Last call for futures donations

We plan to wrap up the donations for iPredict this week.  We will look at where we are at that time, and then Ken will also make a donation.  Hopefully the market will be up and running soon.  BTW, the Hypermind full year contract is at 45 (4.5%), I hope to have the link embedded here soon, but for a low tech guy like myself the wheels turn slowly. . . .

PS.  Benn Steil and Dinah Walker have a good post on monetary offset.  Mark Sadowski did some similar empirical work last year, and reached the same conclusion.


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34 Responses to “Last call for futures donations”

  1. Gravatar of Brian Donohue Brian Donohue
    13. January 2015 at 12:14

    Just sent my donation in. Great link!

  2. Gravatar of Kevin Erdmann Kevin Erdmann
    13. January 2015 at 12:55

    Here’s a post I did on the austerity issue a while back, at Scott’s request, using Structural Balance data from the IMF for 2008-2012.

    http://idiosyncraticwhisk.blogspot.com/2013/10/more-on-austerity-growth-and-monetary.html

    I found evidence for monetary offset, too. For non-Euro countries, the relationship between increasing structural balance and post 2008 growth is slightly negative. But, that all comes from 4 European countries that aren’t on the Euro, but would have more exposure to the wider European economy. If you take them out, the relationship for non-Euro countries is very positive.

    In general, the data seemed supportive of monetary offset. But, I think the best interpretation might include some room for fiscal management. In both of my posts, I found the strongest relationship to be between the beginning structural balance and the ensuing fiscal consolidation.

    So, I think part of the positive relationship for non-European countries’ growth and structural balance comes from the fact that they have a positive balance during recoveries, which allows them to aggressively move to a negative balance in the heat of the crisis. But, then they move back to a positive balance pretty quickly.

    The idea that there should be a structural deficit 7 years after the crisis is pretty weak, I think. Fiscally speaking, it looks like the most important factor is reducing public expenses during the recovery.

  3. Gravatar of Jason Smith Jason Smith
    13. January 2015 at 13:11

    I don’t think that monetary offset graph is significant or even makes logical sense.

    Krugman has 33 countries in his plot of the 39 countries in the Eurostat database. The new plot removes countries without their own monetary policy — at least the 19 that officially use the Euro leaving 14 other countries of which only the US, UK and Japan are in a liquidity trap or near the ZLB.

    Basically the chart goes from having > 2/3 countries in a liquidity trap to < 1/3 … of course the correlation is going to go away. Even Krugman acknowledges monetary policy can shift output and inflation when you're not in a liquidity trap. That's the definition of liquidity trap! Monetary policy doesn't change output or inflation and fiscal policy matters.

    Additionally, being in a liquidity trap is not terribly different from not controlling your own monetary policy — in both cases you don't have the ability to use monetary policy to control the economy. It doesn't matter whether the reason is political or macroeconomic. It makes no sense to remove countries that don't control their monetary policy from the theory.

  4. Gravatar of Nick Nick
    13. January 2015 at 14:13

    Jason,
    Where’s the ‘liquidity trap’ line? I assume the euro area was in a liquidity trap these past few years even though the rate wasn’t quite 0. If I’m reading Kevin’s chart right and your answer, you seem to think Switzerland and Sweden did not face liquidity traps. Canada too, but that one I understand.

  5. Gravatar of ssumner ssumner
    13. January 2015 at 15:11

    Thanks Brian.

    Kevin, Thanks for the link. Excellent post.

    Jason, Nick had the same reaction as I did–the eurozone wasn’t in a liquidity trap for the vast majority of that period. No more so than other developed countries like Sweden.

    Monetary offset has huge implications. If German fiscal stimulus raises German GDP but doesn’t raise eurozone GDP, then it reduces non-German eurozone GDP. That’s not at all what Keynesians have been telling us. It’s beggar-thy-neighbor fiscal stimulus.

  6. Gravatar of cthorm cthorm
    13. January 2015 at 16:01

    I’m in the 2015 full year contract at an avg price of 43.6. I have an outstanding offer to sell 1/3 of my position at 48.

    https://hypermind.lumenogic.com/hypermind/app.html?gtp=activation&activationKey=5668:50608999#trading

  7. Gravatar of Ray Lopez Ray Lopez
    13. January 2015 at 16:16

    @Erdmann- Selective picking of data points (“ex. Estonia”, “ex Greece”) proves nothing. During the Great Depression, you’ll find with the exception of the UK, US, Argentina, Germany, Netherlands, most countries showed no effect between per capita income and coming off the gold standard. (http://en.wikipedia.org/wiki/Gold_standard – see chart). That does not mean, as even I would admit, that coming off the gold standard proved nothing*, since the UK, US, etc were big countries that make a difference as a weighted-average. (*Beggaring-thy-neighbor does work, short term)

  8. Gravatar of rtd rtd
    13. January 2015 at 21:58

    I’m en economist just like you. Despite this, even I know that proper marketing would suggest you provide information regarding how/where/etc to donate. Best of luck, doc.

  9. Gravatar of Jon Jon
    13. January 2015 at 22:32

    Scott, good point: fiscal stimulus between euro-zone countries (or states in the US, etc) is a true beggar-thy-neighbor policy. So the PIGS should be pressuring Germany into more austerity… ?

  10. Gravatar of ssumner ssumner
    14. January 2015 at 06:54

    Ray, You said:

    “Beggaring-thy-neighbor does work, short term)”

    Nice try, but the US trade balance got WORSE after we devalued.

    Income effect >>>>>> substitution effect.

    Seriously, are you just trying to be a clown? Or are you a Keynesian/RBC proponent?

    rtd, I did that in numerous previous posts, but I should have had a link here.

  11. Gravatar of TallDave TallDave
    14. January 2015 at 07:10

    I’m still a bit skeptical the NGDP prediction market can attract adequate participation absent an explicit Fed NGDP target.

    Still, very much a worthwhile effort, and if the Fed increasingly moves toward an implicit NGDP target that could foster interest.

  12. Gravatar of TallDave TallDave
    14. January 2015 at 07:30

    rtd — well, you know the old joke about economists lacking the marketing skills to be accountants 😉

    I think this is the one: https://www.themoneyillusion.com/?p=28164

  13. Gravatar of Ray Lopez Ray Lopez
    14. January 2015 at 10:02

    @Sumner: “Nice try, but the US trade balance got WORSE after we devalued. Income effect >>>>>> substitution effect.
    Seriously, are you just trying to be a clown? Or are you a Keynesian/RBC proponent? ”

    We’re both wrong on gold it turns out. Here is the US data for Balance of Payments, and keep in mind FDR got the US off the (managed) gold standard in June 1933. (in $millions) 1930: +735; 1931:+175; 1932:+159; 1933:+108; 1934:+341; 1935: -156 (note it’s finally negative 18 months after devaluation! That’s a long time); 1936:-218; 1937: -31; 1938: +967.

    In short, the gold standard did not have much to do with balance of payments, my bad. Sorry, but you were wrong too. As for ‘schools’ of economics, I was a scientist/manager type, I did software before I semi-retired, so I don’t believe in cliques and hero worship and following schools of economics. That’s your field Scott. And yes, I’m a clown. Thanks for ‘income effect is greater than substitution effect’, I did learn about this topic. Turns out for labor at least you are dead wrong about that too, see: “There are many studies out there that have demonstrated that the price elasticity of labor supply is positive, meaning that the substitution effect dominates more than the income effect on the aggregate. This is essential to a fundamental knowledge of economics in regards to the labor market as we understand it today.” FUNDAMENTAL Scott. LOL. See http://dqydj.net/substitution-vs-income-effect/

    Ouch! It’s embarrassing to be showed up by a reader who’s not even in your field, but I’m sure Scott both you and I, as middle aged men, are way past the point of being embarrassed about anything (I’d like to think I am). Carry on Fletcher!

  14. Gravatar of W. Peden W. Peden
    14. January 2015 at 10:34

    Nominal GDP targeting gains more support among the British right-

    http://www.telegraph.co.uk/finance/economics/11343822/Its-time-to-ditch-the-Bank-of-Englands-obsolete-inflation-targets.html

    “In practice, this would mean that nominal GDP would probably grow by around 1pc-1.5pc a year.”

    Some might oppose the productivity norm rationale, but (aside from absurdities) having stable NGDP growth is much more important than the particular growth path of NGDP growth chosen.

  15. Gravatar of TallDave TallDave
    14. January 2015 at 10:58

    Thanks for sharing W. Peden. I am agog. What a great article.

    Now if only it had been written by, say, Ted Cruz or Rand Paul.

  16. Gravatar of Ray Lopez Ray Lopez
    14. January 2015 at 11:16

    @sumner- where’s my other post? Under moderation and not showing up is what my screen says. Fine, noted.

    @W. Peden – thanks, great find. Blurb below. Note NO mention of our hero Sumner, but Selgin gets a mention. And not called “Targeting NGDP” but (a euphemism) ‘productivity norm’. Further, the author assumes presently only 1 to 5% growth in money supply is needed, but if Sumner’s futures market is adopted, due to animal spirits common in such speculative markets, I bet it will be much much greater than 1-5%. Thin edge of the socialist wedge is this framework.

    http://www.telegraph.co.uk/finance/economics/11343822/Its-time-to-ditch-the-Bank-of-Englands-obsolete-inflation-targets.html

    As George Selgin reminds us in his masterpiece on the subject – Less Than Zero: the case for a falling price level in a growing economy, from the Institute of Economic Affairs – the policy [of targeting NGDP] garnered heavy mainstream support during the 19th century and until the Keynesian revolution of the 1930s. Supporters of the productivity norm included David Davidson, Evan Durbin, Francis Edgeworth, Robert Giffen, Gottfried Haberler, Ralph Hawtrey, Friedrich von Hayek, Erik Lindahl, Alfred Marshall, Karl Gunnar Myrdal, Sir Dennis Robertson and Arthur Pigou, many of the most eminent and well-respected economists of their day. That tradition is kept alive today by a growing number of economists in the US and globally, of which Selgin himself is among the most eloquent.

  17. Gravatar of Philippe Philippe
    14. January 2015 at 12:29

    From the Allister Heath article:

    “The state owns the currency; so any decision to allow the internal value of the pound and thus its purchasing power to decline is a tax on people’s assets”

    This strikes me as a very odd assertion. If I issue credit notes, for example, and at some point the market value of those notes falls, does that mean I have taxed people’s assets?

  18. Gravatar of Daniel Daniel
    14. January 2015 at 13:37

    if Sumner’s futures market is adopted, due to animal spirits common in such speculative markets, I bet it will be much much greater than 1-5%. Thin edge of the socialist wedge is this framework.

    Damn Ray, you can’t be this retarded and still be able to breathe and type simultaneously.

    Your act has to be joke.

  19. Gravatar of Philippe Philippe
    14. January 2015 at 13:58

    Ray, Hayek adopted all sorts of different ideas throughout his life. He ended up supporting a zero-inflation, zero-deflation norm, rather than a ‘productivity norm’ a la Selgin.

  20. Gravatar of Ray Lopez Ray Lopez
    14. January 2015 at 20:45

    @Philippe–thanks. I believe Hayak in his Road to Serfdom also conceded socialism was inevitable. BTW any thoughts on why ‘productivity norm’ (targeting NGDP) gets credited to Selgin and not Sumner in the UK article? That was quite a slap to the face seems.

  21. Gravatar of Philippe Philippe
    14. January 2015 at 20:52

    Ray, I think ‘productivity norm’ might just be a different way of saying ‘tight money’.

  22. Gravatar of Philippe Philippe
    14. January 2015 at 20:55

    “Hayak in his Road to Serfdom also conceded socialism was inevitable”

    Pretty certain that isn’t the case, otherwise he wouldn’t have spent so much time laying out the ideal rules (as he saw them) for an alternative.

  23. Gravatar of Major.Freedom Major.Freedom
    14. January 2015 at 21:04

    “Ray, I think ‘productivity norm’ might just be a different way of saying ‘tight money’.”

    No, it means the central bank expands the quantity of money at a rate on par with the rate of expansion in supply of goods and services. This includes potential higher inflation than NGDP targeting, provided productivity increases are high enough.

    Just evading uncomfortable arguments in one post, and shooting from the hip in the next.

    What exactly is it that you contribute here again?

  24. Gravatar of Philippe Philippe
    14. January 2015 at 21:13

    “the central bank expands the quantity of money at a rate on par with the rate of expansion in supply of goods and services”

    How does that work exactly. I’m not a monetarist so I find these ideas slightly absurd btw.

  25. Gravatar of ssumner ssumner
    15. January 2015 at 09:15

    Ray, Are you actually confusing the income effect in the labor market with the income effect from devaluation?

    A monkey at a typewriter . . . .

    You said:

    Both you and I, as middle aged men, are way past the point of being embarrassed about anything (I’d like to think I am).”

    First thing you’ve ever said that I agreed with. You don’t embarrass easily.

    You said:

    “BTW any thoughts on why ‘productivity norm’ (targeting NGDP) gets credited to Selgin and not Sumner in the UK article? That was quite a slap to the face seems.”

    Umm, maybe because Selgin proposed the productivity norm and I didn’t. That’s just a wild guess you understand. More likely this British reporter was trying to slap a Bentley professor in the face.

  26. Gravatar of George Selgin George Selgin
    15. January 2015 at 16:59

    “Umm, maybe because Selgin proposed the productivity norm and I didn’t. That’s just a wild guess you understand. More likely this British reporter was trying to slap a Bentley professor in the face.”

    Just saw that and laughed out loud, Scott!

    That telegraph piece and other commentary gets the productivity-norm NGDP connection wrong. Under a p-n, NGDP growth is set at the trend rate of real factor input (not total output) growth.

  27. Gravatar of Edward Edward
    15. January 2015 at 17:08

    George,
    How do you calculate real factor input growth?

  28. Gravatar of George Selgin George Selgin
    15. January 2015 at 18:18

    Well, take the estimated TFP trend growth rate and subtract it from the trend real GDP growth rate and, voila! Of course there are several different TFP measures, so you must pick the one you like most 🙂

  29. Gravatar of Major.Freedom Major.Freedom
    15. January 2015 at 19:45

    Philippe:

    “How does that work exactly. I’m not a monetarist so I find these ideas slightly absurd btw.”

    Not enough to find monetary policy per se absurd though.

  30. Gravatar of Ray Lopez Ray Lopez
    15. January 2015 at 21:20

    @Sumner – OK I did make a mistake about income effect and substitution as applied to trade balance vs labor market, but the figures I cite show no correlation between going off the gold standard and the trade balance (or a delayed by 18 months correlation that later reverses itself). Excuse me while I type Shakespeare’s plays now…

    @Selgin – awesome! I am trying to find your book Less Than Zero for free, and failing that I might have to buy it. I like your style–you don’t take yourself too seriously, that’s necessary for somebody in this field.

  31. Gravatar of George Selgin George Selgin
    16. January 2015 at 06:47

    Here it is, Ray:

    http://www.iea.org.uk/sites/default/files/publications/files/upldbook98pdf.pdf

  32. Gravatar of ssumner ssumner
    16. January 2015 at 07:20

    Ray, You don’t seem to understand that if there is no correlation your “beggar-thy-neighbor” claim is wrong. So you seem now to be defending my claim that there is no beggar thy neighbor.

    And the trade balance did worsen after April 1933, which was my claim.

  33. Gravatar of Ray Lopez Ray Lopez
    16. January 2015 at 22:31

    @sumner “And the trade balance did worsen after April 1933, which was my claim” – no, I disagree. I do agree that my ‘beggar-thy-neighbor’ claim is wrong, as you said, but look at this below data on balance of US payments, which did not worsen until a full 18 months after devaluation. Wikipedia informs me that ‘balance of payments’ is a bit vague, which may be causing confusion, but usually refers to the sum of the current account and the capital account. Perhaps ‘trade balance’ refers to the former and does not include the latter, in which case ‘you may be right’. Anyway it’s not my field so “I surrender, you win”. But the takeaway for me is that going off the gold standard for the USA, surprisingly, was not that big a deal (it did not really help that much for balance of payments, though it did help domestically with per capita GDP increases. – RL

    Here is the US data for Balance of Payments, and keep in mind FDR got the US off the (managed) gold standard in June 1933. (in $millions) 1930: +735; 1931:+175; 1932:+159; 1933:+108; 1934:+341; 1935: -156 (note it’s finally negative 18 months after devaluation! That’s a long time); 1936:-218; 1937: -31; 1938: +967.

  34. Gravatar of ssumner ssumner
    17. January 2015 at 07:00

    Ray, You should look and monthly trade numbers, not annual CA numbers. Then you’d see I’m right.

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