the masses in time.
10. August 2012 at 09:24
Morgan:
Sometimes being rude isn’t just the only way to get a correct point across, it is the best strategy for getting a policy adopted.
Well that pretty much sums up my method.
JimP:
Morgan
The way you talk – the words you use – are disgusting. I am real tired of reading you and then ignoring the way you talk.
And if this were my website I would lock you out in one second.
You sound mad.
10. August 2012 at 09:58
@MF:
“. . . are unborn babies feeling alienated and lonely?” No, but they are not *enjoying life*, as we the living are (almost all of us). And that is regrettable.
10. August 2012 at 10:12
Philo:
“. . . are unborn babies feeling alienated and lonely?”
No, but they are not *enjoying life*, as we the living are (almost all of us). And that is regrettable.
Haha, oh Philo, you are the reason why I introduce philosophy into economics discussions. I get such gems in return!
You said it is regrettable that “they” are not enjoying life. But there is no “they”! There is only the thought of “they” here. You feel regret that your thought of new babies, isn’t becoming a reality of new babies.
You are not telling me of any pain or alienation of any unborn babies, since they don’t exist, but rather, you are telling me you feel regret that more babies are not being born that you have in your thoughts.
Well, what if those hundreds of thousands of babies WERE born, because we never had a depression and widespread unemployment? The thought of more babies could still be in people’s minds, would it not? Wouldn’t you still feel regret?
What I am saying is that there is no way to NOT feel regret using your philosophy. To whatever extent thoughts cannot be transformed into physical reality, your philosophy says “feel regret.”
This is actually quite a significant conviction to have. It serves as a pillar for your entire worldview.
Can you find it in yourself to not feel regret at the truth that not all thoughts can be transformed into action, because we must act sequentially over time due to our temporal nature? That the only thoughts than can be transformed into action, are those that are tied up with our most highly valued goals?
10. August 2012 at 10:14
As Bonnie also stressed, lack of family formation in the near future is front and center of what actually lies ahead, and it needs to be considered for many economic reasons: some of which are economically pragmatic and some of which deal with social justice. Nations that do not adequately consider the generations which never get a real economic foothold suffer the ramifications in some historical capacity – often for hundreds of years.
10. August 2012 at 10:21
Millions of people are unemployed because the most highly valued goals of the Fed, and their economist supporters, were considered more valuable than the most highly valued goals of all other individuals. That is the fundamental flaw upon which the entire central banking paradigm falls.
Instead of each individual’s most highly valued goals being constrained by the most highly valued goals of every other individual, through respect for individual private property rights, there was instead one group of people who initiated physical force and threats of physical force against everyone else, which resulted in that one group’s individual most highly valued goals coercively overruling every other individual’s most highly valued goals. The result was millions of unemployed people.
Many people’s subjective values were coercively squashed through monetary manipulation, which made it much more difficult for investors and entrepreneurs to act in accordance with what goods and services consumers really wanted and when they really wanted them.
Any time there are widespread social problems, rule number one is to find out who is initiating force and coercion, for that is where social problems originate.
10. August 2012 at 10:25
Scott: very good post. I wonder though, if “this time isn’t different”, simply because the Neo-Wicksellian approach (“monetary policy is interest rate policy”) is so much the official macroeconomic way of thinking nowadays. (I blame Michael Woodford 😉 ).
10. August 2012 at 10:42
excellent post.
I have never understood the FOMC obsession with consensus and lack of dissent. Its analogous to various dictators saying democracy is weak and indecisive because of all the discord. history shows its just the opposite.
10. August 2012 at 10:43
So does DeKrugman still think that the liquidity trap is obviously limiting the Fed, and only stupid people fail to see that? That’s the impression I get from reading them, even though they occasionally criticize the Fed for not doing enough.
10. August 2012 at 11:26
dwb:
I have never understood the FOMC obsession with consensus and lack of dissent. Its analogous to various dictators saying democracy is weak and indecisive because of all the discord. history shows its just the opposite.
If the Fed is so concerned about consensus and lack of dissent, then that would be a ringing endorsement of democracy, it wouldn’t be analogous to a dictator’s dislike of democracy.
Interestingly, you didn’t mention that the Fed is a dictatorial institution. It’s decisions are final and binding on everyone in the economy who are coerced into using US dollars via taxation and legal tender laws. So the Fed actually is analogous to a dictatorship, just not in the way you thought.
10. August 2012 at 12:01
If you agree that income inequality is a big and growing problem in the US, this piece posted by Mark Thoma yesterday is important and supports Scott’s position.
“Monetary Policy and Inequality in the U.S.
Innocent Bystanders? Monetary Policy and Inequality in the U.S., by Olivier Coibion, Yuriy Gorodnichenko, Lorenz Kueng, and John Silvia, NBER Working Paper No. 18170, Issued in June 2012 [open link]: Abstrct We study the effects and historical contribution of monetary policy shocks to consumption and income inequality in the United States since 1980. Contractionary monetary policy actions systematically increase inequality in labor earnings, total income, consumption and total expenditures. Furthermore, monetary shocks can account for a significant component of the historical cyclical variation in income and consumption inequality. Using detailed micro-level data on income and consumption, we document the different channels via which monetary policy shocks affect inequality, as well as how these channels depend on the nature of the change in monetary policy.
And, part of the conclusion:
VI Conclusion Recent events have brought both monetary policy and economic inequality to the forefront of policy issues. At odds with the common wisdom of mainstream macroeconomists, a tight link between the two has been suggested by a number of people, ranging widely across the political spectrum from Ron Paul and Austrian economists to Post-Keynesians such as James Galbraith. But while they agree on a causal link running from monetary policy actions to rising inequality in the U.S., the suggested mechanisms vary. Ron Paul and the Austrians emphasize inflationary surprises lowering real wages in the presence of sticky prices and thereby raising profits, leading to a reallocation of income from workers to capitalists. In contrast, post-Keynesians emphasize the disinflationary policies of the Federal Reserve and their disproportionate effects on employment and wages of those at the bottom end of the income distribution.
We shed new light on this question by assessing the effects of monetary policy shocks on consumption and income inequality in the U.S. Contractionary monetary policy shocks appear to have significant long-run effects on inequality, leading to higher levels of income, labor earnings, consumption and total expenditures inequality across households, in direct contrast to the directionality advocated by Ron Paul and Austrian economists. Furthermore, while monetary policy shocks cannot account for the trend increase in income inequality since the early 1980s, they appear to have nonetheless played a significant role in cyclical fluctuations in inequality and some of the longer-run movements around the trends. This is particularly true for consumption inequality, which is likely the most relevant metric from a policy point of view, and expenditure inequality after changes in the target inflation rate. To the extent that distributional considerations may have first-order welfare effects, our results point to a need for models with heterogeneity across households which are suitable for monetary policy analysis. While heterogeneous agent models with incomplete insurance markets have become increasingly common in the macroeconomics literature, little effort has, to the best of our knowledge, yet been devoted to considering their implications for monetary policy. In light of the empirical evidence pointing to non-trivial effects of monetary policy on economic inequality, this seems like an avenue worth developing further in future research. …
Finally, the sensitivity of inequality measures to monetary policy actions points to even larger costs of the zero-bound on interest rates than is commonly identified in representative agent models. Nominal interest rates hitting the zero-bound in times when the central bank’s systematic response to economic conditions calls for negative rates is conceptually similar to the economy being subject to a prolonged period of contractionary monetary policy shocks. Given that such shocks appear to increase income and consumption inequality, our results suggest that standard representative agent models may significantly understate the welfare costs of zero-bound episodes.”
10. August 2012 at 12:30
Nobody has a DeLong joke? I was assuming there would be at least one or two good ones.
10. August 2012 at 12:46
If this were Google+, I’d give you a +1.
10. August 2012 at 13:39
JimP,
Scott could DAILY go stomp on DeKrugman and say,
“Not only does the Fed neuter any chance of Fiscal working, but more so, in order to get real Monetary, we MUST adopt Fiscal austerity to woo the Fed.”
Those are the SAME idea Jim.
In the first Scott is asserting that the Fed gets what it wants, which in real practice over-rides the goals of DeKrugman / Dem Congress for fiscal.
I’m simply taking Scott’s position and accepting it as not only true, but using that fact to determine the best strategy to get Scott what he wants.
Psst… Jim,
1. Scott WANTS smaller govt.
2. Scott WANTS fiscal cuts and Money printing – as in he thinks that is best.
3. Scott wants to convince a conservative Fed, which is afraid of a conservative populace to follow his plan.
BUT, Scott doesn’t want to elevate the Fed over Congress, he thinks it is wrong.
Of course, he’ll still say Monetary trumps Fiscal because the Fed moves last / gets what it wants.
And that’s a perfectly real politik argument, that ELEVATES THE FED OVER CONGRESS.
There is no moral difference between our arguments, but where Scott can “gee whiz, it’s is sure too bad, that the fed moves last and gets what it wants” to make DeKrugman sputter….
I’m saying it in the active voice, “the Fed GETS WHAT IT WANTS”
So, if you are Scott, and you want QE3, the LOGICAL thing to ask is WHAT DOES THE FED WANT that will cause it to do QE3???
Answer: Fiscal austerity, defined not by tax increases but by SPENDING CUTS for the long term…. real deflationary cuts, and BOOM!!! here comes the pump.
—–
The point JimP, is that Scott would be more effective if he got a giant bull horn and screamed abusive things at DeKrugman until every single Tea Partier TRUSTED him like they did Milton Friedman.
And worrying about DeKrugman calling him rude, and admitting he has a hard time getting all Wei-Wei’d up, in the YET ANOTHER POST where he bemoans that no one listens to him, well Jesus JimP, what else can you possible say about it that isn’t rude?
10. August 2012 at 16:01
‘Nobody has a DeLong joke?’
They’re not needed, he makes a joke of himself;
http://delong.typepad.com/sdj/2012/08/scott-sumner-needs-a-better-work-ethic-use-the-google-its-not-that-difficult-department.html#comments
————quote———–
“Suppose we picked on Paul Krugman or Brad DeLong. Then we’d dig up quotations from early 2009 insisting we needed fiscal stimulus because the Fed was out of ammunition, and from 2012 demanding that the Fed do more because a sluggish economy could put the barbarians back in power in November…. I’ve been 100% consistent from day one.”
But he doesn’t do the diving. Let’s do the two minutes of work
needed. We find things like….
————–endquote————-
This didn’t even take 20 seconds;
http://www.brookings.edu/~/media/Files/Programs/ES/BPEA/2012_spring_bpea_papers/2012_spring_BPEA_delongsummers.pdf
‘This paper examines logic and evidence bearing on the efficacy of fiscal policy in severely depressed economies. In normal times central banks offset the effects of fiscal policy. This keeps the policy-relevant multiplier near zero. It leaves no space for expansionary fiscal policy as a stabilization policy tool. But when interest rates are constrained by the zero nominal lower bound, discretionary fiscal policy can be highly efficacious as a stabilization policy tool. Indeed, under what we defend as plausible assumptions of temporary expansionary fiscal policies
may well reduce long-run debt-financing burdens. These conclusions derive from even modest assumptions about impact multiplier, hysteresis effects, the negative impact of expansionary fiscal policy on real interest rates, and from recognition of the impact of interest rates below growth rates on the evolution of debt-GDP ratios. While our analysis underscores the importance of governments pursuing sustainable long run fiscal policies, it suggests the need for considerable caution regarding the pace of fiscal consolidation in depressed economies where interest rates are constrained by a zero lower bound.’
10. August 2012 at 17:57
I will regret this, but MF, what EXACT steps would you take to where we would not have “millions of unemployed?” What would falsify whether your steps would work or not?
Furthermore, why stop at the US. What exact steps would take to reduce unemployment in Ireland, Spain, Italy, France, Estonia, Japan, etc.? In ALL of these countries, NGDP has a strong correlation with unemployment across many cultures, currencies, levels of government intervention, etc. The correlation with NGDP also works across history, with a sound explanation for unemployment trends 1929-1940.
I just don’t get the mentality that so many economists have to be dragged kicking and screaming to basically saying the earth isn’t flat. With dozens of data points supporting the basic equation of demand causing unemployment, what WOULD get you to change your views?
10. August 2012 at 17:58
Holy Shit, Morgan. I mean I’m-almost” embarassed for hiim myself at this point.
And you said that Romney is the strong daddy candidate?
He was on NBC today begging like a little bitch for the Obama team to take it easy on Bain and his tax returns
http://diaryofarepublicanhater.blogspot.com/2012/08/romney-plead-for-mercy-from-obama-team.html
10. August 2012 at 18:01
Major:
“Keynes also changed his views late in life. Keynes said this 10 days before he died:”
“I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago.”
Do you have a link for that?
10. August 2012 at 18:41
Test10. August 2012 at 19:03
More excellent blogging by Sumner.
Is Fed Independence an idea whose time has faded?
Would a Fed, lodged in the Treasury Department, dare to pompously pettifog about fighting inflation through the last recession?
And do not voters deserve a transparent, accountable government, in all regards, including monetary policy? If voters in Japan, ECB land and the USA think the economy is faltering, how do they vote?
(As Sumner points out, Obama actually deserves to lose for not appointing better Fed officials—but I still would like a more clear relationship the executive Branch and the Fed.
The voters should be able to understand and vote about monetary policy, same as they vote about defense, social security, environmental issues, and a host of other topics that if governed badly have catastrophic results.
10. August 2012 at 19:48
Benji!
My point got through, huh?
Dude, you need to ask your WHY the Fed isn’t set up the way you want.
Answer: So Benji doesn’t get what he wants.
The very goals you have for the Fed, THAT’S WHY we even have a Fed int he first place.
I’m not certain, that had the deal been that the Fed wouldn’t be “independent” (which means biased to the interests of the private sector), that we’d have adopted the 16th Amendment OR gone off the gold standard.
These things you dislike are STRUCTURALLY there to deny you.
They are like the US Senate, or a non-Parliamentary system, or the Bill of Rights.
You are sitting down to a board game, where the RULES themselves make the game one thing, and you are pissed off you don’t get easily play another.
Benji, I don’t mean you – I mean Sax, who is just worried about his Medicaid.
10. August 2012 at 19:59
This is what happens, when you are milquetoast:
“Doesn’t say what Scott said it would say, does it? Doesn’t say that the government should do expansionary fiscal policy because the Fed is out of ammunition, does it? Says, rather, that the government should do everything–fiscal, monetary, and banking policy.”
Never trust a man who can’t keep from eating the extra donut.
Those without willpower are forever trying to convince themselves everyone else is broken too.
——
DeKrugman says he wants to “everything”
Scott tried to be slick and make the nice version of a “Warstlerian” argument – he says that the Fed neuters Fiscal.
And things get convoluted.
If instead Scott said:
1. Govt. sucks.
2. The Fed WANTS smaller govt.
3. The Fed gets what it wants.
The Scott would be making the true Uncle Milty argument, which is:
“we only do Monetary to keep the government from doing Fiscal”
If we aren’t afraid of govt. growing, we won’t even do Monetary.
Monetary is DeKrugman’s consolation prize.
Treat him like the loser he is Scott.
10. August 2012 at 20:19
Morgan,
You need help…Let me help.
You talk big…You talk like a pice of human trash… And then act as if it is out of the need to be effective.
It is not effective…Not here and not in the real world.
In the real world you would get your teeth kicked in.
Here it just comes off like you are desperately compensating for some deep deep insecurities in a safe place.
No one believes your rationalizations for being an asshole…’cept maybe you.
Show some self-control…fight your urge to act out. You will be happier. Honest.
10. August 2012 at 20:24
HuffPo say it is gonna be RYAN !!!
PERFECT. I hope they are right. My Dream choice…The rest of the election will be framed perfectly around inequity.
http://www.huffingtonpost.com/2012/08/11/paul-ryan-mitt-romney_n_1684794.html
10. August 2012 at 21:20
* “the Fed generally does what the consensus of economists ”
Listening to the Richard Fisher interview this week, I realized he sounds exactly like all the East Texas Chamber of Commerce types. So it’s worse than consensus of economists, it’s consensus of ordinary business people.
* Do you know where the Friedman quote came from? Monetary Mischief? I’ve seen it before…
* Evan Soltas’ post didn’t go back far enough. I was digging through my archives, and I realized that even at the October 28-29, 2008 meeting, the Fed was still predicting positive RGDP for 2008 and unemployment peaking out near 7%.
10. August 2012 at 22:00
I did Brad DeLong’s requested Google search and found this:
http://delong.typepad.com/sdj/2008/03/monetary-poli-1.html
March 19, 2008
“MONETARY POLICY HAS REACHED ITS LIMITS…
But here we have two very smart people thinking conventional monetary policy needs to be given a rest.”
Brad will likely quibble that this was not 2009, but 2008 (when FF rate was still 2.25%!!!) and also quibble that those were not his quotes, but rather Hamilton and Krugman. But it is an implicit endorsement nonetheless.
11. August 2012 at 02:18
Morgan, I want in on your bet with Scott. Me and you can bet for November.
Make me an offer. How confident can you really be about Romney at this point?
11. August 2012 at 06:05
DeLong jokes:
Brad DeLong calling someone rude is like:
1) an ambulance-chasing lawyer calling someone else opportunistic.
2) Donald Trump calling someone self-absorbed
3) a dung beetle calling someone a ‘shit eater’
4) a serial killer calling someone a deviant
5) Paul Krugman calling someone pretentious
6) Ben Bernanke calling someone excessively cautious
7) Lolo Jones calling someone a ‘whiny little bitch’
8) Kim Jong-un calling someone a tyrant
9) Queen Elizabeth II calling someone ‘old money’
10) The Hulk calling someone belligerent
11) Superman calling someone a goody two-shoes
12) The Pope calling someone ‘holier than thou’
13) Ghandi calling someone a peacenik
14) Rachel Maddow calling someone sanctimonious
15) Morgan Warstler calling someone belligerent
11. August 2012 at 06:18
It never ceases to amaze me how much Delong and Krugman rankle certain people.
Jb here’s one. It’s like Stephen Willaimson calling someone a Krugman basher
11. August 2012 at 06:24
Holy f-ing sh- Warstler! I never thoguht he would do it but he did it! Paul Ryan is the Romney Veep!
You go ahead and celebrate cause I am tooo! Big time. I love it. It’s a real test. We’ll get to test your hypotheseis that the country is red. I don’t see it but it’s a “choice not an echo” like Godlwater said.
If Americans vote Romney now, they understand they are voting for Medicare to be block granted out. Before this there maight be some doubt about that in some people’s mind. Now there is none.
11. August 2012 at 06:34
Bill,
I curse like a sailor, and most of the people I enjoy in life do to, including my mother, who spent twenty years running the state debate league and chairs the English Dept.
People who focus on the tone, are hiding from the argument. Always.
The reality is that rude is in many ways the opposite of rhetoric. It removes efforts to win with anything other than fact and logic.
The only people who can be rude, are the ones that people will put up with it from…. the ones that are necessary.
And in life Bill, here’s another little fact – some people are necessary, and some aren’t.
The reality is Scott titled this post:”It’s always somebody else’s fault”
and then proceed to blame everyone at the Fed or wherever without sayingwhat things that HE, SCOTT is not doing that he could be doing to push NGDPLT.
And I am RIGHT that to actually deliver his policy he’s going to need the buy in from the right, the left hardly even matters in this regard.
So we ought to BLAME Scott for not taking his place in Friedman’s throne and travel the circuit preaching small govt. good and oh-by-the-way, MM.
11. August 2012 at 07:42
[…] I see that commenters Patrick Sullivan and Steve are finding other examples. Thanks google. I wish I had time to dig through his old […]
11. August 2012 at 07:55
‘If Americans vote Romney now, they understand they are voting for Medicare to be block granted out.’
And if they vote Obama they’re voting to ‘end Medicare as we know it’.
But, I like Mitt’s chances for Wisconsin’s electoral votes now.
11. August 2012 at 09:55
“But, I like Mitt’s chances for Wisconsin’s electoral votes now.”
Yes, and I like Obama’s chances for Florida’s electoral votes now.
11. August 2012 at 14:33
Sax, the only reason you aren’t in on the bet is you aren’t fully mentally committed.
IF Obama wins, I change my approach.
IF Obama loses Scott changes his.
Since you are so sure, the whole point is you ought to CHANGE fundamentally your outlook if Obama loses.
11. August 2012 at 16:15
Romney/ Ryan 2012 message summed up…
The problem with America is the 1% are not rich enough, and the 99% have too much. We will fix that.
11. August 2012 at 20:54
Bill, the message is:
Hey the top 1/3, let’s STOP doing so damn much for the bottom 2/3.
Get this through your head Bill…
MOST everybody has a job. MOST everybody has a home. MOST everybody feels they have a shot.
You are asking MOST everybody to stop worrying about themselves dropping down even 1%, and worry about pulling folks below them up.
No one in the half of America voting for Romney cares about the the 1%, they don’t want to give more to the folks at the botto.
Being honest Bill helps you deal with reality.
12. August 2012 at 18:30
[…] and practising (particularly universities) has been groupthink. (Scott Sumner, for example, regularly bewails the current groupthink among macroeconomists–all the more remarkable since it fails to […]
13. August 2012 at 05:44
Thanks, JB!
18. August 2012 at 04:00
[…] Source […]
18. August 2012 at 04:29
Lots of sound and fury here.
“There is no means of avoiding the final collapse
of a boom brought about by credit expansion. The
alternative is only whether the crisis should
come sooner as a result of a voluntary
abandonment of further credit expansion or later
as a final and total catastrophe of the currency
system involved.” –Ludwig von Mises, Human Action
(pg 572)
I would add that there is ‘no end’ to the human
propensity to look for it, even if he may suspect it.