Matt Yglesias’ recent posts

Why do I like Matt Yglesias’s posts?  Consider 5 done in the past few days:

Car dealers are awful. It’s time to kill the dumb laws that keep them in business.

BTW, Has anyone asked Warren Buffett if he plans to advocate ending the horrible laws that protect car dealers from competition?  (Like those car dealers he just bought.)  Or whether he intends to support the dealers so he can accumulate even more billions of dollars by ripping off ordinary Americans?  He seems more honest and idealistic than the average Ukrainian oligarch, but it’d be nice to know for sure.  And don’t even ask about the “free market loving” GOP.

DC’s streetcar isn’t even running and it’s already making buses slower

But streetcars look neat . . . kinda European.

Amazon is doing the world a favor by crushing book publishers

I really, really, really dislike publishers.

Democrats are using Ferguson to drive black turnout. But they’re in charge in Missouri.

Surely the Dems would not incite racial fears for selfish electoral reasons?

Obama’s latest plan to boost the economy? Bring back subprime mortgages

After the 2008 crisis just about everyone on the left blamed it on “deregulation.”  (Wait, if banking was deregulated then why did I have to sign 20 consumer protection forms every time I refinanced in the early 2000s?)  I pointed out that the regulators also missed the crisis, so what makes us think they would do any better the second time around?  My liberal friends replied that we now know the evils flowing from unrestrained lending to people who couldn’t possibly repay their mortgages.  But that seemed like too low a bar to me, closing the barn door after the horse had left.

Sure, now it’s obvious that subprime loans were a disaster.  But if the banks had known that in 2004-06 they obviously wouldn’t have made those bad loans, and they would have also refrained from investing in MBSs MSEs.  Yes, regulators have learned their lesson, but so have banks!  Banks are also tightening up on their standards.  So I ask again, what makes us think regulators could do any better next time? And isn’t it setting an excessively low bar to merely have regulators prevent an exact repeat of what went wrong in the 2006 housing bubble?  Anybody could do that!

Well I should have saved my breath, for as Yglesias points out the bar might have been set way too low, but the regulators still couldn’t clear it.  While banks have tightened their standards, regulators have returned to encouraging subprime mortgages.  And this occurred under a supposedly pre-regulation pro-regulation liberal Democratic president.  If regulation doesn’t work now, how is it supposed to work under the next GOP president?  Maybe Paul Krugman can tell us.

Krugman mocks conservatives who predicted inflation, and still insist the real problem is easy money.  And rightly so.  But I’d say the same about any liberal blogger who still thinks “deregulation” was the cause of the 2006 bubble.  If they haven’t learned by now that our regulators are utterly incompetent, then they never will.  Those progressives should be mocked in exactly the same way Krugman mocks conservatives who still insist the Fed’s “easy money” policy will soon create inflation.

PS.  I like the way defined the new policy:  “Insanity defined.”

PPS.  I wish Kevin Drum the best.  I’ve never met him, but based on his writing he seems like a great guy.



81 Responses to “Matt Yglesias’ recent posts”

  1. Gravatar of TravisV TravisV
    26. October 2014 at 20:22

    Prof. Sumner,

    Your eagerness to criticize Buffett might be my least favorite characteristic of yours….. 🙂

  2. Gravatar of Kevin Erdmann Kevin Erdmann
    26. October 2014 at 20:37

    He has great stuff. But, then he mixes in howlers like this (from the housing article):

    “All of Fannie and Freddie’s profits are “swept” into the Treasury.
    If the White House had a free hand in budgetary matters, those profits might go to finance useful spending.”

    If only he had that 4 trillionth marginal dollar. Boy, then a guy could really do something useful!

    While there are certainly many arguments to be had about banking regulatory capture, these articles about rule changes seem a little off, as if any loosening of regulatory standards is a waiting crisis. Before we all get too breathless about “the next crisis”, surely we can all agree that the pendulum has swung way too far the other way. I’m no expert on the inner circle of bank rent-seeking. But when institutional all-cash investors have been pushing prices up by 10%+ per year while mortgage markets have been absolutely shuttered, clearly there is something keeping mortgage credit from operating in any functional manner. We have a long way to go to get to normal.

    The article might seem to find common ground in its cynicism about regulatory capture. But it seems to me that while you would prefer getting rid of pro-cyclical regulation and replacing it with well-regulated market discipline, it seems like Yglesias is basically arguing for regulation to be more pro-cyclical, even if it’s not his conscious intent.

  3. Gravatar of Brett Brett
    26. October 2014 at 22:58

    1. I can imagine Buffett loving something like car dealerships: a “safe” asset kept secure even if the income stream goes up and down a bit because of regulation and the fact that nobody on either the Republican or Democratic side of things aside from Mitt Romney wants to see any of the Big Three consolidate or go bankrupt.

    2. Yep, they’re a terrible decision. Most of the cities making them would be much more advised to invest in energy-efficient buses, since they’re more flexible.

    3. His post was mostly good, although his piece about editors and digital publishing was idiotic. He published a book and even admits above that a manuscript is nothing like a finished book – editors don’t just correct your grammar and spelling errors.

    4. It’s the black population pushing more aggressively for better representation of their interests in the state and local governments, which I consider to be a good thing. That’s especially a good thing in Ferguson, where the local government not only doesn’t represent their interests well despite them being a majority, but actively preys upon them with the police being funded primarily by tickets and citations.

    5. Yep, that was the problem with subprime loans and crappy mortgage-backed securities in the first place. The few people who tried to push back on them before the crash got overriden by everyone else in the government of the late 1990s/early 2000s, including Democrats.

  4. Gravatar of Brett Brett
    26. October 2014 at 23:00

    @Kevin Erdmann

    “All of Fannie and Freddie’s profits are “swept” into the Treasury.
    If the White House had a free hand in budgetary matters, those profits might go to finance useful spending.”

    If only he had that 4 trillionth marginal dollar. Boy, then a guy could really do something useful!

    Eh, as long as Fannie Mae and Freddie Mac are going to be more or less guaranteed by the government, why not nationalize them and keep any earnings above the operating and debt costs?

  5. Gravatar of Kevin Erdmann Kevin Erdmann
    26. October 2014 at 23:07

    The reason these rail projects keep getting approved is because nobody ever went to a cocktail party and bragged “We took a bus to the symphony the other night.”

  6. Gravatar of Lorenzo from Oz Lorenzo from Oz
    27. October 2014 at 01:58

    Why do Fannie Mae and Freddie Mac even exist? Lots of countries manage to having mortgage and housing markets without any institutions remotely similar.

    I guess from the “really, really, really dislike publishers” comment that the Depression book is still in publishing limbo.

  7. Gravatar of foosion foosion
    27. October 2014 at 02:02

    “And don’t even ask about the “free market loving” GOP.”

    That’s the problem. Neither the GOP nor the Dems has any real affection for the free market. The GOP wants policies that favor the best off to the detriment of others and the Dems in office are largely a slightly moderate version of the GOP.

    “Wait, if banking was deregulated then why did I have to sign 20 consumer protection forms every time I refinanced in the early 2000s?”

    Because signing a bunch of boilerplate forms that almost no one reads is not the same as, for example, Glass Steagall.

    “Sure, now it’s obvious that subprime loans were a disaster. But if the banks had known that in 2004-06 they obviously wouldn’t have made those bad loans”

    Not so obvious. The loans led to massive profits for many of the individuals involved, even if they hurt the institutions.

    “And this occurred under a supposedly pre-regulation liberal Democratic president.”

    Supposedly is a key word there. Thinking of Obama as a liberal Democrat is a mistake. He’s liberal only by comparison to the modern GOP.

  8. Gravatar of foosion foosion
    27. October 2014 at 02:03

    “Why do Fannie Mae and Freddie Mac even exist?”

    The political power of the financial industry and the real estate industry.

  9. Gravatar of Major.Freedom Major.Freedom
    27. October 2014 at 03:20

    Insanity defined…

    Applies with full force to the Fed, and monetarism.

  10. Gravatar of ssumner ssumner
    27. October 2014 at 03:45

    TravisV, I like Buffett a lot. My post contains absolutely no criticism of Buffett, unless you regard “seems honest and idealistic” to be a criticism. Read it again. 🙂

    Kevin, I’d prefer no regulation at all, but the regs we now have encourage more risk-taking than you’d get in a free market (netting out everything.)

    Lorenzo, Yup, we don’t need the GSEs.

    foosion, Lots of luck having low paid Washington bureaucrats protect rich bank owners from their own employees!

    Ending Glass-Steagall doesn’t seem to have played any role on the financial crisis. But yes, “consumer protection” is beside the point, as the today’s DC regulators don’t seem to understand. The crisis was more about predatory borrowing than predatory lending.

    You could equally say the GOP was a “slightly moderate” version of the Dems, it’s symmetrical.

    Obama was the most liberal president since Johnson. If you are waiting for a “true liberal” in the White House, you might end up waiting as long as Krugman will have to wait for a “true socialist” in France, willing to impose 75% tax rates on the rich.

  11. Gravatar of Zero Marginal Product Worker Zero Marginal Product Worker
    27. October 2014 at 04:54

    People in Washington start thinking about handing out sub-prime loans to us losers with low FICO scores because we’re rotting away in unemployment or the welfare state without any decent income. Our low credit scores are a symptom of the problem.

    We don’t want subprime loans. We don’t want medicaid expansion. We don’t want Obamacare subsidies. We don’t want disability.

    We want barriers to hiring removed and a stable nominal growth path that will make people want to hire us.

  12. Gravatar of Vivian Darkbloom Vivian Darkbloom
    27. October 2014 at 04:57

    With respect to car sales, I don’t know why Yglesias has focused all his attention on restrictive laws and vested interests of existing *dealerships*. He seems to place the blame for these laws on the auto dealership lobby. I think that misjudges what’s going on.

    As Tesla has shown in quite a number of states, it is legally allowed for a manufacturer to sell directly to consumers and cut out dealers from the supply chain. A serious question is therefore: why haven’t other auto manufacturers, where it has been legally allowed, done the same as Tesla is doing?

    Tesla’s legal argument seems compelling: If existing laws in states that don’t allow direct sales were designed to prevent existing auto franchisees from being put out of business by existing manufacturers, Tesla shouldn’t be bound by them because it doesn’t have any existing dealerships. Yet, even in states where there was no legal prohibition on direct sales, *new laws* prohibiting such are being passed.

    All this leads me to believe that the driving force behind this is not only existing auto dealers, but also existing auto manufacturers. Saddled with expensive franchise networks, the long-established automakers don’t want the competition from a more efficient operator. For example, I seriously doubt the more restrictive laws in Michigan would have been possible had the big three auto makers been opposed to them, rather than supportive of them.

  13. Gravatar of Dan W. Dan W.
    27. October 2014 at 05:17

    Buffett’s main skill is knowing how the bread is buttered. This understanding allows him to invest his money so more often than not the bread lands with the butter side up.

    Part 1 of this is his conviction that the US economic policy will invariably be growth oriented and, absent that, lean inflationary. Thus there is much more risk in going “short” or being out of the market than in being “long” the market. Buffett has never claimed nor demonstrated, I believe, aptitude at timing the market. At times he has had too much cash on the sidelines and other times he has missed market lows or bought when prices were high. Thus his adage that time in the market is more important than timing the market.

    Part 2 is his insight into how profits are captured and how an investor can best share in those profits. Most important is Buffett’s ability to not only identify superior economic situations but to differentiate those that are sustainable from those that are temporary. The value stock concept (ie Graham) preaches that price is everything. Buffett realized that it was even better to exclude from one’s portfolio the cheap stocks that were cheap because they were lousy businesses. He then deduced that it was best to identify those businesses that could compound their growth over many years, in which case the business could be substantially undervalued by the market.

    The recognition of sustained profitability includes an understanding of government and regulatory capture. Knowing the government creates inefficiency and taking advantage of it is not a crime. Neither is lobbying for competitive advantage, though this practice will draw political and popular criticism. In this we see another Buffett skill: The ability to influence policy to his benefit while minimizing the mud & stink that sticks to him.

  14. Gravatar of Brian Donohue Brian Donohue
    27. October 2014 at 05:28

    @Dan W- good comment. What you have described is gold old-fashioned fundamental analysis. Now, strongish versions of the EMH suggest there is no opportunity to profit via fundamental analysis.

    Buffett thinks this is wrong, as would anyone with his deep understanding. Things don’t look so efficient to him. A is clearly a better investment than B.

    Here’s the subtle point most people can’t get their brains about. It is precisely people like Buffett, with their superior understanding, who put the ‘E’ in ‘EMH’ by their vary actions.

  15. Gravatar of Nick Nick
    27. October 2014 at 06:07

    Hey guys,
    I know I’ve said this before about Buffet, and I don’t disagree with all the comments about how he is a good stock picker, but the man runs an actual business. You all are correct that he doesn’t seem to think markets are efficient but you don’t need to choose between him being right and him being lucky. Sometimes a person pioneers a business method and the end result is a giant, successful company. It’s not madness, it doesn’t really need to be explained in terms of a person of above average intelligence’s chance to beat the market on stocks.

  16. Gravatar of Nick Nick
    27. October 2014 at 06:20

    I agree and disagree. When I see an auto company CEO on TV talking about his dealership network they say ‘we love our dealers’ but they look like a hostage negotiator under pressure to me. I think you are right that they are and have been a driving force behind dealers, but I think they are political animals and right now they just don’t want to fight and lose. They know their companies rely on domestic politics and they also know that their dealers are right now their most effective public spokespeople. The battle needs to be fought on those terms–get politicians elected who don’t favor dealers and the auto companies will be happy to start backing that team instead.

  17. Gravatar of Peter K. Peter K.
    27. October 2014 at 06:32

    “The crisis was more about predatory borrowing than predatory lending.”

    Predatory borrowing? Seems like blame the victim. The banks and mortgage companies should know their business more than their customers who have incomplete information.

    Basically in the post war years you don’t see these booms and busts. Then deregulation and privatization happened. LBJ privatized Fannie and Freddie to make the budget look better. Carter deregulated. Ronnie Raygun deregulated the S&L industry and the taxpayer had to bail them out. Clinton deregulated and fraud really got underway under Bush and we got an epic housing bubble and financial crisis.

    The unregulated shadow banking system arose under the free market ideologue Greenspan so it wasn’t forced into a FDIC system. It was susceptible to a bank run and promptly had one like the banking system used to have regularly in days of yore.

    So it’s good the Fed talks of macroprudential policies. Wall Street successfully watered-down Dodd-Frank so we’ll probably have another crisis next decade.

  18. Gravatar of Peter K. Peter K.
    27. October 2014 at 06:38

    “But if the banks had known that in 2004-06 they obviously wouldn’t have made those bad loans”

    Many knew what they were doing, they were just making too much money off of it. Part of it was that their competitors were doing it, so they had to too. The most egregious like Wachovia and WaMu went under and rightly so. As a thoughtful liberal, I’ll agree that if we had proper monetary policy, the bubble and financial crisis wouldn’t look so bad in hindsight. Krugman is actually more on this side of the argument than, say, Financial Times economics editor Martin Wolf. His argument is that inevitably policymakers react poorly to crises and downturns (as we’ve seen) so we need to prevent them from happening and regulate the hell out of the financial sector.

  19. Gravatar of TravisV TravisV
    27. October 2014 at 07:03

    Yglesias’s latest post: “Housing is much cheaper in conservative cities than liberal ones”

  20. Gravatar of TravisV TravisV
    27. October 2014 at 07:23

    Latest from Reuters: “ECB stimulus may lack desired scale, QE an option: sources”

  21. Gravatar of mpowell mpowell
    27. October 2014 at 07:42

    On the loans, it seems like they are moving in the right direction. Relaxing standards while retaining higher standards for false documentation. Given interest rates, housing is still pretty cheap. You can say complain about regulation not working all you want, but I can’t take anyone seriously who thinks things like banking and insurance don’t need regulation. Regulation in those cases is bad, but it’s better than the alternatives. Best to try to make it work as well as possible.

  22. Gravatar of TravisV TravisV
    27. October 2014 at 08:10

    (Mostly) good stuff from Dean Baker:

    “Germany Leaves the Euro Zone, and the Problem Is?”

  23. Gravatar of Brett Brett
    27. October 2014 at 08:57

    Peter K.

    Many knew what they were doing, they were just making too much money off of it. Part of it was that their competitors were doing it, so they had to too.

    I’d add that there was an “I don’t care – it’s somebody else’s problem” factor going on as well. These mortgages we’ve originated at Countryside are garbage and full of fraud? Who cares – we already sold them to Lehman Brothers! These mortgage-backed securities are garbage? Who cares – we’ve already sold them to other parties, and bought Credit-Default Swaps on the rest!

    Economic damage aside, it makes me wish they had let the hammer fall down on them during the downturn in 2007-2008 for such gross negligence. All of the Five Investment Banks probably should have gone bankrupt and been liquidated.

  24. Gravatar of Kevin Erdmann Kevin Erdmann
    27. October 2014 at 09:23

    I frequently see this argument that practically everyone in the financial industry knew that these products would blow up. As a speculator, I would never put any capital into any position if I didn’t think the other side of the position was nuts. It’s called a market. To think that there was an industry wide omniscience about future home values or that, given some amount of expectations regarding the value of the various securities, financial intermediaries should somehow limit the availability of securities for which there was demand, is simply incoherent. There is no way the world could work like that on any level.

  25. Gravatar of Vivian Darkbloom Vivian Darkbloom
    27. October 2014 at 10:12

    @Kevin Erdmann

    You’re right. It’s the market.

    That said, I wouldn’t rule out the possibility that many (not “all” or perhaps not even “most’–but many) of those in the financial industry and other “speculators” thought in their heart of hearts (“knew” is too strong, here–who, after all, “knows” these things) that those products would “blow up”. That type of thinking is not inconsistent with “the market” and yes, “things do work like that”.

    Many speculators invest or promote things with the idea that before things “blow up” there is plenty of money to be made. It’s like a game of chicken—you know the cliff is there, but the longer you stay in the car, the more money there is to be made. The idea is that before you reach that cliff, you’ll bail out.

    These financial speculation games are much more complicated than that game of chicken where James Dean didn’t know when the other guy was going to jump, but he did know where that cliff was (I know, imperfect analogy–Dean got out–but that’s Hollywood, not Wall Street). In the financial chicken game, you don’t know when those other guys are going to make their move, and *that* defines where the cliff is. I suspect many knew there were big risks involved and they just had enough hubris to think they would be smart enough to get out before everyone else. Here, the “when” is just as important as the “if”. Trying to beat the market is pretty much a crap shoot, but that doesn’t stop people from thinking they can.

    Also, keep in mind that most of the money initially earned on those products was made by those originating and packaging the derivatives. They (the originators) were not holding much of the bag when it blew up. If these things were not so risky, and if they were not aware of that risk, would there have been a need to spread that risk through derivatives to the extent they were disseminated?

    I suspect that Peter K and Brett are expressing much of the same in the comments you replied to.

  26. Gravatar of Dan W. Dan W.
    27. October 2014 at 10:15


    It is called OPM: Other People’s Money.

    I do wonder how many investors actually put their own money at risk to buy subprime loans advertised as triple-A. I suppose any that did are not bragging about it.

    I do not wonder at all that financial firms packaged such loans and then sold them to investment funds. In this process the individuals packaging the loans and the individuals buying them were making money on the transaction and caring little about the quality of what was being sold. We know from records made public that some salesmen knew they were selling junk. I suspect many buyers took a don’t ask / don’t tell attitude. They were hoping to get the yield they desperately needed for their fund to meet the benchmark. Their goal was to get their bonuses for the year and if this meant ignoring risk then that is what was done.

    Of course the regulators have their own agency dilemma to deal with.

  27. Gravatar of TravisV TravisV
    27. October 2014 at 10:43

    I don’t know whether to laugh or cry:

    “Bundesbank Paper Flags Risks of Ultralow Rates to German Insurers”

  28. Gravatar of Ralph Musgrave Ralph Musgrave
    27. October 2014 at 11:00

    Subprime mortgages as such are not a problem. The problem is that we have banks that have liabilities that are fixed in value and assets (e.g. subprime mortgages) that can fall in value or turn out to be worthless. And when that happens, banks crash. But that cannot be allowed, at least not on a big scale.

    Full reserve banking solves that problem by, 1, having banks funded just by shares, and 2, letting depositor / shareholders fund whatever they want – but they carry the loss if it all goes wrong. So if sub-prime mortgages turn out to be trash, there’s no need for taxpayer funded support for banks. All that happens is that the idiots who put their money into sub prime mortgages lose their money.

    Irving Fisher worked all that out in the 1930s. Milton Friedman (who supported full reserve) worked it out. It’s about time everyone else worked it out.

  29. Gravatar of cassander cassander
    27. October 2014 at 11:12

    Matt Yglesias has the singular ability to see how the government fucks up all of his pet issues, then to go on and blithely assume it does a great job handling the things he knows little about, so we should have more of it. I know intellectually that the human capacity for denial and self delusion is practically infinite, but Yglesias puts that capacity on display in rare form.

  30. Gravatar of Floccina Floccina
    27. October 2014 at 11:18

    IMHO for the sake of efficacy and good community relations, Ferguson MO needs to lay off at least 1/2 of the white police officers and hire blacks to replace them. Would Democrats be OK with that?

  31. Gravatar of Morgan Warstler Morgan Warstler
    27. October 2014 at 13:41

    “Matt Yglesias has the singular ability to see how the government fucks up all of his pet issues, then to go on and blithely assume it does a great job handling the things he knows little about, so we should have more of it. I know intellectually that the human capacity for denial and self delusion is practically infinite, but Yglesias puts that capacity on display in rare form.”

    He’s young, and getting closer to the tipping point.

    Breitbart and I only spoke about Yglesias once, but even back then I told him, he’d be the modern day David Horowitz (I’m still going tan Matt’s hide over his behavior when Drew passed away).

    Overtime, the way tech flips the script, anyone who is TRULY concerned with increasing real consumption for poor will always devove to market oriented solutions.

  32. Gravatar of TravisV TravisV
    27. October 2014 at 16:37

    It pains me to see a sharp analyst like Scott Grannis write the following:

    “Members of the FOMC are overly-impressed with their ability to “guide” the U.S. economy, and overly-concerned with the relatively low level of current inflation……One key source of risk going forward is that, because of the Fed’s hubris, FOMC members may fail to react in a timely fashion to signs of improving confidence and declining money demand: a failure to reverse QE in response to a decline in the demand for safe assets could result in an unwelcome abundance of money and higher inflation. At today’s levels, Treasury yields offer hardly any cushion at all for this risk and are thus very unattractive. Deflation, contrary to widespread claims in the punditocracy, is not a threat to growth, and is not a black hole that captures and annihilates slow-growing economies.”

  33. Gravatar of benjamin cole benjamin cole
    27. October 2014 at 17:52

    BTW–John Cochrane advises much higher capital ratios for banks, as in 100%. Maybe he is right–if all losses were borne by shareholders, perhaps we would have better bank management. And no need for other regulations.

    I also enjoy federal government bashing – – but why are overseas military actions by our federal government considered off limits when it comes to bash time?

  34. Gravatar of ssumner ssumner
    27. October 2014 at 18:05

    Zero, Good comment.

    Vivian, That may be true of Michigan, but surely in most states it’s the dealers that have the political power.

    Peter, You said:

    “Predatory borrowing? Seems like blame the victim.”

    I’m not blaming the bankers.

    Seriously, the idea that the post war period was some sort of golden age is just silly. Inflation was rising steadily up until 1980. When it started falling the dam burst. It had nothing to do with deregulation. You don’t very often get debt crises when NGDP growth is fast and rising.

    Glass-Steagall repeal played no role in the crisis.

    As far as your claim that banks knew they were making investments that would cost them 100s of billions of dollars in losses, I’d guess I’d need an explanation of why they did them in that case.

    mpowell, What you don’t understand is that regulation causes much of this this reckless risk-taking.

    And if encouraging subprime lending is your idea of sound regulation, after all that’s happened, then I’m speechless.

    Dan, For once you are right. OPM is the core problem that underlies everything that has gone wrong with the financial system.

    Ralph, If that gets rid of OPM, I’m all for it. But as long as we have a system addicted to OPM, then subprime mortgages are madness.

    Ben, Cut the military budget in half. That’s a good start.

  35. Gravatar of Morgan Warstler Morgan Warstler
    27. October 2014 at 18:33

    Here it comes boys and girls:

  36. Gravatar of Kevin Erdmann Kevin Erdmann
    27. October 2014 at 21:22

    Morgan, that step will barely be under way when Uber will disappear after we start calling for Google self-driving cars to get us. Kind of like Netflix cornering the mail delivery DVD business just to join the instant streaming fight. (I’m agreeing with you.)

    Benjamin, deposits are capital. Get rid of FDIC and you have your wish. Don’t get rid of FDIC, and there is no way to get your wish.

  37. Gravatar of Morgan Warstler Morgan Warstler
    27. October 2014 at 23:06

    Kevin / Scott,

    The first thing like is that Victor Hwang called it invisible growth.

    The second thing is that now that it’s out there, Invisible RDGP is a much better story for WTF has been going on than Secular Stagnation. It will catch hold, bc we’re right.

    The third thing is that Money Illusion is just a tendency: “In economics, money illusion, or price illusion, refers to the tendency of people to think of currency in nominal, rather than real, terms. In other words, the numerical/face value (nominal value) of money is mistaken for its purchasing power (real value) at a previous point in the general price level (in the past).”

    And my argument is that because of the truth of Invisible RDGP, people are overcoming the tendency., bc a greater force is hitting them, one of the most powerful human tendencies. it is called FREE.

    If Free > Money Illusion to Americans, then we have different policy options.

    If Free > Money Illusion….

    People in future grow MORE comfortable with lower wages.

    People in future are LESS likely to take on debt. No car (Uber), no home (rent), no college debt (free online college).

    If the market has already internalized this future outcome…. you’d have lenders less likely to loan, you’d have people putting off buying…

    You’d have not just a deflationary mindset, but a deflationary truth, and then it might dawn on everyone that IF the fed stops printing and buying assets EVER, asset prices will fall in short and medium term.

    AND if Free is just beginning to pick up speed, and I believe it is, just keeping NGDPLT growing at 4%, could mean an ever increasing amount of QE.

  38. Gravatar of Vivian Darkbloom Vivian Darkbloom
    27. October 2014 at 23:34

    “Vivian, That may be true of Michigan, but surely in most states it’s the dealers that have the political power.”


    I think you miss the point. If auto dealers are in favor of these restrictions in Michigan, why would they not be in favor of them elsewhere? If they were interested in streamlining the distribution process, why would they not have done so in the states were it has been (and still is) legally permitted to sell directly? Whether auto dealers have the political power, there’s a big difference between being for something and against it. And, how is it that those dealers got into the position to exercise that power in the first place?

    I see a clear incentive of existing auto manufacturers to oppose direct sales in order to increase the entranc costs to newcomers in the market. And, political power or not, their actions (and inactions) support that view.

  39. Gravatar of Vivian Darkbloom Vivian Darkbloom
    28. October 2014 at 00:06

    Also, Scott, I think you underestimate the potential political power of auto makers on this issue. Of course, we don’t really know, because they have not lined up against the dealers yet.

    But, it’s not just the dealers versus the automakers. It’s potentially the dealers versus the automakers and the consumers (nearly every voter in every state). If the auto makers were to run ads on this issue showing that if direct sales were legal, consumers would pay at least 6 percent less for a new automobile bought directly ($1,500 on a $25,000 car) and that this would trickle down to used cars, too, if only the politicians and auto dealers were blocking it. *That* is pretty potent political power. Encourage a coalition of consumer groups to join them (easy). Against that pressure, I think the politicians would dump those dealers in a nano second.

    The fact is, the auto makers have the political means. They just don’t have the will.

  40. Gravatar of Vivian Darkbloom Vivian Darkbloom
    28. October 2014 at 00:07

    “…if only there were *not* blocking it…”

  41. Gravatar of cassander cassander
    28. October 2014 at 00:11

    @Morgan Warstler

    It’s difficult to get a man to understand something when his salary depends on him not understanding it. Yglesias will never reform, because his career, his self identity, is wrapped up in the politics he advocates. They say conservatives are progressive who have been mugged, but Yglesias got mugged, and it has had no discernible effect. I doubt anything else will prove more efficacious.

  42. Gravatar of Nick Nick
    28. October 2014 at 03:00

    Getting mugged was never going to change Matts mind. And I think this is what Morgan is trying to tell you. Only convincing him your policy choices are more effective will change him. He will not be convinced of anything just because he got scared one time. Morgan is confident bc he believes his policies are effective, not because he thinks poor people are scary and a little more exposure to them will alter Matts thinking.
    Also, Matt really works for himself. Whatever views he decides to champion, he will have a job. If he decided to put slightly more right wing views out there he’d do just fine.

  43. Gravatar of Dan W. Dan W.
    28. October 2014 at 04:10

    I agree with Morgan’s perspective:

    “AND if Free is just beginning to pick up speed, and I believe it is, just keeping NGDPLT growing at 4%, could mean an ever increasing amount of QE.”

    This is why I object to NGDPLT as a policy. It is committing a nation to a financial regiment without allowing for consideration that the patient is not actually sick, or that monetary injections are not the proper treatment for perceived economic sickness. If nominal levels of national spending are the standard of progress then NGDPLT would be a means to the end. How does this standard apply if real progress is collapsing the nominal cost curve?

    AD, as measured by spending, is an artificial metric. It only means something if all other things are equal. But things change. In the past 20 years the price of enjoying a music album went from $15 to zero. No amount of NGDP is going to make zero equal to $15. When people don’t need to spend money for the same entertainment they WON’T spend that money. Consequently they WON’T feel as compelled to work to earn the money they don’t need to spend. AD falls but in truth the only people harmed by what transpired are those invested in the old ways of doing things.

    Monetary policy has great value for treating shocks to the financial system. Shock absorbers in a vehicle dampen the impact of a tire with aberrations in the road surface. They allow passengers in the vehicle to enjoy a more comfortable ride. But shock absorbers only respond to short term fluctuations, such as impact with a pothole or an uneven road surface. For an altogether better ride experience you want a better road! Monetary policy that softens financial shocks on the economic road is helpful. Policy that conceals the true condition of the road is not.

  44. Gravatar of Daniel Daniel
    28. October 2014 at 04:18

    Dan W

    Two words – STICKY WAGES.

    You can’t possibly be that retarded and still be able to type and breathe at the same time.

    Morgan – how’s about you stop your ramblings and start questioning yourself. If a moron like Dan W started agreeing with me, I’d be very worried.

  45. Gravatar of ssumner ssumner
    28. October 2014 at 05:26

    Morgan, Nominal perhaps, but real? Are uber rides not a part of RGDP?

    Vivian, You said:

    “I think you miss the point. If auto dealers are in favor of these restrictions in Michigan, why would they not be in favor of them elsewhere?”

    I think I misunderstood your previous comment, I agree that dealers are in favor of the restrictions in all 50 states.

    On the manufacturers, I can’t prove it, but I strongly believe they have less political clout than the dealers, except perhaps in a few states like Michigan. But that’s just a hunch based on what I observe about politics. It’s relatively easy to get regulations that (may) help the public while hurting automakers (pollution controls, fuel economy, etc), but it’s really hard to get regulations in the public interest that hurt small dispersed firms like taxi companies, auto dealers, etc. That’s just the way politics works.

  46. Gravatar of Dan W. Dan W.
    28. October 2014 at 06:02


    Help me understand how the record shop keeper’s wages are sticky. I don’t see much stickiness at all.

    If you bothered to look outside your bubble you would see that people do not behave as you imagine. In the real world individuals respond to economic change by working more, working less, changing occupations, developing new skills and so on and so forth. As Red from Shawshank might say, “sticky wages” is a made up word. The world simply does not operate according to the model that is inside your head.

  47. Gravatar of Morgan Warstler Morgan Warstler
    28. October 2014 at 06:14

    Scott, it’s not just “scott saves money on Uber.”

    It is Scott doesn’t buy a car.

    Scott doesn’t take a loan and create a recurring debt based revenue stream.

    I just don’t see where all the capital chasing returns goes.

    No more college loans.
    No more car loans.
    No more commercial paper.
    No more warehouses. No more inventory.

    Also, I think when I say with 3D printing, you will only have to own the atoms, all the designs will be free, people don’t: 1) believe it or want to believe it 2) realize how much price of goods drop.

    I can’t figure out where the money goes.

  48. Gravatar of Becky Hargrove Becky Hargrove
    28. October 2014 at 06:21

    Dan W,
    Economic participation is central to NGDP measure and applicability. Morgan allows for this with his version of wage subsidies, his proposal is just different from mine. Nonetheless, it would still boost both GDP and aggregate demand for the long run. Much as any wage subsidy would.

    Here’s my take. Services need to remain central to the economy, and a hard drop in GDP would kill that. If services can remain central in a wealth creation capacity (instead of accruing further debt as highly regulated services tend to do) they will be able to maintain both GDP and aggregate demand for the long run. With NGDP maintaining a steady trajectory this would be possible.

  49. Gravatar of Vivian Darkbloom Vivian Darkbloom
    28. October 2014 at 07:04

    Scott, I actually meant to write “auto manufacturers” rather than dealers in the sentence you quoted. My bad.

  50. Gravatar of Michael Byrnes Michael Byrnes
    28. October 2014 at 07:59


    It’s a mistake to equate NGDPLT with QE. That’s a “concrete steppes” view (X amount of QE yields Y amount of NGDP growth; 2X yields 2Y; etc). I don’t think it works this way. Implementing NGDPLT (perhaps with the threat of some QE if needed) would likely have given more NGDP growth with no, or less, QE.

    Second, you are making assumptions about what the availability of free stuff will do to money demand. If free stuff reduces my living expenses by say, 25%, does that mean I will work less or that I will buy more? There’s no obvious answer, likely different people will answer differently. I suspect that for the same reason Keynes was wrong in “Economic possibilities for our grandchildren”, more free stuff will just cause people to buy more non-free stuff.

    Third, it doesn’t really matter. Under NGDPLT If money demand falls, money supply will be contracted. (If this didn’t happen you would have accelerating NGDP growth rather than fixed rate growth.

    Fourth, assuming the free economy is a good thing, can you get there faster by using monetary policy to reduce spending? I think no- that would be lunacy. (Sort of analogous to Sweden’s attempt (over Svensson’s vociferous objection) to use tight money to reduce the debt burden.

  51. Gravatar of J Mann J Mann
    28. October 2014 at 08:26

    Michael writes: “If free stuff reduces my living expenses by say, 25%, does that mean I will work less or that I will buy more?”

    Isn’t the standard answer that you will probably do a little of each? (Or that you will select some ration of additional leisure and additional consumption of the non-free stuff?)

  52. Gravatar of Brian Donohue Brian Donohue
    28. October 2014 at 08:33

    @Morgan, very well put. Capitalist economies can work with a transmission mechanism of ever falling prices. I suspect this was the norm for hundreds of years, although people continued to dig up gold and silver to partially offset this trend.

    Do you agree that it is undesirable to reward holders of cash with a real return? If so, the target is “as much QE as it takes” right?

  53. Gravatar of Morgan Warstler Morgan Warstler
    28. October 2014 at 08:47

    “Second, you are making assumptions about what the availability of free stuff will do to money demand. If free stuff reduces my living expenses by say, 25%, does that mean I will work less or that I will buy more?”

    Michael I assume infinite wants.

    So you will continue to work (always stuff you want) and while your wages will be flat, you will get more and more real value for them.

    I’m not sure BUY however is the right word. What I am talking about is consumption.

    Imagine 1MB of video say a single second that plays out at 8Mbps.

    How many electrons does it require to uncompress at playback?

    What micro-projection system can best overwhelm your eye with that 1MB and reproduce the most photo-realistic VR on your eyeball?

    How much can molecular gastronomy do to increase each eater’s measured mesolimbic dopamine response? Proving once and for all THIS FOOD TASTES BETTER than any other food for Michael Byrnes.

    Do we then count how many dragons you hunt down in a year on in your VR rig?

    When you skydive naked with Swedish Bikini Team to wake up every morning, why don’t we count that as $ consumption based on what it would cost to do it for real?

    It’s no longer a simple free bit of software, it’s a thing you’d rather do with all your free time, forever.


    I’m not arguing we should have deflation. I cheer for NGDPLT. I just think Digital Deflation is the real reason nobody can explain Secular Stagnation.

    And I really think the Level Target bit that does the most to move people’s expectations.

    Because it will crystallize in everybody’s mind that we can only have $X growth next month, and suddenly things like pay raises for public employees become a completely new political debate.

  54. Gravatar of Vivian Darkbloom Vivian Darkbloom
    28. October 2014 at 08:54

    I think Morgan is onto something. I’ve been toying with some of the same thoughts.

    What puzzles me, though, is why this technologically-induced deflation doesn’t show up in productivity measurements. Measured productivity has been falling, not rising, the past few years. Is there something wrong with the measurement methodology?

  55. Gravatar of Dan W. Dan W.
    28. October 2014 at 09:02

    More trouble for aggregate demand…

    “Wal-Mart Stores Inc. pushed down prices for some generic prescription drugs to just $4 eight years ago. Now it is trying to do the same for seeing a doctor. An office visit costs $40, which Walmart U.S. says is about half the industry standard.”

  56. Gravatar of Major.Freedom Major.Freedom
    28. October 2014 at 09:27

    Dan W.

    Reducing prices doesn’t imply a reduction in spending.

  57. Gravatar of Becky Hargrove Becky Hargrove
    28. October 2014 at 09:51

    Much of the good deflation occurs in tradable goods. Whereas, there is not a smooth transition between the GDP component of these most productive areas, and the asset formations which also contribute to needed services. In particular housing has not been subjected to innovation that would also allow portions of it to be a component of good deflation. As a result, as Kevin Erdmann stresses, all housing gets hit with disinflation (or bad deflation). If innovative and traditional housing were both allowed, traditional housing could probably increase in value to reflect the way resources get used. Local interests prefer non innovative housing as a means to provide more money for services. Hence the lack of improvement in production overall.

  58. Gravatar of Dan W. Dan W.
    28. October 2014 at 10:09


    I was not and do not have enough information to make a prediction on how this industry shift in pricing will impact aggregate measures of the economy. What I do know is such a price reduction is good for the individual consumer. Those on on the receiving side of that spending are going to be getting less.

    The consumer will take the money not spent and save it or spend it or pay down debt. It could very well be the consumer will reduce debt and be perfectly happy living on a lower level of personal spending. This preferred choice of the individual would not be reflected as a positive choice in aggregate indicators. For those who live and die by such statistics this would be “trouble”.

  59. Gravatar of Justin Irving Justin Irving
    28. October 2014 at 10:28

    “Or whether he intends to support the dealers so he can accumulate even more billions of dollars by ripping off ordinary Americans?”


    Buffett has a carefully built image, but he’s objectively a bit of a baddie. How much is his railroad making from the Keystone holdup? Curious…

  60. Gravatar of Vivian Darkbloom Vivian Darkbloom
    28. October 2014 at 10:35

    Thanks, Becky. Probably my fault, but I have no idea what you are getting at.

    My point is that if technology is causing deflation, we should expect measured productivity to rise as a result in proportion to that tyoe of (“good”) deflation. That does not appear to be happening. If housing is not part of the trend, I should that would be irrelevant to the overall point. The rate of measured productivity is falling—not rising– over the past few years. That leaves me to think that the BLS’ standard measure of productivity is not picking up the phenomenon that Morgan seems to be alluding to. “Free goods”, as Morgan calls them, appear to be off the BLS radar. That’s why he probably refers to “hidden RGDP”.

    This may be another example of faulty macro economic measurement. Again, if your instruments are faulty, it is difficult to steer.

  61. Gravatar of Michael Byrnes Michael Byrnes
    28. October 2014 at 10:40

    Dan W.,

    That’s completely untrue. Changes in aggregate spending/income are just an indication that the supply of money and the demand for it are out of whack. Or, in other words, that the availability/value of money (rather than consumer preferences) is driving spending decisions. That’s it. The goal of NGDPLT is to minimize the impact of the monetary system on consumer spending decisions – in the big picture, it makes no difference whether consumers prefer $80 doctor visits or $40 doctor visits; and if the latter, it makes no difference what they choose to do with their savings.

  62. Gravatar of Ben J Ben J
    28. October 2014 at 10:42

    Dan W.,

    It’s gotta hurt a little when the other resident Austrian is gently correcting your barbs at market monetarism. But we try to be charitable here, so let me help out with a quick pop quiz to aid our understanding.

    1. When the real price of a good or service falls (in other words, our real income rises), what can we conclude about a consumer’s spending on that good? Overall? (Careful- the income and substitution effects work in opposite directions!).

    2. When a consumer’s real spending falls, what can we conclude about their nominal spending? (Don’t forget that ever-important distinction between real and nominal!)

  63. Gravatar of Becky Hargrove Becky Hargrove
    28. October 2014 at 11:15

    It’s not your fault! Even though this is by far the most important subject I’ve blogged about the past year and a half, the fact I’m not an economist makes my language difficult to understand. As far as I can tell, there is little improvement in productivity numbers because housing assets and services now comprise a major portion of measured GDP. My problem is that neither has addressed structural issues which could greatly enhance their cost settings. As a result, their inflation pulls at the good deflation of manufacture and general production, and central bankers are anxious to cap the whole thing off in spite of where the problems lie.

    One reason this bothers me so is that it really gets in the way of the (at least) 5 percent growth that some of us want. We assume this level of growth to be necessary in part because structural change is not happening yet. But central bankers are not allowing growth anyway, and yet production reform in non tradable is going nowhere. Hence I just want to be careful about the arguments for innovation that suggest we are ready for a lower growth trajectory. No one is ready to lower the growth trajectory for good deflation until services and asset formations are in better balance. Sure, I blog endlessly about the kinds of things that would allow a lower growth trajectory but my fear is that central bankers do not care what is good deflation or bad deflation. When push comes to shove they would just as soon take what they can get with too little growth.

  64. Gravatar of Vivian Darkbloom Vivian Darkbloom
    28. October 2014 at 11:43

    Thanks, Becky. I’ll need to sleep on that.

  65. Gravatar of TravisV TravisV
    28. October 2014 at 13:43

    Prof. Sumner,

    You might like this new one from Yglesias (but dislike parts of it):

    “A $20 an hour minimum wage really would cost a lot of people their jobs”

  66. Gravatar of TravisV TravisV
    28. October 2014 at 13:54

    Swedish stocks increased 1.5% today on this news from the Riksbank……

  67. Gravatar of mpowell mpowell
    28. October 2014 at 14:43

    Scott, Erdmann has persuaded me that there is something wrong in the credit channel. I’m not sure what the best answer is so I’m not going to spend a lot of energy standing up for subprime lending, but are you really going to blame that entirely for the crash? It was a tiny fraction of realized losses. You also had NINJA loans, poor documentation, flagrantly incorrect documentation, ballooning interest payments, all sorts of things that created more risk in the system without serving any constructive purpose. Subprime lending at least has a defensible purpose.

    And I think your perspective on regulation is just wrong-headed. You just can’t have a blanket view of it. A complete lack of regulation in some important cases is worse than what we get with the government. Let’s take the example of someone offering annuities. Should this really be a case of buyer beware for the average citizen? We can’t have any qualified product offerings? Even if I take the approach of, “only buy products from the company that is 100 years old”, all it takes to burn me is someone taking over the company that understands they can make a lot of money cashing in on that reputation. At that point the product doesn’t have any value.

  68. Gravatar of TravisV TravisV
    28. October 2014 at 16:43

    Tim Duy’s FOMC forecast for tomorrow:

  69. Gravatar of Daniel Daniel
    28. October 2014 at 16:57

    I used to think Major_Moron was the epitome of idiocy. Then Dan “sticky wages are a communist fiction” W came along.

    Somewhere, two villages are missing their idiots.

  70. Gravatar of Major.Freedom Major.Freedom
    28. October 2014 at 17:08


    You mad that I am more intelligent and more informed than you?

    No, kowtowing to state power and seeking approval from your peers is not a sign of intelligence.

    “Morons”, “idiots”, yeah, you mad…maybe one day those demons in your head will finally be vanquished.

    Your parents ought to be ashamed of themselves.

  71. Gravatar of Major.Freedom Major.Freedom
    28. October 2014 at 17:14

    Dan W:

    I don’t worry. Paying down debt vis a vis consumption…well, all that payin down debt entails is a delay of spending on consumer goods. All non-consumption spending entails this same delay.

    This delay is what freaks out the vulgar Keynesians and MMs who only see value in spending on consumer and capital goods in the present

  72. Gravatar of Morgan Warstler Morgan Warstler
    28. October 2014 at 17:36

    Becky / Vivian,

    Three years ago I built out a mobile rental management platform for my buddy’s company, they now manage about 6K single family homes – 2/3 of their homes are the Goldman play in the space.

    One of the reasons I’m so cocky about GICYB, is that after being in that market for almost two years, I’m 100% sure that Minimum Wage + Welfare causes slums.

    Uber for SFH management, can snap a photo of receipt of title a the auction, get it filed at title office, and have a prop manager print out a change of ownership letter in her car outside the property and post it to occupant’s door before close of business. It can send someone to turn on water, it can oversee showings and walkthroughs it can compress the time down to nothing.

    IT CAN’T make rehab labor cheaper than $12-15 per hour (including taxes regs etc).

    As such, it is IMPOSSIBLE for a homes to be managed at scale unless their monthly rent is $950 per month (this factors in vacancy, eviction, pay-to-leave, everything).

    Even when unemployment is 25-33%, and ALL of them are getting welfare to live eat etc…

    Slums are caused by minimum wages.

    If the cost of rehab labor dropped to $4-5 per hour (GICYB), we could eliminate slums in America when rent is over $650.



    “The rate of measured productivity is falling””not rising- over the past few years.”

    Instagram was 11 employees. They built something 10x better than Kodak did with atoms over a 120 years…. in 2 years.

    Can you imagine BLS if they were forced to use a math proof where Instagram > Kodak in total value to humanity?

    Their brains would explode. They’d sputter and freak out. Think of all those past employees! All those lives and families! All those innovations and inventions! How can we say 11 22 yr old snot nose kids have produced more economic value than ALL OF KODAK IN 120 YEARS!

    And that is the problem of digital deflation.

    Any rich guy who is given this choice:

    You get to be RICH in 1994 – and get hot women. But you stay in 1994 tech forever.


    You have to start over as poor in 2014 – BUT you still get the hot women.

    Once you control for hot women, no rich guy would give up todays tech to keep his wealth.

    There’s simply nothing in 1994 worth having, besides hot women, that you can’t get better today poor.

    In two decades we’ve made most rich guys ready to give it up to keep the cool stuff our poor have today.

  73. Gravatar of Morgan Warstler Morgan Warstler
    29. October 2014 at 01:24

    Here’s another…

    What’s App is about to surpass GLOBAL SMS for messages sent – with 30 engineers:

    Imagine Govt. stats guys being forced to take full weight of SMS development, buildout, billing, all of it, and then just DOUBLE IT and attribute it to 30 guys.

  74. Gravatar of Dan W. Dan W.
    29. October 2014 at 05:57

    I agree with some or most of what Becky, Major, Morgan and Vivian have said. I agree with many of Scott’s views. My point of disagreement is that I believe NGDP is an inadequate measure of economic performance. More important, I believe NGDP signals can be misleading and that a policy based solely on this indicator can lead policy down the wrong path.

    I do not wish to wage battle against Monetary theory. If I err on a principle then correct me. The application of Monetarism is what interests me. Of particular concern are the claims of economic phenomenon and outcomes that just aren’t so.

    One example is found in Scott’s “truism” to “never reason from a price change.” There is an element of truth in this statement but there is ample real world evidence that prices and price changes do matter. Consider:

    + Consumers care about price changes
    + Politicians and policymakers care about price changes
    + Prices changes signal important information about the economy
    + Price declines in leveraged assets can trigger financial panic

    So the theoretical idea that price changes do not matter is just that, theory. In the real world prices and price changes matter a lot. In particular it appears prices and expectations of price changes and the share of who earns what in the economy all influence consumer confidence. If we agree that higher consumer confidence is better than lower then do we not agree that prices and price changes do matter?

    About “sticky wages” I have an observation:

    The vast majority of employees work for a company and, it is true, wages paid to employees by a given company rarely decrease. Yet the income paid to owners is simply whatever is left over after paying employees. This is a mathematical certainty. If the share of income paid to employees increases, the share of income paid to owners declines. The total income yielded to employees and owners of a company is not sticky. Or is it only in this case that Monetarists concern themselves with who earns the share of the income?

    Eventually the owners of a company may respond to lower profits by firing employees. These employees are forced onto the job market with an income of whatever they have saved and whatever they can borrow or receive from unemployment. They then negotiate new employment and they accept for income what a new employer offers! Where is the stickiness? Sure, for any one employee this process takes some time but in aggregate this process is happening every day. No different than any one house may take 6 months to sell but every day houses are selling and signaling a market clearing price.

  75. Gravatar of Michael Byrnes Michael Byrnes
    29. October 2014 at 07:18

    Dan W., good comment, it allows me to point out areas of disagreement

    Where I would differ from you is this:

    1. “NGDP is an inadequate indicator of economic performance” is a massive understatement. I would argue its not an indicator of economic performer at all. To the extent that one trusts measures of inflation, it is RGDP that would be an indicator of economic performance, albeit a flawed one. NGDP only SEEMS LIKE an indicator of economic performance because we have some sense of the price level (i.e., in 2014 dollars, NGDP=RGDP). Absent that sense, NGDP is uninformative with regard to economic performance.

    The NGDP trend is a useful indicator of monetary equilibrium/disequilibrium. Is the supply of money in balance with the desire to hold money. If not, it will drive consumer spending decisions. That’s true whether money is too tight (the Great Depression, the 2008 crisks) or too loose (the 70s, or Zimbabwe).

    2. “Never reason from a price change” does not mean that price changes are unimportant; it means that price changes, on their own, are not evidence of what caused them – and that is what really matters. Oil is approaching the low price of $80 per barrel. Is that because the US dollar has deflated by 20%? Is it because global oil supply has surged? Is it because demand for oil has fallen? If The latter, is it US demand or global demand that has changed? And why has demand changed? Because Eurppe has cold fusion now and has no need of stinking oil, or because the economy of Europe is collapsing? the price of oil, taken in isolation, tells us nothing about why it has changed.

  76. Gravatar of Daniel Daniel
    29. October 2014 at 11:56

    Dan W

    Where is the stickiness?

    You are a total, utter moron. On the level of Major_Moron and Mike Sax.

  77. Gravatar of Major.Freedom Major.Freedom
    29. October 2014 at 13:17


    You still sound mad. Are you going to let those demons rule over you for the rest of your life?

    Again, I am more informed and intelligent than you. Whatever you call me, if it is accurate, implies you are worse than that.

    You look at a chart of wages changing, with just 18% not changing in response to not even demand, but corporate earnings.

    Not only does the chart confirm the theory that wages can and do fluctuate downward in an inflationary monetary system that constantly puts upward pressure on wage rates, but it also confirms you don’t have the foggiest idea that wage stickiness is a doctrine associated with nominal demand and spending, not accounting earnings which are subject to cash flow AND accruals.

    You’re so uninformed that you can’t read simple charts, you don’t even know what wages are sticky in relation to, and you don’t even realize that the solution of inflation that you believe solves the problem of sticky wages, is itself a causal factor in wage stickiness.

    Such incompetence I suppose is expected for someone who is possessed by demons of hate. No time to put oneself in a state of ease in which to learn and educate yourself. Sad.

  78. Gravatar of Nick Nick
    29. October 2014 at 13:35

    I saw long yield mostly moving down as equities moved down. Even between 3-4. Not hand in hand but I marked the high for TLT at the low for SPY, around 3:15. The action on the 10yr was stranger. all the talking heads say large 10 / 30 steepeners were bought early in the day and then unwound after the hawkish statement. A possible explanation for the 10 yr bouncing around a little more erratically than the extremely long end. Or maybe the exact opposite and an explanation for why the 30yrs drop might provoke a moment of forced selling in equities. Whatever you want to read into it is there I think, but it’s difficult for me to see how this statement would cause anyone to think nominal growth will be higher in the long run. So why not bid long yields down? I say don’t be wrong, go long!
    Bonds, that is.

  79. Gravatar of Kevin Erdmann Kevin Erdmann
    29. October 2014 at 15:32


    It’s harder to get data, but I think you have to look at forward rates to get into the weeds. I use Eurodollar futures. The movement in the curve today was almost all in the 2-4 year forward range. So, changes showing up in the 10 year treasury rates are mostly just a product of those short rates. Eurodollar rates past 2020 actually ended the day slightly down. Rates in the 2016-2018 range were up more than 10bp. Rates farther out moved up slightly (maybe 2bp) when the Fed statement came out, then moved down as the day ended so that they finished the day down a couple basis points.

  80. Gravatar of Sherparick Sherparick
    31. October 2014 at 10:03

    Scott, don’t expect to persuade you it was the grifters running the banks (such as Mozillo at Countrywide) who blew up the bubble that went bang in U.S., Irish, and Spanish housing (no GSEs in Ireland or Spain, unless you count the Governments themselves – and the German banks made sure they paid up), and not the those brown and black grifters at the lower end of the social pyramid caused the Great U.S. housing bubble and crash, but as to why the banks engaged in “predatory” lending (or provided funds to the firms that did), it was because the individuals running the banks made the money on the deal. Charles Black: “The Best Way to Rob A Bank Is to Own One”

  81. Gravatar of ssumner ssumner
    31. October 2014 at 14:09

    Sherpatrick, You don’t understand my argument, and your facts are mostly wrong.

    I’ve never argued that “brown and black grifters” were the problem. Most defaults were middle class Americans of all races. In any case, the problem is not greed it’s moral hazard. Obviously the Irish and Spanish financial systems were just as riddled with government-created moral hazard as the US.

    In the US the number one problem was FDIC, then the GSEs, then TBTF. In other countries it may have differed, but the Spanish system was especially corrupt.

    Yes, people are greedy, but they lost money on the loans that went bad. In aggregate, banks lost about $800 billion, last time I looked. That’s a lot of money, even for big banks. The problem occurs when you mix greed with government created moral hazard. It leads to excessive risk taking.

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