It’s what they didn’t say

As far as I can recall my record number of comments is about 10,000 in one day.  I’m at 15,000 and it’s not even 4:00.  And I haven’t done any posts yet (before this one.)

I’m sure I don’t have to tell my long time readers what I think.  I’m on record that the Fed’s goal should be much higher long term interest rates (achieved through monetary stimulus.)  The econ textbooks rarely even discussed the original operation twist (from the 1960s), except occasionally to note that it probably had no effect.  There’s a reason it was tried and then abandoned.  So I thought it worse than nothing—something that diverted the Fed’s attention, and made effective moves less likely.

But the markets already had that priced in.  What really shocked me was the accompanying statement from the Fed.  With the world situation now so precarious, I thought surely they’d have something to say about future possible policies.  Something like; “There are significant downside risks and the Fed is prepared to adopt more aggressive techniques if needed.”  Perhaps even mention a few more aggressive options like level targeting, at least as a fall back if things keep going downhill.  But there was nothing, absolutely nothing in the statement to reassure the markets.  It read like the Fed was out of ammunition, even though (elsewhere) Bernanke insists it isn’t.  I’m no mind-reader, but if I had to guess it would be that the market reaction was so negative because of what they didn’t say—Operation Twist was already priced in, and understood to be purely symbolic.

This looks more and more like the Hoover Administration.  Initially his initiatives were greeted with big stock rallies.  But by mid-1932 the stock market reacted to his speeches with big declines.  Not because we were “out of ammunition;” the minute FDR got in things turned around.  Well that’s not quite right, the stock market did nothing until the April 1933 dollar devaluation, when it began rocketing upward.   Symbolism isn’t enough, you need level targeting.  Ben Bernanke understood this when he recommended the Japanese show “Rooseveltian resolve.”  What happened to that Bernanke?

Lars Christensen sent me a message about the falling euro.  Of course it isn’t really the euro that’s falling; it’s the dollar that’s rising.  Nothing happened at 2:15 that would affect the value of the euro, but at 2:15 the Fed did adopt a tighter than expected monetary policy, which did appreciate the dollar.  The “traitors” got the strong dollar they demanded; now we’ll see how their constituents like this policy.  Economics is not a zero sum game.  Falling nominal incomes hurts a lot of people, both blue and red.

PS.  My definitive statement on NGDP targeting just came out in National Affairs.  (In the first version I erroneously said National Interest.)  I plan a post in the next few days that organizes my views, as commenters keep asking for a go-to place where they can read my views on the key issues.  This article will be one of a number linked to in that post.

PPS.  I knew there’d be lots of reaction to my “treason” post.  A few comments:

1.  Obviously I meant the term somewhat ironically–I assumed readers would understand that Perry has debased the term to near meaninglessness.  To the modern GOP, it’s like saying someone has bad breath.

2.  Despite point one, I was sincerely outraged by the letter.  The GOP leaders have made it clear that they want Obama to fail.  Some commenters say I am naive about politics, that it’s hardball.  I don’t agree.  It’s expected that pols will do special favors for farmers or teachers to get elected.  That’s softball.  It’s not OK to vote for or against a nuclear weapons treaty on anything but idealistic grounds.  I put monetary policy in with the nuclear weapons, not the special interests.  It’s not OK to oppose policies because they’ll create millions of jobs and get the incumbent re-elected, unless you’d also oppose them if your own party was in charge.  I know that in some less developed parts of our globe politicians are willing to almost destroy their country to maintain power.  They play hardball.  But scorched earth policies are not acceptable in America.

3.  I obviously wouldn’t have brought up the term “treason” if Perry had not already done so.  His use was outrageous because with all Bernanke’s faults (and you can see I oppose his policies) it’s absurd to accuse a Republican of doing monetary policies aimed at getting a Democrat re-elected.  I don’t question Bernanke’s motives.  I wish I could say that about his accuser.

4.  BTW, this is nothing like the old gold/silver fights.  Those people were principled.  The gold side favored the same tight money to help creditors, regardless of which party was in power.  The modern GOP only favors tight money when the Dems are in office.  They called for easy money when Reagan/Bush were in office.


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41 Responses to “It’s what they didn’t say”

  1. Gravatar of Lars Christensen Lars Christensen
    21. September 2011 at 13:02

    Scott, complacency is the word we are looking on both sides of the Atlantic. Scary, but true. I am afraid policy makers do not really understand the seriousness of the situation. Monetary conditions are tightening more an more by the minute in both the US and Europe.

    I suggest to everybody that they read up on what and other scholars of the Great Depression have written on 1931. It is truly scary…

  2. Gravatar of Lars Christensen Lars Christensen
    21. September 2011 at 13:04

    I meant to say that everybody should read up on what Scott and other scholars of the Great Depression have written on 1931.

  3. Gravatar of ssumner ssumner
    21. September 2011 at 13:05

    Thanks Lars, and thanks for the tip on the euro–like a typical American I had overlooked that angle until you sent it to me.

  4. Gravatar of John hall John hall
    21. September 2011 at 13:16

    I figured you would say that about the dollar rising. You left out the nearly -3% decline in the S&P500 after the announcement.

  5. Gravatar of StatsGuy StatsGuy
    21. September 2011 at 13:18

    Well, scott, this just goes to show that whenever you are showing optimism, I need to sell my asset portfolio.

    There’s obviously something deeper going on here that we don’t understand. Bernanke knows all the arguments that you made. The committee knows them. And yet, he signals that we should implement more fiscal… why? I’m guessing he won’t weaken the dollar until the price of Brent Crude drops to 90 dollars, though I think that’s a lousy idea. We’re somewhat in between 2008 and 2010. Twist was symbolism, just to keep markets from crashing. Reinvesting agendy debt is probably more important, but expected. Twist seems to suggest a belief it’s all about the rate (with literally 0% on 3 month debt, who cares how much the Fed owns… right?)

    In the end, there are two ways to cut consumption of oil – cut consumption of EVERYTHING via debt collapse, or let the price of oil rise (hastening the shift toward alternates and better infrastructure).

    Consider writing some posts on why it’s idiotic to force a strong dollar to keep oil prices cheap just a little bit longer…

  6. Gravatar of Cameron Cameron
    21. September 2011 at 13:19

    And this was enough to elicit 3 dissents!

  7. Gravatar of CA CA
    21. September 2011 at 13:24

    I think this post is among your best ever. Particularly this quote:

    “Nothing happened at 2:15 that would affect the value of the euro, but at 2:15 the Fed did adopt a tighter than expected monetary policy, which did appreciate the dollar. The “traitors” got the strong dollar they demanded; now we’ll see how their constituents like this policy.”

    and all four of your bullet points.

  8. Gravatar of StatsGuy StatsGuy
    21. September 2011 at 13:32

    Another hypothesis – maybe they really are trying to lengthen the average maturity of treasury debt… This is what it seemed like in 2010, and the evidence of today is consistent with that.

    https://www.themoneyillusion.com/?p=6564#comment-28158

    I think we have to start asking ourselves if we really understand the motivations of the Fed. Should the Fed actually start to inflate, longer treasuries are a huge buffer – if inflation rises, they drop in value dramatically, cutting real consumption.

    Or, possibly, we’ve decided to follow Japan.

  9. Gravatar of Policy Wank Policy Wank
    21. September 2011 at 13:34

    Yglesias has a post up wondering if the GOP is cynical or whether they really believe it. Obviously, Romney doesn’t really believe it. If he becomes President he’ll have Mankiw advising him and he’s been relatively soft on Bernanke thus far anyway.

    Perry is more complicated. I think we can assume he doesn’t know anything about monetary economics and since hard money feels like the conservative thing to be for, he’s for it. I guess the question is if he becomes President will he have any advisers that will recognize that monetary easing is in his political interest. Despite his brash statements he doesn’t really appear to be much of an ideologue, so if he acquiesces to having establishment oriented advisers then he’ll probably be set straight. Of course, the establishment position is to continue muddling through for several more years.

    http://thinkprogress.org/yglesias/2011/09/21/324885/monetary_madness/

  10. Gravatar of Greg Ransom Greg Ransom
    21. September 2011 at 13:36

    I’ve never seen Bernanke’s political registration documented.

    Where does the idea come from that he is a “Republican”?

  11. Gravatar of Morgan Warstler Morgan Warstler
    21. September 2011 at 13:36

    Uhm, historically votes have been traded for EVERYTHING.

    Please fix post above!

    “Nothing happened at 2:15 that would affect the value of the euro, but at 2:15 the Fed did adopt a tighter than expected monetary policy, which did appreciate the dollar.”

    never reason from a price change!

    Home builder stocks didn’t like it either:

    http://www.google.com/finance?q=NYSE:TOL

  12. Gravatar of Steve Steve
    21. September 2011 at 13:37

    Scott (or others),

    Which is the intellectual lineage of “operation twist” in this instance? I seem to remember I first heard it suggested by Bill Gross back in August. Then the media converged on it. Is Bill Gross setting policy with his ruminations? Recently, he added that he thinks it’s a bad idea because it interferes with credit intermediation.

    And what did the Fed talk about at their special two day meeting if they couldn’t come up with any guidance beyond what was already a media consensus? Baseball standings???

    Plosser: My Phillies are top dogs! No help for you guys!

    Fisher: My Rangers are top too! Nah, nah, nah, nah!

    Kocherlakota: Ummm, guys, 10 game losing streak, please don’t flatten my Twins any more, please?

  13. Gravatar of Greg Ransom Greg Ransom
    21. September 2011 at 13:38

    Here’s what I found on Bernanke’s party identification & political “ideology” such as it is:

    “”If you read anything he’s written, you can’t figure out which political party he’s associated with,” said Mark L. Gertler, a professor of economics at New York University who has written more than a dozen papers with Mr. Bernanke. Mr. Gertler, who said he did not know his close friend’s political affiliation until relatively recently, added: “He’s not ideological. I could imagine Ben working with economists in the Clinton administration.” Alan S. Blinder, a longtime colleague at Princeton who has advised numerous Democratic presidential candidates, also said he had worked alongside Mr. Bernanke for years without having any sense of his political views. “We wrote articles together and sat at the same lunch table thousands of times before I knew he was a Republican,”

  14. Gravatar of John hall John hall
    21. September 2011 at 13:45

    Steve,
    Here’s a short letter from the Fed, it has a companion paper with more details.
    http://www.frbsf.org/publications/economics/letter/2011/el2011-13.html

  15. Gravatar of Benjamin Cole Benjamin Cole
    21. September 2011 at 13:50

    Another excellent blog by Scott Sumner.

    Along with Milton Friedman and John Taylor (circa 2006), I am a traitor too.

    Today, we are all traitors, who want an economic recovery ASAP.

  16. Gravatar of Peter Peter
    21. September 2011 at 13:58

    A post with a collection of links to your views sounds great! I’ll update my web page with my favorite market monetarism-links.

  17. Gravatar of bill woolsey bill woolsey
    21. September 2011 at 14:19

    I think “operation twist” was the right thing to do.

    I think targeting nominal GDP would be a lot better.

  18. Gravatar of Tim Lee Tim Lee
    21. September 2011 at 14:24

    I think you mean you have a piece in National Affairs, not the National Interest.

  19. Gravatar of John Thacker John Thacker
    21. September 2011 at 16:42

    The modern GOP only favors tight money when the Dems are in office. They called for easy money when Reagan/Bush were in office.

    Not sure that the Reagan years can be precisely matched with the “modern GOP.” And I’d be interested to see those calls for easy money when GWB was in office. I’ve seen plenty of (wrong, IMO) explanations that the fiscal crisis was somehow at its root caused by too easy money during the GWB years from conservatives. I saw plenty of complaints from “the base” about the decline in the dollar during the Bush years, and dark hints that this was due to too easy money. I’ve seen those complaints from non-economists who would not be described as conservative, too, BTW. (Plenty of ordinary people are really certainly that there has been high inflation, and that the various other numbers are lies.) It seems to be a common feature of a certain strain of populism. Certainly Ron Paul has been there all along.

    Also, of course, the same GOP leadership that may have called for easy money during the GWB years also supported the Bush Administration on TARP and higher domestic spending (and on creating the TSA, which Rep. Mica now says should be abolished.)

    I think that the GOP leadership is playing to the base on all three of those issues. I think it’s much more of a case of responding to what the voters want. People have a really poor opinion of the Fed. Republican voters in particular hate QE.

  20. Gravatar of Morgan Warstler Morgan Warstler
    21. September 2011 at 16:50

    Tim!

    Dude, Scott doesn’t even have a cell phone…. not a smart phone, not even a feature phone. Nada.

    Be glad he didn’t call it American Interest.

    You should point him in the right direction.

  21. Gravatar of MikeDC MikeDC
    21. September 2011 at 16:51

    It’s not OK to oppose policies because they’ll create millions of jobs and get the incumbent re-elected, unless you’d also oppose them if your own party was in charge.

    I agree with this in principle, but the policy implications tumble out a lot different to me. In practice the success of the policies also depends on who’s in charge, their credibility, their policy history, and their ability to work with others. It’s more complicated than the next election, although having a fresh election on the books helps everyone do the right thing if it’s unpopular. Getting monetary policy right (in the sense of helping the economy) requires credibility, coordination, cooperation and probably some luck. Like using a nuke, the wrong action could be catastrophically worse than (relative) inaction.

    In short, success requires that two sides who immensely dislike and distrust one another act together to successfully perform a complicated task that neither side really understands. Or thinks is as important or effective as you do. It’s not just playing with fire, it’s like giving your kid a flamethrower.

  22. Gravatar of John John
    21. September 2011 at 17:10

    Maybe Bernanke isn’t pursuing more aggressive monetary policies because he really is concerned about rising inflation. I’m very curious why no one even mentions that as a possibility.

  23. Gravatar of Jeff Jeff
    21. September 2011 at 17:16

    Most voters do not know much about monetary policy, but they do think that giving taxpayer money to the likes of Goldman Sachs and Societe Generale, as the Fed did via AIG, was a terrible thing to do. Why should anyone be surprised when professional politicians play to this resentment?

    The real mistake is on the part of anyone who takes this letter seriously. Are you really so naive as to take politicians’ words at face value?

  24. Gravatar of Rien Huizer Rien Huizer
    21. September 2011 at 17:57

    Thanks, Scott. I have been looking forward to a comprehensive presentation of your prescriptions. I think I understand your ideas now but have not seen a clear implementation path.

    As to

    “BTW, this is nothing like the old gold/silver fights. Those people were principled. The gold side favored the same tight money to help creditors, regardless of which party was in power. The modern GOP only favors tight money when the Dems are in office. They called for easy money when Reagan/Bush were in office.”

    Politicians need to act with guile, but sometimes they are naive and confuse their private beliefs with strategic necessity.

    In this case, it does not look as naive. In general it would depend on the sophistication of the audience how much freedom politicians have to make contradictory statements. If you can rely on the audience not catching a clear inconsistency and if that would be offering you an opportunity to harm your opponent* at low cost, why not exploit the opportunity? The alternative would be wasteful. Unless, of course, the audience is not reliably unsophisticated and the politician faces a significant risk of being caught (or dumped by leading media -just imagine Fox explaining how hypocritical these people are and maybe a few more significant negatives). I guess that without internet and especially blogs and social media, Mr Murdoch and his media would still be in a position to (make or) break a lying politician in certain countries (or, any politician, but especially one with strong vulnerabilities in that department). Maybe in the new world, it will be different. Interesting that you brought up this seemingly trivial incident.

    *) All an opposition politician must do is harm the incumbent (or constrain his options if reelected, there may be another round) if and where that incumbent is vulnerable. In the US system contenders must also play in the nomination process and that requires demonstrating certain qualities that differentiate a candidate. Ruthlessness as a campaigner is one of those (it motivates large donors) . Within the nomination contest there is no risk of inconsistency criticism in this case, and maybe that would constitute another argument in favor of advocating this. The more I think of this, the more brilliant Perry looks. The others will have to follow him.

  25. Gravatar of Bonnie Bonnie
    21. September 2011 at 18:00

    The real question is:

    Do the congress critters who wrote the letter to the FOMC even know what they were demanding? Does Perry know what he’s talking about? I really don’t think they do, and to accuse them of doing this on purpose is almost as bad as the “Obama is a commie and wants to destroy the American economy” kind of stuff that goes around on the right. On either side, it’s just two different ways to spin the description of stupid.

  26. Gravatar of Scott Sumner Scott Sumner
    21. September 2011 at 18:34

    John, My next post covered the Dow, but I left out the sharp fall in inflation expectations–which was exactly the opposite of what the Fed wanted.

    Statsguy, It’s funny you mentioned oil as I was thinking about that just today. How oil always messes up Fed policy–in the 1970s, and since 2008.

    Cameron, For the three dissenters the plunge in stock prices, the rising dollar and the plunge in inflation spreads weren’t enough, they wanted more blood.

    Thanks CA.

    Statsguy, I don’t know if we decided to follow Japan, but we are following Japan. Look at the next 12 months of NGDP growth–that should pretty much determine whether we are going the Japanese route.

    Policy Wank, Perry will have Morgan advising him, and he’ll tell him we need easier money, now that all the hippies are dead.

    Greg, It’s not really disputed, and I’d add that his writings on the Great Depression are pretty close to mine–he’s always struck me as being a bit more conservative than the average academic. But moderately conservative.

    Morgan, I wasn’t reasoning from a price change. We see a big market move at 2:15. The Fed announces at 2:15. That’s putting two plus two together and seeing that the announcement probably caused the price change.

    I’ll do the rest in the morning.

  27. Gravatar of bill woolsey bill woolsey
    21. September 2011 at 18:36

    Scott:

    Seriously.

    Suppose that the Congressional Republican leadership had called up George Selgin and asked him what the Fed should do. Sure, 10 years ago, they wouldn’t have called George. They would have called some conservative Keynesian who would have advocated tax cuts and low interest rates and maybe more military spending. But maybe they don’t have confidence in those guys any more. Maybe they are worried that if they keep on going to the “rhinos” and “me too” conservative Keynesians, more and more of the Republicans they lead will be replaced by tea party Republicans. Maybe they have difficulty in figuing out the the difference between what is true and what will keep them in leadership positions instead of on the way out like the Rockefeller Republicans of yore.

    And so, they ask George Selgin. And he says that no more expansion is needed.

    I don’t agree with George, but I don’t think he takes that position because he wants some Republican to win in 2012.

    And while I wish the Republican leadership would call you rather than George, that isn’t who they selected.

    By the way, I am sure they didn’t all George, or even Bob Murphy. They spoke to Taylor. Don’t you think?

    Well, some of what they say sounds very much like Forbes. You know, the old supply side stuff where changes in the exchange rate (if not the price of gold) supposedly tell us all we need to know about whether monetary policy is appropriate.

    The theory that they are trying to sabotage the economy so they will win is less likely that the notion that they believe inflation is just around the corner.

    Many of the most prestigious free market economists (not us) are saying that real output is low because potential output is low. The unemployment rate is high because the natural rate of unemployment is high. More nominal expenditure will only result in more inflation.

    Why should they believe us rather than them?

    Well, we are right… but what do they know?

  28. Gravatar of John hall John hall
    21. September 2011 at 19:23

    Bill,
    I agree that it would be beyond belief to imagine Boehner calling up Murphy or Selgin for their opinions. The only one of the leading Republicans, besides Ron Paul, to know much of anything about the Austrians is Michelle Bachman. I doubt Rick Perry understands monetary policy, let alone the Austrians.

    However, I doubt that Republicans are sitting in the Senate caucus room thinking about ways they can doom the economy. It is probably as big a mistake to ascribe Republicans evil intentions for their domestic policy views as it is Democrats. In all likelihood, they think their policies will make the country better off.

  29. Gravatar of Mike Sandifer Mike Sandifer
    21. September 2011 at 21:56

    Bill,

    Come on. I wouldn’t doubt there is genuine skepticism about the Fed among Republicans. I don’t think Ron Paul’s motivated to keep the economy bad for political reasons, for example.

    But, some Congressional Republicans have openly said their number one goal is to defeat Obama and let’s also look at their record of lies. Consider death panels, birther claims(which they were often happy to allow to fester), the starve the beast strategy that depends upon lies to work, lying about wanting to protect against Medicare cuts just before taking over the House(surely you know what happened there), claims they want fair taxes, among others. And that’s just over the last couple of years. Need I bring up the W. Bush era?

    And how about what Scott properly refers to as their scorched earth politics? Did you like how they behaved during the debt ceiling fiasco? Did they seem honest to you?

    I like your blog Bill and your comments usually seem very reasonable to me, but I think you’re on a different planet on this one.

  30. Gravatar of Mike Sandifer Mike Sandifer
    21. September 2011 at 22:00

    Bill,

    I guess I should also say that even if the Republicans were completely honest in their opinions on monetary policy expressed in that letter, we can’t know it and we shouldn’t treat them as if they were in any case. Given the other things they’ve done and continue to do, we can’t give them the benefit of the doubt. They have to be crushed, period.

    FDR understood this, and that’s one of the reasons he was the most successful president politically by far.

  31. Gravatar of MikeDC MikeDC
    22. September 2011 at 04:46

    LOL, did Democratic politicans seem honest during the debt fiasco? Certainly not to me.

    The further people go down this rabbit hole, the deeper it gets.

    The way out is to appeal to the truth in the competing views. There’s even some truth in Fisher’s “best horse at the glue factory” analogy (Fisher, by the way, appears to be a career Democrat) if longer run structural issues can’t be addressed.

  32. Gravatar of Art Art
    22. September 2011 at 04:51

    Since others are commenting on the politics, I will also. When Republicans are accused of ‘wanting Obama to fail’, I think you have to understand what that meant. It meant that they wanted him to fail at the things he is now succeeding at. They would have been happy if he succeeded at making things better. Maybe not happy-happy, but at least in a somewhat chastened/chagrined.

  33. Gravatar of Silas Barta Silas Barta
    22. September 2011 at 05:10

    Point 2 in PPS translates to: “Dissent on issues I don’t care much about is acceptable debate. Dissent on issues I care about is playing politics at the expense of our country.”

    Believe it or not, Gaddafi feels the same way about the rebels[1] running Libya as you do about the Fed running tight monetary policy.

    [1] Well, National Transitional Whatever now.

  34. Gravatar of Morgan Warstler Morgan Warstler
    22. September 2011 at 05:23

    I have explained this before…

    The government just GREW, so conservatives KNOW there is a basic economic problem… the government just GREW.

    See Friedman.

    Since there is a economic problem (I repeat, the government just GREW) ANY MONEY PRINTING is just trying to cover up the sickness, not cure it.

    That is “playing politics.”

    Look, they all KNOW what even Sumner knows, and CERTAINLY Friedman believed… government must be smaller for the economy to TRULY be made manifest.

    GROWTH = less government.

    Now I try to help the left figure out how to become more productive, because I suspect that IF government becomes hyper-frugal, people will want MORE OF IT.

    To win, the left is going to have to prove government has become a good value.

    Right now, we know it isn’t.

    It isn’t a messaging problem.

    Right now gvt. is not a good deal.

    —-

    Which makes everything the GOP does very rational.

  35. Gravatar of Staunch Staunch
    22. September 2011 at 05:23

    As a person who has a brief but recent experience working on the Hill on the Republican side, and still many friends there,I can say that Bill is right. They are listening to the wrong people and they are also worried about the growth in hard money advocates from the Ron Paul side is seeping into the general Republican base.

    After Milton died, there hasn’t been anyone on the right to really explain monetary policy to the right.

    Look what’s already being floated around:

    http://www.washingtonpost.com/blogs/ezra-klein/post/is-this-man-the-next-fed-chairman/2011/08/25/gIQAH9U1fK_blog.html

    Now I’ve always liked John Taylor, but over the last few years, it seems as if his analysis has become more and more politically motivated. I heard his podcast with Russ Roberts and almost pulled my hair out. I’d rather not have a Fed chairman who has a rule that’s named after him that he has to defend.

  36. Gravatar of Scott Sumner Scott Sumner
    22. September 2011 at 08:27

    Steve, I’m not sure, but it goes back to the 1960s.

    Greg, He’s a Republican. Period.

    John hall, Thanks for the link, any highlights?

    Thanks Ben.

    Peter, It’s coming soon.

    Bill. It’s what they didn’t do.

    Tim, Thanks, I corrected it.

    John Thacker, I also have a really poor opinion of the Fed, so I totally agree with the “base.” But let’s face it, the average voter doesn’t understand monetary policy, indeed the average economist doesn’t understand monetary policy. They both think low rates are easy money, something Friedman showed was wrong years ago.

    MikeDC, Good point.

    John, I doubt Bernanke is that dumb, more likely his position is weak.

    Rien, Part of the problem is our system, the British system is much better.

    Bonnie, They know it means less jobs.

    Bill, Why not demand tight money when inflation is 5% and Bush is President?

    I doubt George Selgin was calling for easier money in 1984 when NGDP was rising at an 11% rate. The GOP was.

    Art, I don’t agree.

    Silas, Another astute argument. What can I say in response?

    Staunch, You said;

    “They are listening to the wrong people and they are also worried about the growth in hard money advocates from the Ron Paul side is seeping into the general Republican base.”

    Thanks for that perspective, but don’t things like that letter just legitimize Ron Paul?

    A few years ago I would have supported Taylor, now I’d oppose him.

  37. Gravatar of John Thacker John Thacker
    22. September 2011 at 09:23

    But let’s face it, the average voter doesn’t understand monetary policy, indeed the average economist doesn’t understand monetary policy. They both think low rates are easy money, something Friedman showed was wrong years ago.

    Scott:

    Agreed 100%. That’s precisely why I think it’s more reasonable to think that the GOP is being stupid (and following the voters) rather than evil. As pointed out, there are plenty of eminent economists– John Taylor for goodness’s sake!– who are telling them that money is easy.

    I don’t think that President Obama is evil, just mistaken. I deplore people on the Right that insist on dark conspiracy theories about how the “socialist” wants to destroy America. I feel the same way about the theories on the Left about Republicans. I don’t think that the Democratic Party behavior has been any less scorched-earth than the Republicans, including on the debt ceiling or the FAA reauthorization. (On the latter, Sens. Boxer and Rockefeller threatened to hold up a House bill because it contained an amendment that had already passed the Senate with 65 votes, but with only a minority of Democrats.)

  38. Gravatar of Bonnie Bonnie
    22. September 2011 at 09:29

    After considering the comments about Perry, GOP leaders, etc, and your new post “Why the dollar rallied,” the political context in which we find ourselves is brought to mind. This is the quote that got me thinking:

    “Of course, it’s debatable how much of this is due to the Twist launch itself,…and how much just to the general despair that this type/scale of action will be adequate in the face of a looming slowdown and contractionary fiscal policy.”

    Did you catch that last part, “contractionary fiscal policy”? The Fed could absolutely fix this, and it shouldn’t be a problem.

    What is President Obama trying to get through congress in the face of contractionary monetary policy and dismal poll numbers, and needs to be able to run against the GOP on not letting him have what he wants? And who said, “Never let a crisis go to waste”?

    You might think that the GOP had a hand in this thing the Fed has done, but this doesn’t help them. Things are already bad enough for them to get what they want. What we should be worried about is what Obama is doing to try to get reelected because at this point he already has an uphill battle in front of him, with almost nothing to gain traction. He wants people to beg for fiscal stimulus, and he wants to run being able to say he’s the guy who’ll get it for them.

  39. Gravatar of Scott Sumner Scott Sumner
    22. September 2011 at 16:26

    John, But we need easy money, inflation is too low–way lower than under Bush. Don’t they see that?

    Bonnie, Interesting theory but history shows the worse it gets the more it helps the other party.

  40. Gravatar of John Thacker John Thacker
    22. September 2011 at 18:36

    But we need easy money, inflation is too low-way lower than under Bush. Don’t they see that?

    Scott, most people don’t see that. Here’s a poll from April 2001, saying that “Sixty-two percent of 1,000 likely voters polled last Thursday said they were “very concerned” about inflation, and another 26 percent said they were “somewhat concerned.”

    Also note that Republicans (72% “very concerned”) were more concerned about inflation than Democrats (48% “very concerned”), but Independents (68% “very concerned”) are much closer to Republicans.

    So it seems that acting as though inflation is a big problem is actually a play for the middle by Republicans, not just a play to the base.

    Here’s a Gallup poll and here’s a Rasmussen poll both saying similar things. Slightly different overall numbers (different questions), but all three surveys agree– Independents join Republicans in being very worried about inflation at nearly the same level; only Democrats aren’t as worried, but are still pretty worried.

    That’s certainly very bad news, because it means that it’s not just playing to the base, it’s playing to the center. And I think it strengthens the argument that this is a legitimate concern rather than sabotage.

    People really, really don’t believe that inflation is low.

  41. Gravatar of Scott Sumner Scott Sumner
    26. September 2011 at 06:57

    John, People have no idea what the word “inflation” even means. They don’t understand that falling house prices is deflation. I address all this in a newer post.

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