Mian and Sufi on monetary policy
Unfortunately I’m not able to keep up with all the new blogs, but I’m told that Atif Mian and Amir Sufi are brilliant new bloggers who have great ideas on debt. Ryan Avent showed that their expertise on monetary economics is much weaker. Here he discusses a graph they present that showed PCE core inflation has fallen below a 2% trend line since 1999:
Unfortunately, I think they’ve got this wrong in a few ways. First, the Fed doesn’t target core inflation. It targets headline inflation, but it uses core as an indicator because past core inflation is a better predictor of future headline inflation than past headline inflation. So here’s something interesting: take a look at what happens when you track headline inflation (as measured by the price index for personal consumption expenditures) since 2000.
Finally everything is clear: the Great Recession was a necessity engineered by the Fed in order to disinflate back to the 2% trend. I’m kidding, of course. In fact, this is the wrong period to consider entirely, because the Fed didn’t adopt an official inflation target until January of 2012.
Why did Mian and Sufi do a study of actual inflation compared to target inflation? Here’s why:
The chart above plots the implied core PCE index if inflation had met its 2% target (red line), and the actual core PCE index (blue line) starting from 1999. The blue line is consistently below the red line, the gap has only diverged further since the Great Recession. The cumulative effect is that today the price level is 4.7% below what it should have been had the Fed achieved its long-run target…
What we are witnessing is the limit of what monetary policy alone can do. Sometimes there is a tendency to assume that the Fed can “target” any inflation rate it wishes, or that it can target the overall price level – the so-called nominal GDP targeting. The evidence suggests that the Fed may not be so omnipotent.
So their study was aimed at establishing whether the Fed is able to hit its 2% inflation target. They found it was not, on the basis that core PCE fell 4.7% below trend over 14 years. (Put aside the fact that in the 1970s, before they were inflation targeting, inflation often overshot the target by 4.7% in less than one year.)
If you are a sweet, naive, trusting, honest, idealistic soul, you will naturally assume this story has a happy ending. Ryan corrected the data error. With the correct data the study shows the Fed in fact hit its target almost perfectly in the long run. Great news!! So Mian and Sufi will naturally change their conclusion to fit the actual outcome of the study that they themselves thought provided a window into whether the Fed was able to successfully target inflation. Just as Paul Krugman changed his mind about MM after the results were in from what Paul Krugman himself said would be a 2013 test of MM. They will print a retraction, and change their forthcoming book to show the conclusion that is in fact correct. The Fed can target inflation at 2%. Because we are all scientists, aren’t we? We learn from the results of our tests. I very much hope you are right, but just in case they do not change their conclusions regarding the ability of the Fed to hit a 2% inflation target, let me explain why.
Most economists are not interested in finding the truth; they are interested in using ideas to advance their career. Empirical studies become swords in the battle, to be used when effective and thrown away when they are found useless. I sincerely hope Mian and Sufi are not like most economists. (And to be fair, there have been times when I slip into bad habits as well, so perhaps I should not be throwing stones here.)
Ryan Avent was actually pretty kind to Mian and Sufi, as he overlooked this:
What we are witnessing is the limit of what monetary policy alone can do. Sometimes there is a tendency to assume that the Fed can “target” any inflation rate it wishes, or that it can target the overall price level – the so-called nominal GDP targeting. The evidence suggests that the Fed may not be so omnipotent.
First of all, price level targeting is not at all NGDP targeting. I apologize if this sounds snarky, but they really need to get up to speed on the 2014 blogosphere debate over monetary policy. After everything that has happened you simply cannot still be arguing that monetary policy is ineffective at the zero bound, and use as “evidence” the fact that low interest rates have failed to push the rate of inflation higher. That would be like claiming that the fact that; “more police patrol high crime areas proves that police patrols are ineffective.”
Fiat money central banks can debase their currencies if they chose to. So far as I know none of them really deny this. You can’t be a serious monetary economist in 2014 and claim that a fiat money central bank can’t debase its currency. You can claim there are political barriers. Savers would be upset. Or foreign countries would complain if you depreciated the yen in the forex markets. Or you’d have to buy so many assets that the central bank would be uncomfortable with the size of its balance sheet. Don’t get me wrong, I think even those arguments are wrong, but they are defensible. But in 2014 one simply CANNOT any longer argue that the fact that low rates and QE have been accompanied by low inflation proves central banks are out of ammo. Too much has happened, the debate has moved on.
If you don’t trust me and the MMs, read Ben Bernanke, Michael Woodford, Christina Romer, Bennett McCallum, Milton Friedman, etc, etc.
PS. I promised a friend that I would do a April Fools post. I apologize, but I simply couldn’t think of one that was plausible. Nobody would believe it if I claimed to have converted to MMT. And then I tried to come up with whacky news stories, a la The Onion. Like a story that the IRS ruled that Bitcoins were property, so if you used Bitcoins to buy a Coke from a vending machine, you had to file a tax form for the capital gains on the difference between the 90 cents you paid for the Bitcoin, and the $1.25 is was worth when you bought the Coke. Or that the IRS offered me $10,000 per year to divorce my wife, continue living with her, and continue to tell all our friends that we were married (establishing common law marriage.) But every time I thought up a whacky story like those two, I realized it was true. I feel I live a sort of Groundhog Day film, where every day is April 1st. Where very day someone repeats that low interest rates show easy money doesn’t “work.” Where high interest rate show that money was “tight” during the German hyperinflation. I can’t keep up with reality.
Update: Marcus Nunes also has a good post on Mian and Sufi.
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1. April 2014 at 06:48
Warning: the top 0.01% is paying Sumner under the table to criticize Mian and Sufi!
http://houseofdebt.org/2014/03/29/measuring-wealth-inequality.html
April Fools!
1. April 2014 at 07:25
This blogpost is like a diamond in the rough. Knew I’d find one eventually.
On a side note, am I blind or does that chart show that the blue line has not been “consistently below” the red line, but rather that it was barely below the red line from 2002-2005, then quite a bit above the red line until 2009, and then barely above the red line until 2013, and finally barely below until today?
If that is right, how can they claim it’s been consistently below?
Actually, one quibble with this post. Well, not eeqlly a quibble about this post but how it doesn’t seem to gel with proor posts. We read a lot on this blog about how the Fed not only failed to keep NGDP growth stable, but even on its own price level targeting terms it has failed. Sumner has on many occasions pointed to below target price inflation.
But if we expand it to the “long run”, which is the Fed’s actual and supposed time horizon, then like the chart shows, and like Sumner states, the Fed has successfully targeted the long term price inflation that it wanted all along. The price level today is almost exactly where it would have been had the growth been more linear.
How can you go from saying just a few months ago that the Fed has failed to even succeed on its own terms, and then see a chart on the price level today, flip flop and assert the Fed has succeeded on its own terms? Has this information on the long run price level trend been kept secret until today? Or have judgments of failure been advanced before on mistaken grounds of short term considerations of price level trends?
1. April 2014 at 07:42
MF click the other link to see their bogus chart
1. April 2014 at 08:01
Major_Freedom,
There is no contradiction in Sumner’s thinking. The blue line went above the red line in the graph above due to a supply shock (global oil shortage).
2008 revealed the huge flaws of strict 2% inflation targeting. According to that perverse reasoning, if oil shortages create inflationary pressure of, say, 4%, then the Fed must tighten and reduce aggregate demand in order to bring inflation back down to 2%. Millions of people had to lose their jobs due to the oil shortage, in other words.
And of course the other huge flaw was that the Fed used interest rates rather than the money supply as its steering mechanism….
1. April 2014 at 08:29
So far I’m deeply unimpressed with Mian and Sufi’s blog:
http://i.imgur.com/zN4HO.jpg
For example they did a post pushing the fairy tale of the underconsumption hypothesis.
http://houseofdebt.org/2014/03/27/why-income-distribution-matters-for-macroeconomics.html
It linked to five papers providing various sorts of evidence that the MPC may be correlated to wealth and/or debt. Two of the papers they wrote themselves (the relationship between income/wealth the housing bubble and consumption) and are fine as far as it goes. But two of the papers they linked to were on fiscal stimulus rebate checks and the fifth was a trivial paper on spending behavior and credit card limits (duh). The results of the fiscal stimulus rebate check papers mostly turned out to be *not statistically significant* and are totally contradicted by a paper by Slemrod. I discuss this in comments.
The connection between the MPC and the underconsumption hypothesis is tenuous at best since the underconsumption hypothesis really refers to savings rates and one is a marginal and the other is an average. More importantly there’s little empirical evidence that the NIPA/SNA consistent savings rate is correlated to wealth or income inequality. In fact, in the US, savings rates have plummeted as inequality has soared. I also discuss this in comments.
Basically, in their first foray into macroeconomics, Mian and Sufi made themselves look like total fools by offering their opinions on things they evidently know very little about. I think they would better serve themselves and others if they just stick to the facts.
1. April 2014 at 08:40
Well…how come MM’ers were winning over academia yesterday but today is Groundhog Day? And why do I have the same feeling?
1. April 2014 at 08:47
TravisV:
There was no oil shortage during that period of time anywhere large enough to have caused aggregate production to decline such that aggregate prices rose as much as they did.
If you model prices to NGDP or the rate of growth in M3, there is a much tighter correlation.
I will agree with you that 2008 was a time that revealed flaws in price targeting. But price targeting is just as “perverse” as your antidote. It is perverse because socialism is perverse. Monetarists are perverts who call each other perverted.
It wasn’t because of any oil shortage that the Fed tightened post 2008, because it wasn’t oil that made aggregate prices rise over that time. You are advancing an economic fallacy called cost push inflation. If the the spending on and price of oil rises, then that would require, in the absence of monetary inflation, a reduction in spending elsewhere. There would be no aggregate pressure on prices to increase. It would be a shift in relative spending and prices. But we saw an aggregate increase in prices and spending. Only The Fed has that kind of ability.
Inflation is always and everywhere a monetary phenomenon.
Oil, it seems, provides people with excuses for their beliefs other than just invading countries.
All socialist plans in money fail, TravisV. Socialism is a hugely flawed system. Did you actually believe this wasn’t necessarily true for money as well? That it is different if only the right people are in charge with the right plan? The problem isn’t the people or the specific plan. The problem is socialist control. You are blinding yourselves into believing “NGDPLT” won’t be revealed as fundamentally flawed by time and human action as did price targeting.
You guys are hucksters selling ancient relics that are being claimed to have new and improved healing powers.
1. April 2014 at 09:13
“Nobody would believe it if I claimed to have converted to MMT.”
No, … but you could have praised MMT for some minor point. That would be eyebrow raising on it’s own. Or perhaps promise a follow up article discussing one of Major_Freedom’s concerns… or explain that he is actually your estranged half brother… or that he’s you when you’re not on your meds!
Yeah, maybe you’re right. Too unbelievable.
1. April 2014 at 09:26
Why do I feel like 2% inflation, as a long term goal, is too high.
1. April 2014 at 09:55
Mark, I thought the “underconsumption” hypothesis went out of style after the 1930s. But then I used to think that about the liquidity trap as well.
Tom, Yes I could claim to write the MF posts, but I’m honestly not capable of thinking of ideas that illogical. I have a limited imagination.
1. April 2014 at 10:28
Benjamin Cole,
See below:
http://blogs.wsj.com/economics/2014/03/31/janet-yellen-gives-one-of-the-most-dovish-speeches-i-have-ever-read
Now how do you feel about the 10-year outlook for U.S. stocks????
1. April 2014 at 11:45
Off-Topic.
Is Obamacare succeeding or failing? I honestly have no idea. Could someone provide an unbiased analysis? Here’s some biased analysis:
Bob Murphy:
http://consultingbyrpm.com/blog/2014/03/obamacare-going-to-crash-the-system-sooner-than-most-think.html
Krugman:
http://krugman.blogs.nytimes.com/2014/04/01/a-big-biden-deal
http://krugman.blogs.nytimes.com/2014/04/01/seven-million
1. April 2014 at 11:49
Scott,
Off Topic.
Reasoning from a price change?
http://blogs.wsj.com/moneybeat/2014/03/31/is-abenomics-pushing-europe-toward-deflation/
March 31, 2014
Is Abenomics Pushing Europe Toward Deflation?
By Alen Mattich
“…But disinflationary pressures in the euro zone are also being driven by monetary policy elsewhere, not least in Japan. Japanese Prime Minister Shinzo Abe has committed to ending the country’s two decades of deflation and stagnation in part by forcing down the value of the yen by encouraging the Bank of Japan to ramp up its asset purchase program, known as quantitative easing. The yen has, indeed, depreciated, and Japanese inflation is now running at 1.5% on the year, three times that of euro-zone inflation.
But a falling yen comes at the expense of a rising euro, which both drives down imported prices in euro-zone economies and makes producers in the single currency region less competitive…”
Never mind that the vast majority of the depreciation of the yen against the euro occured between mid-2012 and March 2013, or over a year ago, and so is unlikely to be reflected in year on year inflation statistics.
Never mind that Japan accounts for only about 3% of the Euro Area’s imports.
Never mind that an increase in the euro has less of an effect on the Euro Area’s trade competitiveness precisely because of deflation in the Euro Area.
Never mind that deflation is more of a problem in the Euro Area’s periphery, which imports relatively little from Japan, than in the core which imports relatively more from Japan.
Never mind that Japan is currently running record trade deficits, whereas with the exception of France, Finland and Latvia, every single member of the Euro Area ran a trade surplus last quarter.
Never mind that Japan is famous for its idiosyncratic practice of pricing-to-market meaning the prices for Japanese imports are largely rising or falling with the Euo Area price level, making this charge even more ridiculous.
The real problem is seeing higher inflation as a good thing in and of itself rather than as a symptom of increased aggregate demand (NGDP) which is the real end.
The irony is that, through its increased trade deficit, Japan is “exporting” its increased aggregate demand and inflation to the rest of the world, and the Euro Area, with its nearly universal trade surplus, is “exporting” its demand depression and consequently the risk of deflation to the rest of the planet.
1. April 2014 at 12:09
Mark: On US inequality — the rise is a household thing, not an individual income thing. (My take: high income women are marrying high income men, a pattern that took off when women having professional careers took off.)
http://politicalcalculations.blogspot.com.au/2013/12/the-major-trends-in-us-income.html#.UzsbqxzdKgI
1. April 2014 at 13:11
Scott,
Off Topic.
Martin Feldstein cries fire in a flood.
http://online.wsj.com/news/articles/SB10001424052702303978304579471472849459860
March 31, 2014
The Fed’s Missing Guidance
By Martin Feldstein
“…Experience shows that inflation can rise very rapidly. The current consumer-price-index inflation rate of 1.1% is similar to the 1.2% average inflation rate in the first half of the 1960s. Inflation then rose quickly to 5.5% at the end of that decade and to 9% five years later. That surge was not due to oil prices, which remained under $3 per barrel until 1973.
Although history teaches that a rapid expansion of the money supply leads eventually to rising inflation, the current inflation risk is not, as many people assume, that the Fed’s policy of quantitative easing has greatly expanded the money supply. Although the commercial banks received trillions of dollars of reserves in exchange for the assets that they sold to the Fed, these reserves were not converted into money balances but were deposited at the Federal Reserve, which now pays interest on such excess reserves. The broad money supply (M2) increased only about 6% in the past year.
The real source of the inflation risk is that the commercial banks can use their enormous deposits at the Fed to start lending when corporate borrowers with good credit ratings are prepared to borrow. That increase in lending to businesses will be welcomed until the economy is back at full employment…”
I’ve heard variations of this complaint from everyone from Richard Koo to believers in ABCT. The basic idea seems to be that the money multiplier is highly volatile and that the moment short term interest rates leave the zero lower bound inflation is going fly out of control because lending will go through the roof.
This seems extremely unlikely if you consider the last time the Federal Reserve spent a protracted period at the zero lower bound. Here’s a graph of the Friedman and Schwartz M2 money multiplier and the yield on short term (3 to 6 month) U.S. securities from 1925-70 (I can’t use the original FRED graph right now because the new FRED is still experiencing teething pains):
http://thefaintofheart.files.wordpress.com/2013/06/sadowski_6.png
The money multiplier reached a low of 2.52 in November 1940 when short term interest rates were 0.003%. After the Fed un-pegged the short term rates from the 0.375% rate that had been set from mid-1942 through mid-1947, they were allowed to rise above 1% in August 1948 for the first time since March 1932. But the money multiplier remained close to three, rising only very slowly even as short term interest rates rose high enough by 1953 to resume their more familiar cyclical volatility.
Note that this slow rise in the money multiplier continued on through the 1960s. What changed in the 1960s was the Fed started increasing the monetary base in 1962 after a decade of it being nearly constant at about $50 billion. This combined with gradually accelerating money velocity led to rapid NGDP growth, consistently above 5% annually from 1963-70 and consistently above 8% annually from 1971-81.
The perception that inflation “suddenly accelerated” in the last half of the 1960s is mostly due to the fact the US economy hit the vertical portion of the short run AS curve as the unemployment rate dropped to 3.5% during a time when full employment was closer to about 6% mostly due to demographics (a tidal wave of young inexperienced and relatively unemployable baby boomers started entering the labor force).
In any case, the bottom line is that neither the money multiplier, nor money velocity, behaved in an unpredictable fashion in the 1960s. The Fed just “printed” more money than was necessary or desirable.
1. April 2014 at 13:21
Lorenzo from Oz,
I agree that two incomes and marriage patterns might explain a large part of the increase in household *earnings* inequality that the US has experienced between 1970 and the mid-1990s. But in my opinion a much more important source of income inequality, which may not be reflected in the Gini coefficient, is income *concentration*. The top 1% have seen their share of taxable income increase from less than 8% in 1978 to about 25% today for example. I don’t really think that can be explained by skills based technological change or marriage patterns.
1. April 2014 at 14:01
Major_Freedom, check it out:
http://www.themoneyillusion.com/?p=26507#comment-327094
Proof that Scott does read your posts!… [or read one once anyway]. His words don’t literally say it, but that could well be code for something… perhaps jealously regarding your intellect.
1. April 2014 at 14:42
Edward,
it’s interesting to note that before the Fed, during the government-imposed gold standard, clearing houses effectively expanded the base money supply during financial panics by issuing clearing house certificates.
1. April 2014 at 14:58
Philippe.
That’s EXACTLY my point
1. April 2014 at 15:51
http://www.nber.org/papers/w19829.pdf?new_window=1
‘Does assortative mating contribute to household income inequality? Data from the United States Census Bureau suggests there has been a rise in assortative mating. Additionally, assortative mating affects household income inequality. In particular, if matching in 2005 between husbands and wives had been random, instead of the pattern observed in the data, then the Gini coefficient would have fallen from the observed 0.43 to 0.34, so that income inequality would be smaller. Thus, assortative mating is important for income inequality. The high level of married female labor-force participation in 2005 is important for this result.’
1. April 2014 at 15:51
Travis—
Yes but…she has comitted to and I think is trapped into quitting QE…and going back to QE will be tough…
Moreover, the FOMC is not in a fevered pique that we are way below the inflation target…
This sets up a Japan-lite scenario…and remember, FOMC board members are comfortable people, not exposed to the economic damage they cause…
1. April 2014 at 16:30
Don’t worry Scott, Krugman supplied all the April fools laughter we needed.
http://krugman.blogs.nytimes.com/2014/04/01/stupidity-in-economic-discourse-2/
“Many conservative economists have a fixed idea in their heads “” it’s more than just a presumption, because it seems completely impervious to evidence “” that progressive economists are dumb guys who don’t understand basic economics. And because of this fixed idea, conservatives appear literally unable to read what my side writes; they criticize the dumb things they’re sure we must have said, without checking to see if that’s what we actually said.”
(Of course I think he’s correct about conservative economists, but equally correct about himself)
1. April 2014 at 16:45
Benjamin Cole,
So much doom and gloom! I feel like you’re saying “I know the future better than the stock market does.” Instead, you should ask “why is the S&P 500 at an all-time high even as the taper proceeds?”
Why is the S&P 500 at an all-time high? Here is my personal explanation:
(1) First and foremost, the probability that NGDP will dramatically crash is far lower than it used to be. As I’ve pointed out before, the FOMC now understands the critical importance of forward guidance and is far more comfortable with unconventional monetary policy (such as QE).
(2) Going forward, 3.0% or even 2.0% NGDP growth might be adequate for stock prices and solving the sticky wage problem. Consider this comment from Prof. Sumner:
http://www.themoneyillusion.com/?p=26087#comment-316658
“Travis, I’d say very little from either. It’s mostly been the self-correcting mechanism as wage grow slows in response to the negative NGDP shock.”
VERY insightful! Imagine a game of musical chairs:
http://www.themoneyillusion.com/?p=20433
“When the music stops several chairs are removed, and a few participants in the game end up sitting on the floor. Slow NGDP growth combined with sticky wages is like taking away a few chairs; several unemployed workers end up “sitting on the floor” (i.e. unemployed), as there is not enough aggregate nominal income to support full employment at the existing nominal hourly wage level.”
Since the crisis, workers have been obtaining slower wage increases. In future years, as NGDP grows 2% to 5%, national income will be allocated to more and more workers (slowly and steadily).
Benjamin Cole, you and I both would like to see a faster recovery. But keep things in perspective: the U.S. recovery of the next 10 years is likely to be far far far better than what happened in Japan.
The efforts of Shinzo Abe, Sumner, Woodford, Charles Evans, Bernanke and Yellen really have made the U.S. economy more stable and prosperous!
1. April 2014 at 19:10
TravisV, as the unofficial authority on all things Sumner, I’m curious: can you tell me when is the first time MF/geoff posted here, and when’s the last time Sumner responded to him? He did in fact respond at least once:
http://www.themoneyillusion.com/?p=11607#comment-100800
1. April 2014 at 20:28
Major Freedom:
You said:
“There was no oil shortage during that period of time anywhere large enough to have caused aggregate production to decline such that aggregate prices rose as much as they did.”
Actually, there was a noticeable stagnation in global oil production starting in 2005 that only really shook itself out in 2010. Oil prices had a historic run-up starting in early 2007 that they haven’t experienced since the 1970’s.
1. April 2014 at 20:40
Tom Brown,
I am not the unofficial authority on Sumner. I’m just a fan with a huge mancrush on him!
Mark Sadowski is far more sophisticated than me and understands the nuts and bolts of Sumner’s thinking better than I do.
As for Major_Freedom or Geoff, when Sumner mentions them, it’s more of an aside where he jokes about their hostility or lack of reason.
Sumner very very rarely provides a three-line or longer response to Major_Freedom or Geoff with much substance.
I’m sure Sumner tried to have substantive discussions with Major_Freedom at first but after several exchanges discovered how pointless they are and how hollow and repetitive Major_Freedom’s thinking is.
I’ve experienced much the same these past few weeks dealing with Major_Freedom. I’m probably a lot more polite to him than I should be…..
1. April 2014 at 22:12
TravisV, thanks. I won’t begrudge anybody their politeness, but there is that old adage about feeding…
(an adage I violate myself all the time)
2. April 2014 at 06:14
MichaelM:
Yes, there was a “noticeable” change. Every period on oil production history has had “noticeable” changes. The question is whether the decrease in production fron 2005 on were of such significance that they cut into above ground reserves and resulted in decreased productivity in the entire economy that prices rose.
But we know it wasn’t large enough, because during 2005-2008 productivity of the whole economy was increasing.
Economic theory shows us that more production leads to lower prices, ceteris paribus. So that period was one of both rising production and rising prices.
This can only be possible with a rise the quantity of money and volume of spending. And that is exactly what happened just prior to that period, and somewhat into that period.
Bottom line is that the Fed was the cause for rising prices and spending during that period.
—————–
TravisV:
I understand I might have insulted your intelligence with my previous comment, and I would agree that it might be fair if you ceased playing nice. All that I would get.
What I don’t accept, and chuckled in reading what you wrote just there, is that my thinking is “hollow.” I accept it is repetitive, but if repetition is a flaw, then you are implying that true statements are flawed because they are true today as they were yesterday. In other words, you’re implying that non-flawed thinking is thinking that constantly self-refutes, or contradicts past thinking. But even that would be repetition as well.
I understand that you would feel compelled to write that my thinking is “hollow”, considering that you are clearly not able, yet, to adequately understand the foundation of theory I “represent” here. You only know the third party interpretations of others who don’t get it. You think you know it in the catch phrases and one liners, but you don’t. Those catch phrases are the marketing for others who are convinced that socialism works. But they are not the entirety like you assume. I mean, you’ve never really proposed any deeper debating here. And you say I am thinking hollow?
2. April 2014 at 06:27
Tom Brown:
I am not a troll. I don’t post for the purpose of emotionally riling people up. I post what I do because I would like for better ideas to be included so that we all can make better decisions about what’s right. If you prefer not to engage ideas that contradict your own, then fine, I won’t lose any sleep over it. But to pretend that you are doing so because I am allegedly a troll, is really just intellectual cowardice.
TravisV:
You say you are sure Sumner has had substantive debates with me. I can assure you as a first person source of evidence, that no he has not. He hasn’t substantively debated anyone who defends Austrian ideas in fact. I stopped posting here for almost a year as a sweetener for Sumner to substantively debate an Austrian economist.
Call me a naive believer, but I still believe that at some point your faith in socialism will progress to understanding individual action.
2. April 2014 at 06:42
Tom Brown:
“Proof that Scott does read your posts!… [or read one once anyway]. His words don’t literally say it, but that could well be code for something… perhaps jealously regarding your intellect.”
I LOVE it when someone is able to expose logical flaws in my thinking. It is one of the best paths to self-improvement.
If you notice however, Sumner didn’t actually provide any examples of where my thinking is illogical in that comment. It was really more of disagreement without showing why.
On thw other hand, It is quite easy for me to expose logical flaws in his thinking though, which is likely why he said that. For example, calling my theories illogical as a pejorative contradicts Sumner’s placing pragmatism as his deology. Pragmatists must project illogical premises if doing so advances their own interests. Clearly that is how politics operates, and that is why pragmatism is so welcome by politicians. Most would rather hear how they can advance their careers, than doing what is logical. Same thing for most economists.
Socialism is rife with logical contradictions, and Sumner advocates for socialist money. That should tell you who values logical consistency more and who values it less.
2. April 2014 at 07:07
Major_Freedom,
Come on, be honest. Why didn’t the debate with the Austrian (Bob Murphy) happen? Bob Murphy avoided the debate, that’s why! Also Murphy has said numerous times in his posts that he’d love to debate Krugman but fears debating Sumner.
And look, the idea that Sumner has a history of avoiding substantive discussions with Austrians is ludicrous. Early on, he had long interactions with “saifedean,” both in full posts and in comment sections. Here’s one example:
http://www.themoneyillusion.com/?p=1680
Sumner has had lots of long interactions with Bob Murphy. They’re even friendly! Here’s one example among many:
http://www.themoneyillusion.com/?p=2843
And of course Sumner interacts with George Selgin and Larry White all the time.
Last point: Major_Freedom recognizes that Austrians like Peter Schiff and Bob Murphy are clowns, frequently predicting an apocalypse that never happens. A couple months ago, Bob Murphy claimed that Bernanke “has set the U.S. (and world) economy up for a major crash….”
http://threeccorp.com/CCCArchives/Article/tabid/579/ArticleId/107/The-END-of-the-Bernanke-Era.aspx
Note: Major_Freedom recognizes that Murphy is a clown for making that prediction.
If Bob Murphy is not a good present-day representative for Austrian thought, then who is?
2. April 2014 at 07:11
Sorry, Sumner also deals with the Austrian view of the Great Depression in a very long and charitable fashion in this excellent post: http://www.themoneyillusion.com/?p=4286
2. April 2014 at 07:22
Mark said: “In any case, the bottom line is that neither the money multiplier, nor money velocity, behaved in an unpredictable fashion in the 1960s. The Fed just “printed” more money than was necessary or desirable.”
Mark, if in Japan or the USA there are not enough buyers of government bonds, and the government needs to sell bonds because it is spending much more than taxes, would you predict anything other than that the central bank keeps buying bonds?
Imagine inflation is 5% in Japan. Seems to me investors don’t want to buy bonds because either interest rates are up and bonds are down or people think the Yen will go down, or that interest rates will go up when the central bank decides to fight inflation. Do you think people would keep buying JGBs? If they don’t, then either the central bank buys bonds or the government shuts down, is there any chance that the government shuts down?
How could the central bank “print the right amount of money” and the government keep spending money?
2. April 2014 at 07:50
Travis-
I hope you are right. From what I see the central banks are inflation-fixated.
2. April 2014 at 07:53
Major wrote:
“But we know it wasn’t large enough, because during 2005-2008 productivity of the whole economy was increasing.”
The recession started in December 2007. Real production (GDP) was falling while oil prices rose during the first half of 2008.
2. April 2014 at 07:59
Benjamin Cole,
I hope you can see how your analysis is frustrating sometimes. Right now, you’re implying that the huge increase in U.S. stocks since the June 2013 taper announcement is irrational. You know better than the market, in other words.
In another case, you wished that Larry Summers with his aggressive leadership style were in charge of the Fed instead of Yellen. But the market reaction was very positive when Summers gave up and it’s increased substantially since Yellen has taken charge. You know better than the market, in other words.
2. April 2014 at 08:27
Michael Byrnes:
Real GDP growth was positive until past 2008. Yes, the recession “officially” started in 2007, but the economy was still growing, it was just growing slower than it otherwise would.
Positive real growth and rising spending and prices 2005-2008 makes the cause of the rising prices and spending the Fed, not oil.
2. April 2014 at 08:56
TravisV:
“Come on, be honest. Why didn’t the debate with the Austrian (Bob Murphy) happen? Bob Murphy avoided the debate, that’s why! Also Murphy has said numerous times in his posts that he’d love to debate Krugman but fears debating Sumner.”
There are more Austrians. Why isn’t Sumner challenging them to a debate?
“And look, the idea that Sumner has a history of avoiding substantive discussions with Austrians is ludicrous. Early on, he had long interactions with “saifedean,” both in full posts and in comment sections. Here’s one example:”
http://www.themoneyillusion.com/?p=1680”
This is not economics debate. This is a debate on what exactly caused the Great Depression, with quibbling over the data.
I was looking for a debate on theory, not history. This thread comes close, but it’s not what I meant.
“And of course Sumner interacts with George Selgin and Larry White all the time.”
They fundamentally agree with him.
“Last point: Major_Freedom recognizes that Austrians like Peter Schiff and Bob Murphy are clowns, frequently predicting an apocalypse that never happens. A couple months ago, Bob Murphy claimed that Bernanke “has set the U.S. (and world) economy up for a major crash….””
I never said I think Murphy is a clown. I respect him immensely.
What I said is that making predictions on the future state of the economy based on inferring constancies in relations to past data is crasyzy for both “optimistic” AND “pessimistic” predictions.
“Note: Major_Freedom recognizes that Murphy is a clown for making that prediction.”
It was just as clownish for the other guy making a prediction who won.
“If Bob Murphy is not a good present-day representative for Austrian thought, then who is?”
He is. He need not be afraid if he is. It’s pretty easy to see the flaws in Sumner’s theory. Murphy just has more class than I do.
Making a wrong prediction about the CPI does does disqualify anyone from being an intelligent economist. It makes them a bad predictor, but economics is not a prediction science.
“Sorry, Sumner also deals with the Austrian view of the Great Depression in a very long and charitable fashion in this excellent post: http://www.themoneyillusion.com/?p=4286”
Not really. Meaning he doesn’t engage Austrian theory in that post.
2. April 2014 at 09:10
Seeing how Austrian theory is pseudo-scientific bullshit, I don’t see how anyone with a bit of sense would engage in a “debate”.
How does one debate people who start off by claiming their theory is unfalsifiable ?
Might as well debate people who claim the onus is on you to disprove the existence of their invisible friends. Oh wait …
2. April 2014 at 09:18
Major_Freedom,
I enjoy watching you spin your wheels!
By the way, you wrote the following:
“Call me a naive believer, but I still believe that at some point your faith in socialism will progress to understanding individual action.”
Why do you think I’ll see the light when brilliant people to the right of me like Bonnie Carr dajeeps.wordpress.com and Morgan Warstler reject your arguments?
P.S.: The efforts of Bonnie, Morgan, Pethokoukis and Ponnuru to keep the flame of monetary sanity alive among the rest of the hard-money right is hugely inspirational and keeps me hopeful about the future.
2. April 2014 at 11:22
“I enjoy watching you spin your wheels!”
He does that a lot.
2. April 2014 at 11:36
Professor Sumner,
Off-Topic but I was thinking about your response to Nick Rowe’s post about interest rate differentials wherein you said this:
“I’d like to propose NGDP futures targeting as an alternative to the failed interest rate targeting regime.”
I was wondering if there was a way a NGDP futures targeting could be made to be compatible with a permanently zero Federal Funds Rate?
2. April 2014 at 13:53
Major_Freedom,
You do not admire Bob Murphy as a representative of Austrian economics.
How do I know? Look at pages 4 and 5 of this PDF.
http://threeccorp.com/CCCArchives/Article/tabid/579/ArticleId/107/The-END-of-the-Bernanke-Era.aspx
TO THIS DAY, Bob Murphy argues:
Ultra-easy money –> lower interest rates –> “unsustainable boom”
In contrast, multiple times, you’ve acknowledged the opposite:
Ultra-easy money –> rapid NGDP growth –> HIGHER interest rates
and vice versa.
Is Austrian economics itself a fraud or is Bob Murphy just bad at representing it?
2. April 2014 at 14:07
Bob Murphy also believes that Bernanke “has set the U.S. (and world) economy up for a major crash.” (See link above).
Major_Freedom isn’t sure. In fact, he thinks it’s very possible that the next ten years will be more stable than the past ten years.
Contrary to Bob Murphy’s claim, I think our next downturn will not be major (substantially smaller than the 2008/09 downturn)…..
2. April 2014 at 14:39
Vince Cate,
Offhand I can think of several historical examples involving advanced nations where public debt was about 90% or more of GDP and falling, inflation rose above 5%, and long term interest rates remained below 7%. In particular:
1) UK 1825, 1847, 1853-54 and 1860
Public debt was 212.7% of GDP in 1825, 130.1% in 1847, 131.7% and 125.1% of GDP in 1853 and 1854 respectively and 115.5% of GDP in 1860 according to the IMF. Inflation was 7.2% in 1825, 6.0% in 1847, 7.4% and 7.8% in 1853 and 1854 respectively and 6.6% in 1860 according to Measuringworth. Long term interest rates averaged 3.54% in 1825, 3.44% in 1847, 3.07% and 3.27% in 1853 and 1854 respectively and 3.19% in 1860 according to Measuringworth.
2) France 1923-26
Infation was 28.7%, 14.1%, 14.7% and 29.0% in 1923-26 according to Michael Bordo’s database. Public debt was 235.9%, 216.8%, 192.4% and 197.2% of GDP in 1923-26 according to the IMF historical public debt database. Long term interest rates averaged 5.42%, 5.58%, 6.37% and 6.15% in 1923-26 according to Michael Bordo’s database.
In fact Paul Krugman said the following about this episode (discussed in detail beginning on page 27):
“The closest one can come to historical situations at all resembling the situation of today’s floating-rate debtors is that of France in the 1920s, which emerged from World War I with a large debt burden that it had great political difficulty dealing with, and did in fact experience a run on the franc.”
“The basic insight is that France grew quite strongly as the franc slid due to loss of confidence […] What actually happened was a sharp fall in the franc, substantial inflation, but no interest rate spike and a quite good performance in terms of real output. Nothing in that story validates the conventional wisdom [about the vulnerability of the United States and other nations to a loss of capital inflows].”
https://webspace.princeton.edu/users/pkrugman/Currency%20regimes.pdf
3) New Zealand 1937 and 1948
Public debt was 148.0% and 124.3% of GDP in 1927 and 1948 respectively according to the IMF. Inflation spiked to 7.0% and 7.8% in 1937 and 1948 respectively according to New Zealand Statistics. Long term interest rates averaged 3.79% in 1937 according to the New Zealand Official Yearbook. I don’t know the average long term interest rate for 1948 but an inspection of the New Zealand Official Yearbook reveals there was no issue of long term bonds that exceeded 5.0% in 1948.
4) Netherlands 1946 and 1949-54
Public debt was 223.0% of GDP in 1946 and 162.4%, 137.3%, 118.4%, 106.9%, 101.5% and 88.7% of GDP in 1949 through 1954 according to the IMF. Inflation was 9.1% in 1946, and 6.0%, 9.8%, 15.6%, 5.6%, 6.4% and 6.0% in 1949 through 1954 according to Michael Bordo’s database. Long term interest rates averaged 2.99% in 1946 and 3.12%, 3.12%, 3.42%, 3.41%, 3.18% and 3.16% in 1949 through 1953 according to Michael Bordo’s database.
5) UK 1947-48 and 1951-52
Public debt was 264.1% and 239.6% of GDP in 1947 and 1948 respectively, and 196.8% and 180.9% of GDP in 1951 and 1952 respectively, according to the IMF. Inflation was 5.5% and 7.6% in 1947 and 1948 respectively, and 9.9% and 8.7% in 1951 and 1952 respectively, according to Michael Bordo’s database. Long term interest rates averaged 2.76% and 3.21% in 1947 and 1948 respectively, and 3.78% and 4.23% in 1951 and 1952 respectively according to Michael Bordo’s database.
Were I able to dig up the historical data I suspect that Netherlands between 1834 and 1872 would offer several more similar observations.
Note in all of these cases the real interest rate on public debt was significantly negative.
I submit to you that although the scenario that you are imagining is possible, it’s not very probable. Weimar Germanys don’t grow on trees, otherwise it wouldn’t have to be invoked so often.
2. April 2014 at 15:31
Daniel:
“Seeing how Austrian theory is pseudo-scientific bullshit, I don’t see how anyone with a bit of sense would engage in a “debate”.”
Economics is not a hard science. It is a deductive science, akin to formal logic and mathematics. Austrian theory just recognizes that.
“How does one debate people who start off by claiming their theory is unfalsifiable?”
Unfalsifiable by experience, but not irrefutable by logic.
You debate mathematicians using logic, not historical experience.
You debate formal logicians using logic, not historical experience.
You debate Austrians using logic, not historical experience.
“Might as well debate people who claim the onus is on you to disprove the existence of their invisible friends. Oh wait…”
So I guess mathematicians and logicians are really just peddling a religion of an overlord who is supposed to control everyone, who were are obliged to obey, and feel a duty to supporting. Oh wait…
———————–
TravisV:
“I enjoy watching you spin your wheels!”
You mean as they are continuing to gain and maintain traction? I agree!
“By the way, you wrote the following:”
“Call me a naive believer, but I still believe that at some point your faith in socialism will progress to understanding individual action.”
“Why do you think I’ll see the light when brilliant people to the right of me like Bonnie Carr dajeeps.wordpress.com and Morgan Warstler reject your arguments?”
Warstler doesn’t reject my arguments. He has said more than once that I am right. He just believes that the ethics I espouse cannot be adopted as of yet in society. But he’s wrong.
As for Carr, I haven’t debated this person.
And three people rejecting what I say means diddly squat. I need to be SHOWN how I am wrong. Pointing me to 100 million who disagree, without showing me how I am wrong, isn’t a counter-argument either.
This is weak.
“P.S.: The efforts of Bonnie, Morgan, Pethokoukis and Ponnuru to keep the flame of monetary sanity alive among the rest of the hard-money right is hugely inspirational and keeps me hopeful about the future.”
Yes, just like the Keynesians kept the hopes of Marxists alive…
“You do not admire Bob Murphy as a representative of Austrian economics.”
Yes, I do. He is not “representing” the Austrian school when he makes predictions. Nobody is “representing” the Austrian school when they make predictions.
Murphy understands Austrian theory. He wrote study guides on both Human Action and Man, Economy and State.
Please try to avoid telling me what I believe about other people when I am directly telling you otherwise. It’s silly.
“How do I know? Look at pages 4 and 5 of this PDF.”
“http://threeccorp.com/CCCArchives/Article/tabid/579/ArticleId/107/The-END-of-the-Bernanke-Era.aspx”
I didn’t write that essay. Nothing in it is proof of anything I think.
“TO THIS DAY, Bob Murphy argues:”
“Ultra-easy money -> lower interest rates -> “unsustainable boom””
No, it’s not “ultra” easy money. Just easy money, and it has to enter the loan market first. I define easy money as money in excess of the money that otherwise would have been produced in a free market.
You have a shallow understanding of ABCT.
This is the order:
Easier than market money entering the loan market first -> lower than market interest rates -> hamper inter-temporal economic calculation -> unsustainable boom in the real economy -> inevitable correction.
“In contrast, multiple times, you’ve acknowledged the opposite:”
“Ultra-easy money -> rapid NGDP growth -> HIGHER interest rates and vice versa.”
You’re failing to grasp the crucial distinction between temporally changing interest rates, i.e. history, with interest rates that are higher or lower NOW than they otherwise would have been in a free market, i.e. counterfactual.
Even if interest rates rise over time with high quantities of money entering the loan market first, there is still a downward pressure on rates as compared to the alternative of the interest rates that would prevail if every single price rose exactly the same percentage.
The core principle of Austrian economic theory is individual action, and the core principle of ABCT specifically, is economic calculation.
No matter what the central bank is doing, it is falsifying economic calculation because market forces are not determining the extent, scope, or location of money production. For that reason, investors are blind to free market pricing that they NEED in order for their normal profit seeking behavior to regulate and coordinate the capital structure.
“Is Austrian economics itself a fraud or is Bob Murphy just bad at representing it?”
Do you still beat your wife?
The Austrian school is not fraudulent, and Bob is excellent at “representing” it. Again, SCIENTIFIC PREDICTIONS are totally outside the scope of Austrian theory. Austrians recognize that you CAN’T scientifically predict the future, because human action is inherently changing over time. No constants are present that are required to make falsifiable scientific predictions.
“Bob Murphy also believes that Bernanke “has set the U.S. (and world) economy up for a major crash.” (See link above).”
That is correct. Bernanke has done that. He took the socialist money system, and engaged in behavior that is far outside any reasonable activity that an otherwise market order in money would have generated. For that, he messed up the economy big time. You just refuse to believe it because you take what you see nominally, without having a proper theory to understand it.
“Major_Freedom isn’t sure. In fact, he thinks it’s very possible that the next ten years will be more stable than the past ten years.”
I don’t make any predictions on when or who. I think it is crazy to be doing what you are doing, which is having total faith in socialist planners who have been shown as theoretically and empirically prone to fail.
I don’t have the faith that you do. Socialist planners are groping in the dark. They have no recourse to profit and loss in their own activity. That is precisely why they are necessarily messing up the economy all the time.
“Contrary to Bob Murphy’s claim, I think our next downturn will not be major (substantially smaller than the 2008/09 downturn)…..”
And if you’re wrong? Will you totally abandon your faith in central banking? Of course not! You’ll just say they followed the wrong rules of hitting CTRL-P.
—————————
Philippe
“I enjoy watching you spin your wheels!”
“He does that a lot.”
Where? Just one example please.
2. April 2014 at 16:03
Major_Freedom,
What are you saying? That interest rates have been artificially low without interruption for the past 100 years?
Hypothetically, if I granted that premise that for 100 years, interest rates have always been lower than they would have been in your dream ideal counterfactual, then that means that “artificially easy money”….is sustainable in perpetuity.
100 years qualifies as “long run,” doesn’t it?
2. April 2014 at 16:09
“What are you saying? That interest rates have been artificially low without interruption for the past 100 years?”
I don’t know, but I do know that’s possible for a central bank to not only put nominal rates below free market, but above as well, by way of aggregate spending increases putting upward pressure on rates.
There is a trade off between downward pressure due to inflation into the loan market, and upward pressure due to inflation into the final goods market. Typically, we have seen lowering rates due to inflation into the loan market, which takes time before it translates into inflation of final goods and aggregate spending and higher interest rates, but by each time this happens, the Fed has reversed course again. So empirically we have seen a positive correlation between interest rate movements and NGDP movements.
2. April 2014 at 16:23
MF
I responded to your video here: http://www.themoneyillusion.com/?p=26468#comment-327333
2. April 2014 at 16:24
Mark, As soon as I saw the title of that Japan/deflation piece I knew I wouldn’t like it. I was going to do a post, but thought I’d be beating a dead horse.
Tom, I have commenters who are:
Prolific
Foolish
Insulting
Any two out of three are acceptable. But in the rare case where they exhibit all three I stop reading. I have commenters who say “Sumner believes X . . .” Then I say no I don’t believe X. Then they say Sumner believes X. They I say no I don’t believe X. Then they say Sumner believes X.
After a while you tune them out.
Cameron, It’s often the case that when Krugman criticizes others he seems to be describing himself. Tyler Cowen once argued that Krugman is the modern day Milton Friedman. He was highly amused by the way Krugman described Friedman in that NYR of Books piece from a few years back.
Cory, Only if you set the NGDP target growth rate very low–perhaps near zero.
2. April 2014 at 16:26
Philippe:
Can you explain exactly what you mean when you say that homesteading is “imaginary”?
2. April 2014 at 16:28
I am proposing an ethic, not a historical claim of what actually took place.
I am not arguing that history is one of clean capitalism.
I am arguing that homesteading and free trade is what OUGHT to establish who owns what.
2. April 2014 at 16:31
Major_Freedom,
Your model is built on several legs that Sumner has knocked down:
First and foremost, ultra-low interest rates typically indicate tight money and vice versa.
Second, it really, really, really doesn’t matter who gets the money first.
http://www.themoneyillusion.com/?p=17965
http://www.themoneyillusion.com/?p=18009
http://www.themoneyillusion.com/?p=18037
Third, Sumner’s research (and Woodford’s / Svensson’s?) has revealed that there is no “wait and see” (“long and variable lags”) in macro.
http://www.themoneyillusion.com/?p=6693
2. April 2014 at 16:36
Philippe:
I posted more responses in the other thread as well.
2. April 2014 at 16:42
“Your model is built on several legs that Sumner has knocked down:”
“First and foremost, ultra-low interest rates typically indicate tight money and vice versa.”
No, that is not relevant to Austrian theory, because Austrians don’t define “tight money” in accordance with NGDP.
You can’t knock down what people are not setting up.
“Second, it really, really, really doesn’t matter who gets the money first.”
It really, really, really, really, REALLY does matter who gets the money first, for the precise effects that Austrians are referring to.
Those posts from Sumner are, quite frankly, a gong show. See my responses in those threads.
“Third, Sumner’s research (and Woodford’s / Svensson’s?) has revealed that there is no “wait and see” (“long and variable lags”) in macro.”
Sumner contradicted himself, because in a recent post he said there are indeed long and variable lags.
2. April 2014 at 16:47
Major_Freedom,
Another key question: If the Federal Reserve were determined to keep NGDP growing at 4% or core PCE growing at 2%, could they do so in perpetuity?
In other words, is such a policy sustainable? If not, why not?
2. April 2014 at 16:52
Scott,
“Tom, I have commenters who are:
Prolific
Foolish
Insulting”
I’ve seen some of that… and maybe participated too. I’ll try to avoid being all three. 😀
2. April 2014 at 16:54
central banks don’t centrally plan economies, they implement their monetary policy and markets react to it. Regarding economic calculation, prices are set by sellers operating in markets, not by the central bank. Monetarists argue the CB can control NGDP or inflation, but that doesn’t mean the central bank sets the prices at which people sell things.
Contrary to your assertions, austrian economics does not necessarily call for constant deflation. Hayek argued that the best situation for economic calculation would be one in which the average price level in commodity markets was stable, by which he meant zero average (price) inflation or deflation over time.
Essentially your argument boils down to supposed cantillon effects – that inflation causes confusion as prices don’t change uniformally, so people mistake a price rise for a fundamental change in supply/demand dynamics and so make investment errors.
2. April 2014 at 17:09
Benjamin Cole,
What’s the best post you’ve written about who this:
David Stockman:
“A Gang Of Unelected PhDs Have Staged An Economics Coup D’Etat”
http://www.zerohedge.com/news/2014-04-02/david-stockman-gang-unelected-phds-have-staged-economics-coup-detat
Scott Sumner:
“only people like Mishkin, Bernanke, Woodford, Krugman, Mankiw, McCallum, Svensson, etc, should even be allowed to serve on the FOMC. Pay them whatever it takes. (If you don’t believe me then read a few Richard Fisher speeches.)”
http://www.themoneyillusion.com/?p=19174
2. April 2014 at 17:10
“I am proposing an ethic, not a historical claim of what actually took place.
I am arguing that homesteading and free trade is what OUGHT to establish who owns what.”
That’s not true. You assert that your private property (in the real world) is rightfully and absolutely yours, and in essence no different to a part of your body – because it is based on voluntary peaceful individual homesteading and trade and nothing else.
But that assertion is factually incorrect.
And if your private property is not actually based on voluntary peaceful individual homesteading and trade then the moral foundation for your other claims about your property rights disappears.
2. April 2014 at 17:28
TravisV:
First, I can tell that you have the same conception of “ideal” life to be one of stability that has persisted in one or more threads of thought throughout the centuries of recorded human history. It is derived from theology. A desire to end the intolerable, incessant changes that permeate human life. It’s a very deep rooted philosophy, and is a very tough nut to crack, because of how we were raised as children. Our brains are formed during our upbringing into believing that a strong force from above of imposing no change to be what we are should worry about.
I am effectively attacking your parents when I comment here. That almost always garners a strong push back.
My view of human life is different from yours. I view stability as not something to pursue. I view individual liberty as something to pursue, and let the aggregate chips fall where they may. It is likely that there would be maximum stability in what I am espousing, because it would be maximally decentralized, but it wouldn’t be intentional.
A lot of things in human life that are good, are totally unplanned for by any single mind. Hayek knew this. He called it spontaneous order.
I go much further than Hayek towards individual liberty. I think that if you want maximum stability, then you should want maximum individual freedom. For how much damage to society can a single person do, if they were limited to resources they can acquire only in a market, as opposed to taxing entire populations?
To answer your question:
If that was attempted, no, of course it wouldn’t be sustainable. This is because the capital structure errors would keep building up over time. They wouldn’t do what Sumner thinks, which is build up for a time, then correct, and then stabilize, all the while NGDP is growing at a constant rate.
Contrary to what he believes, investors would not be able to figure out how much resources should be allocated and where, to be in line with consumer temporal and cross sectional preferences, with constant growth NGDP.
Investors are unable to do this: “What is NGDP going to be next year? $10 trillion plus 5%? OK, that means I know to allocate such and such real capital and labor, to such and such projects, such that it will earn x% of those expenditures, and my activity will be coordinated with other investor’s real activity, vis a vis consumer preferences.”
Investors don’t need a stable NGDP. They need a market currency that will give them market driven prices and interest rates. They need a market tool for economic calculation. They can’t calculate and avoid increasing errors with a socialist money.
As errors build, more and more money will be necessary to keep production and the spending on an arbitrary, non-market growth rate. We saw this happen in Australia 1992-2008 as the money supply growth rate accelerated until it reached about 20% per year by 2008. The RBA had to choose deflation or else it would have hyperinflated the currency and lost control. It chose to deflate and NGDP followed suit. Unemployment went up, production went down, yadda yadda.
If the Fed tried to force NGDP to rise 5% per year, and it ignored the “real side” warnings, and kept accelerating inflation without limit, then it would eventually lose control of NGDP. If that happened, then Sumner might like to say “They violated the target! I am innocent of this!”
2. April 2014 at 17:45
Philippe:
“central banks don’t centrally plan economies, they implement their monetary policy and markets react to it.”
They centrally plan the economy’s money. That’s central planning.
Not even the USSR government planned EVERYTHING.
Socialist activity is any activity imposed on everyone regardless of whether individual consent is present or not.
But this is more semantics than anything. Call it “hampered market” if you want. Or Grue. Whatever.
“Regarding economic calculation, prices are set by sellers operating in markets, not by the central bank.”
Prices are set without market driven money production. That prevents prices from being market driven as a result. Yes, the central bank doesn’t set prices directly. They do so indirectly. As long as it affects prices, prices are not market prices.
“Monetarists argue the CB can control NGDP or inflation, but that doesn’t mean the central bank sets the prices at which people sell things.”
It influences how prices are set. That is enough to lead investors astray.
“Contrary to your assertions, austrian economics does not necessarily call for constant deflation.”
I didn’t assert that.
“Hayek argued that the best situation for economic calculation would be one in which the average price level in commodity markets was stable, by which he meant zero average (price) inflation or deflation over time.”
Hayek contradicted himself. He also wrote an advocacy piece on private competing monies:
https://mises.org/daily/1854
“Essentially your argument boils down to supposed cantillon effects – that inflation causes confusion as prices don’t change uniformally, so people mistake a price rise for a fundamental change in supply/demand dynamics and so make investment errors.”
Close. That is a part of it. But the core is that because money production isn’t market driven, money prices are not market driven. Yet we need market driven prices to avoid the errors that are caused with socialist money.
“I am proposing an ethic, not a historical claim of what actually took place.”
“I am arguing that homesteading and free trade is what OUGHT to establish who owns what.”
“That’s not true. You assert that your private property (in the real world) is rightfully and absolutely yours, and in essence no different to a part of your body – because it is based on voluntary peaceful individual homesteading and trade and nothing else.”
I never claimed that. I know that the land I am standing on might have been stolen at some point in the past.
BUT
That doesn’t mean that another round of land theft will create justice. It would only create a new injustice. The only person who has a right to take my land is he who homesteaded or freely traded for it. Let him show himself, and I will accept the argument that he would be justified in ousting me by force if I don’t agree to go quietly.
What you are claiming is that because human history is full of injustice, that we can never act justly in the future. But that’s wrong. We can ascertain whether the land I am living on belongs to someone else who is alive. If they aren’t, then it’s mine, just like your land is yours if the victim cannot be found.
The only way we can transition from an unjust past, to a just future, is to do the best we can to locate the rightful owners, and if they can’t be found, then let bygones be bygones. After that time, the property claims would be fully legitimate in the sense of not being marred by past injustices.
“But that assertion is factually incorrect.”
I didn’t assert it.
What I did assert is that the government is not owner of this land. If it was between existing land owners and government, then the land owners would be the rightful owners.
It is illogical to claim that because land A squared might have been stolen in the distant past, that therefore Obama owns it today. That’s nuts.
“And if your private property is not actually based on voluntary peaceful individual homesteading and trade then the moral foundation for your other claims about your property rights disappears.”
Well, show me the homesteader or last free trader who was robbed. That person would be in the right to claim the land, but not the house because I paid for it new.
2. April 2014 at 17:46
Hayek talked about spontaneous order, but he also claimed that for successful economic calculation you needed a degree of stability and predictability going forward, so that on average people’s plans wouldn’t be upset by unforseeable occurrences that caused large ‘clusters of errors’ (rather than a ‘normal’ distribution of errors).
2. April 2014 at 17:46
Major_Freedom,
You wrote: “As errors build, more and more money will be necessary to keep production and the spending on an arbitrary, non-market growth rate. We saw this happen in Australia 1992-2008 as the money supply growth rate accelerated until it reached about 20% per year by 2008. The RBA had to choose deflation or else it would have hyperinflated the currency and lost control. It chose to deflate and NGDP followed suit. Unemployment went up, production went down, yadda yadda.”
I sense that your argument rests on extremely shaky ground empirically. I doubt that the velocity of money would always tend to decelerate.
I thought Nick Rowe did a brilliant job of dealing with your strange claim that “the rate of money growth would have to get bigger….and bigger….and BIGGER….”
http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/01/monetary-policy-fiscal-policy-the-target-and-the-size-of-the-central-bank.html
If you really believed it, then you’d be predicting apocalypse. But you aren’t.
2. April 2014 at 18:05
TravisV,
Major Freedom/Geoff’s beliefs are incoherent and illogical
His favorite fallacy is ignoratiio elenchi.
Example:
Us- “We have refuted idea x in Austrian economics (Half a a dozen times)
Major Freedom- “You have not yet refuted x”
2. April 2014 at 18:05
MF
“Prices are set without market driven money production. That prevents prices from being market driven as a result. Yes, the central bank doesn’t set prices directly. They do so indirectly. As long as it affects prices, prices are not market prices.”
That’s ridiculous. You’re basically saying that a market price can only exist in an imaginary ‘anarcho-capitalist’ universe where things like governments simply do not exist.
2. April 2014 at 18:07
TravisV:
Jeepers, do you have these webpages on index or something?
Rowe didn’t address what I said in that post, by the way. He doesn’t address distortions to pricing and calculation.
“If you really believed it, then you’d be predicting apocalypse. But you aren’t.”
I am not predicting NGDPLT, so I am not predicting the future.
2. April 2014 at 18:08
Philippe:
“Hayek talked about spontaneous order, but he also claimed that for successful economic calculation you needed a degree of stability and predictability going forward, so that on average people’s plans wouldn’t be upset by unforseeable occurrences that caused large ‘clusters of errors’ (rather than a ‘normal’ distribution of errors).”
That’s why I say I go further than Hayek. I think stability is maximized with maximum decentralization. Not that I am aiming for stability, but that is just an outcome of what I am aiming at: Your liberty, my liberty, everyone’s liberty.
2. April 2014 at 18:10
Your ‘liberty’ is just a modern form of feudalism.
2. April 2014 at 18:11
Philippe:
Is having more certainty about tomorrow because you expect to be given a daily beating, better than having no certainty over what will happen tomorrow because there is no expected beating?
Certainty for certainty’s sake is a bad idea.
2. April 2014 at 18:12
I blew apart his self-righteous and pedantic ranting on “free market money” in the previous post of Dr. Sumner “Academics are rapidly catching up to market Monetarists.”
Re-posted-
“MF,
“Remember, the whole purpose of central banking is to enable the state and politically connected bankers to increase the quantity of money they acquire beyond what they otherwise could have acquired without the central bank.”
I don’t care necessarily about the state and “politically connected bankers.”
The whole premise of your post is wrong. I care about the entire private sector.
“The central bank does not exist to reduce the quantity of money the state and bankers can acquire. That is silly in theory.”
It may not intend to inflict harm to the private sector, but it does massively undersupply the non banking sector’s needs, hence the general glut of goods and services, and the dearth of cash available for households to spend.
“Empirically, your claim is not any better either. For if we assume that in this age a free market in money would be precious metals based, then a decent proxy for the supply and production of free market money is the gold industry.”
WOW, you really are a gold bug troglodyte with no imagination whatsoever, aren’t you?
First it doesn’t have to be precious metal based. Any valuable commodity in high demand for its own sake thats portable, divisible and able to serve as a measurable unit of account will do. (Barrels of oil will do, coal, so will tobacco leaves and cigarettes, which served as monies at one time or another)
Second even if it IS precious metals based, who’s to say it will be only gold? A lot of people like silver, copper is also good. nickel, aluminum bronze, zinc, palladium, platinum, diamonds, the list of possibilities is endless. Historically, silver was very popular along with gold in the 19th century.
“If they could acquire more on a free market, they wouldn’t have central banking.”
True, but thats not the only reason we have central banking. I would assume that a lot those banks genuinely delude themselves into thinking that whats good for them is good for the American economy as a whole.
“Plus, it is ridiculous on common sense grounds to expect that an owner of a money printing press will print fewer dollars than they otherwise could have acquired in a free market.”
Inflation phobia and mindless lunacy runs deep in people like Richard Fisher and Charles Plossser. (They may be too inflationary by your standards, but to everyone else they are super hawkish.)
“On what grounds are you basing the conjecture that a free market would have more money today? “
On the grounds that is a scarcity of MV/NGDP which is still causing the unemployment gap. Its mainly theoretical reasoning. (You’re right in a way, about Monetarists and Keynesians having certain a priori assumptions. But while our assumptions are coherent in their own terms and respond well to real world evidence, Austrian assumptions do not. {At least those assumptions that are beyond what is trivially and tautologically true, such as “man acts, and marginal utility, ordinal not cardinal”}
Also we know that from observing other cases, markets tend to equilibrate, shortages tend to be eliminated (at least those not caused by government intervention) by entrepreneurs seeking to cash in on the high profit margin to be made by creating more of a scarce but valuable commodity. A credit crisis is characterized by “secondary” deflation or slowing inflation. which is the same thing as saying acquiring income is more expensive. Since the money illusion would be fundamental even in a world WITHOUT legal tender (for psychological reasons) the high demand for gold cash would be probably satisfied By people switching to a cheaper commodity to use as money, rather than continually falling wages.
This makes nonsense of your self-righteous and pedantic efforts to set yourself up as a martyr for the cause of freedom. (And free market money)”
2. April 2014 at 18:15
TravisV,
If money growth is x% a year and x > 0, then actually the linear growth rate (dM/dt) will get bigger and bigger and bigger. But I’m being nit-picky… the log growth rate will be constant.
2. April 2014 at 18:15
I don’t expect to be given a daily beating. Why do you any others like you always engage in this sort of childish rhetoric? It doesn’t do you any favours – your behaviour condemns you to remain as a little isolated cult.
2. April 2014 at 18:15
Philippe:
“Your ‘liberty’ is just a modern form of feudalism.”
Quite the opposite. Contrary to individuals initiating force to lay claim to land (feudalism), they would have to homestead it or trade for it.
Land ownership will be present in any social system. Syndicalist communism would be “feudalist” in that they, and nobody else, would own that land, and anyone who wants to live there, would have to seek permission from the commune members, in the form of either charity or rent.
What I propose is property rights not just for groups of people, but for individuals as well.
This isn’t feudalism, it’s individual freedom.
2. April 2014 at 18:17
Major_Freedom,
It seems like you’re making it up as you go along.
But you can prove me wrong! I look forward to your empirical study backing up your claim that “the rate of money growth would have to get bigger….and bigger….and BIGGER….”
2. April 2014 at 18:18
Philippe:
“I don’t expect to be given a daily beating.”
I was making a point on why certainty for certainty’s sake is a bad idea. It includes certain beatings as being somehow better than uncertainty in what will happen tomorrow.
Of course you don’t expect a beating. Not as long as you obey the unjust claimants to your property. Well, that might not even be enough. You might get a beating if the police mistake you for a drug dealer.
“Why do you any others like you always engage in this sort of childish rhetoric?”
To show you the logical implications of your beliefs. Taking what you believe to its logical conclusion, to see if you really believe your premises.
“It doesn’t do you any favours – your behaviour condemns you to remain as a little isolated cult.”
Then why is the cult getting so big?
2. April 2014 at 18:19
Edward:
How exactly can you blow apart free markets, intellectually speaking that is?
2. April 2014 at 18:22
Edward;
(Sigh) I don’t mean blow apart the case for free markets, you fool, only the case that a free market in money MUST by necessity produce less money than statist legal tender and central banking
2. April 2014 at 18:22
The problem with arguing with a crackpot, is that whilst you’re trying to discuss reality, they’re always talking about imagination land just over the rainbow and about how perfect it is compared to reality.
2. April 2014 at 18:28
Exactly, Philippe.
Moving the goalposts, ignoring evidence, unchallenged assumptions, these are the stock in trade of our favorite Austrian cloudcuckoolander
2. April 2014 at 18:33
the way you use the term ‘economic calculation’ is just empty and circular.
All you’re saying is that ‘economic calculation’ is whatever might happen in your imaginary ‘anarcho-capitalist’ world. Thus anything in the real world which isn’t like your imaginary ‘anarcho-capitalist’ world necessarily impairs ‘economic calculation’. For the simple circular reason that the real world is not like your imaginary ‘anarcho-capitalist’ world.
Just say ‘the real world isn’t like my imaginary world’ instead of wasting space with guff about ‘economic calculation’
2. April 2014 at 18:35
Edward:
“Remember, the whole purpose of central banking is to enable the state and politically connected bankers to increase the quantity of money they acquire beyond what they otherwise could have acquired without the central bank.”
“I don’t care necessarily about the state and “politically connected bankers.”
“The whole premise of your post is wrong. I care about the entire private sector.”
You understanding caring for the private sector the way an abusive parent cares for their child.
“The central bank does not exist to reduce the quantity of money the state and bankers can acquire. That is silly in theory.”
“It may not intend to inflict harm to the private sector, but it does massively undersupply the non banking sector’s needs, hence the general glut of goods and services, and the dearth of cash available for households to spend.”
There is no such thing as a general glut, and the “need” for more money is practically infinite for the individual. Would you reject $1 trillion if it was offered to you in exchange for your garbage?
Bankers can never get enough money. It’s why they keep selling their treasuries to the CB.
“Empirically, your claim is not any better either. For if we assume that in this age a free market in money would be precious metals based, then a decent proxy for the supply and production of free market money is the gold industry.”
“WOW, you really are a gold bug troglodyte with no imagination whatsoever, aren’t you?”
What does that even mean?
“First it doesn’t have to be precious metal based.”
I didn’t say it HAD to be. I just provided a likely scenario.
Why do you get your panties in a twist?
“Any valuable commodity in high demand for its own sake thats portable, divisible and able to serve as a measurable unit of account will do. (Barrels of oil will do, coal, so will tobacco leaves and cigarettes, which served as monies at one time or another)”
Gold is better than oil for that purpose, because less gold is needed per barrel of oil. It’s why gold commands a higher price than oil or coal or tobacco per unit of weight or volume.
Not saying this must happen.
“Second even if it IS precious metals based, who’s to say it will be only gold? A lot of people like silver, copper is also good. nickel, aluminum bronze, zinc, palladium, platinum, diamonds, the list of possibilities is endless. Historically, silver was very popular along with gold in the 19th century.”
Gold has more value per unit weight than most of those other metals. Platinum and diamonds are a little too rare.
See this video:
http://www.youtube.com/watch?v=r-o79vfBDJ4
“If they could acquire more on a free market, they wouldn’t have central banking.”
“True, but thats not the only reason we have central banking.”
It’s “the” reason.
“I would assume that a lot those banks genuinely delude themselves into thinking that whats good for them is good for the American economy as a whole.”
Of course. But that doesn’t mean it wasn’t their own interests they had in mind.
“Plus, it is ridiculous on common sense grounds to expect that an owner of a money printing press will print fewer dollars than they otherwise could have acquired in a free market.”
“Inflation phobia and mindless lunacy runs deep in people like Richard Fisher and Charles Plossser. (They may be too inflationary by your standards, but to everyone else they are super hawkish.)”
OK.
“On what grounds are you basing the conjecture that a free market would have more money today? “
“On the grounds that is a scarcity of MV/NGDP which is still causing the unemployment gap.”
But you define scarcity of NGDP in terms of NGDP. A free market doesn’t produce for the sake of NGDP, it produces for the sake of profit.
“Its mainly theoretical reasoning. (You’re right in a way, about Monetarists and Keynesians having certain a priori assumptions. But while our assumptions are coherent in their own terms and respond well to real world evidence, Austrian assumptions do not.”
Austrian assumptions aren’t predictions about history, so they cannot be falsified by experience.
“{At least those assumptions that are beyond what is trivially and tautologically true, such as “man acts, and marginal utility, ordinal not cardinal”}”
Well that’s all Austrian assumptions are. Any other assumption an Austrian makes, is not Austrianism.
Most Austrians are not ONLY Austrians.
“Also we know that from observing other cases, markets tend to equilibrate, shortages tend to be eliminated (at least those not caused by government intervention) by entrepreneurs seeking to cash in on the high profit margin to be made by creating more of a scarce but valuable commodity.”
You have evidence of hampered markets, and you are using a priori assumptions to then think of what a free market would look like. Do you see?
“A credit crisis is characterized by “secondary” deflation or slowing inflation. which is the same thing as saying acquiring income is more expensive. Since the money illusion would be fundamental even in a world WITHOUT legal tender (for psychological reasons) the high demand for gold cash would be probably satisfied By people switching to a cheaper commodity to use as money, rather than continually falling wages.”
Are you saying that humans can NEVER learn about money in more sophisticated a manner such that they are forever subject to this “illusion”? If so, then how in the heck are you able to know about it, and thus be immune from it?
“This makes nonsense of your self-righteous and pedantic efforts to set yourself up as a martyr for the cause of freedom. (And free market money)”
Um…I don’t think so.
2. April 2014 at 18:35
“To show you the logical implications of your beliefs”
No, you do it for your own emotional satisfaction. Your childish rhetoric never shows anyone the logical implications of their beliefs, it only shows you acting like a child.
2. April 2014 at 18:40
TravisV:
“It seems like you’re making it up as you go along.”
Nah, I’ve had this kind of debate before, many times. It’s not ad hoc I can assure you.
“But you can prove me wrong! I look forward to your empirical study backing up your claim that “the rate of money growth would have to get bigger….and bigger….and BIGGER….”
But we’ll have to have NGDPLT first. I can’t and won’t predict they’ll do that, so I don’t know what obligation you’re putting me under here.
2. April 2014 at 18:43
Philippe:
“To show you the logical implications of your beliefs”
“No, you do it for your own emotional satisfaction.”
Oh so that is why you’re debating! OK, fine, do it for your emotional satisfaction.
That’s your business.
“Your childish rhetoric never shows anyone the logical implications of their beliefs, it only shows you acting like a child.”
Philippe, do you realize that you sound exactly like an abusive parent / older sibling? “Quit acting like a child!” Or “Oh why don’t you grow up!” sounds like things you heard a lot of in your upbringing.
That isn’t how being an adult has to be though. You can do better than them.
2. April 2014 at 18:49
Telling a grown adult to stop acting like a child has absolutely nothing to do with abusive parenting.
Sometimes the weird things you say, like your random talk about ‘touching people’s bodies’, and ‘abusive parents’, makes me really wonder what sort of formative experiences made you become the strange person that you are today.
2. April 2014 at 18:56
Philippe:
“the way you use the term ‘economic calculation’ is just empty and circular.”
Actually it’s unidirectional. It’s always pointing to the future. Future desires of consumer preferences, both temporally and cross sectionally. We utilize scarce means to achieve those ends. In a division of labor society, where money is a tool of calculating profits and losses, profit seeking will regulate capital and labor to their most urgent needs vis a vis the consumers.
Hampering the money leads to hampering of calculating profits and losses, and thus hampering of capital and labor allocations.
“All you’re saying is that ‘economic calculation’ is whatever might happen in your imaginary ‘anarcho-capitalist’ world.”
All you’re saying is that living standards might be raised in your imaginary “slave and murder free” world.
All you’re saying is that central banking is beneficial because the alternative imaginary world of no central banking would be worse.
All you’re saying is that only your imaginary world is permitted to be sought after, and everyone else’s imaginary worlds are to remain imaginary, where they will be pejoratively labelled as imaginary as if only they think the world can be better than it is.
Do you believe the world can be better than it is and was? If so, then you are basing that off an “imaginary world.”
“Thus anything in the real world which isn’t like your imaginary ‘anarcho-capitalist’ world necessarily impairs ‘economic calculation’.”
Dude, it’s more complicated than that.
“For the simple circular reason that the real world is not like your imaginary ‘anarcho-capitalist’ world.”
You’re just repeating the same premise twice and attributing that to me.
Do you have any conception of the difference between intervention and non-intervention? Of free market prices and non-free market prices? Of private property rights protection, and violations of private property rights? Of private production and government control?
“Just say ‘the real world isn’t like my imaginary world’ instead of wasting space with guff about ‘economic calculation'”
But in the real world economic calculation is being hampered because we don’t have a free market in money.
You are claiming output and employment are being hampered because we don’t have YOUR imaginary world ideal of NGDPLT.
Why are you allowed to want a different world, but not me, and not only that, but claim I am wrong because I want a better world?
2. April 2014 at 18:59
All your arguments are just circular stories about imagination land – that supposedly perfect anarcho-capitalist paradise where ‘mommy and daddy’ government won’t ‘violate’ you or ‘touch your body’ any more.
In imagination land there are no economic problems because you define imagination land as a place where there are no economic problems. In imagination land there are no monetary problems because you define imagination land as a place where there are no monetary problems. In imagination land there is total peace and harmony and justice because you define imagination land as a place where there is total peace and harmony and justice. Market prices can only exist in imagination land because you define market prices as things which can only exist in imagination land.
It’s pathetic.
2. April 2014 at 19:00
Philippe:
“Telling a grown adult to stop acting like a child has absolutely nothing to do with abusive parenting.”
Actually, I am trained in psychology, and one of things I learned is the correlation between your behavior as an adult, with your formative years growing up.
Telling a grown adult to stop acting like a child is something I never say to anyone, and it just so happens I was never told to “grow up!” when I was growing up. And, those who have told me this, I have eventually convinced to let it all out and tell me their experiences.
“Sometimes the weird things you say, like your random talk about ‘touching people’s bodies’, and ‘abusive parents’, makes me really wonder what sort of formative experiences made you become the strange person that you are today.”
Now that is interesting. I never once said “touching people’s bodies.” Since you’re anonymous, it’s OK to say they were wrong to treat you that way.
2. April 2014 at 19:03
Philippe:
“All your arguments are just circular stories about imagination land – that supposedly perfect anarcho-capitalist paradise where ‘mommy and daddy’ government won’t ‘violate’ you or ‘touch your body’ any more.”
All your arguments are just circular stories about imagination land – that supposedly perfect NGDPLT paradise where “bad, nasty parents who kick their children out” unemployment won’t rise as much as it otherwise would.
“In imagination land there are no economic problems”
I never claim that.
“because you define imagination land as a place where there are no economic problems.”
Never claimed that either.
“In imagination land there are no monetary problems because you define imagination land as a place where there are no monetary problems.”
Wrong again.
“In imagination land there is total peace and harmony and justice because you define imagination land as a place where there is total peace and harmony and justice.”
You’re on a roll!
“Market prices can only exist in imagination land because you define market prices as things which can only exist in imagination land.”
HAHAHAHA, notice how you did not end that sentence with “only exist in a free market”??
You KNOW that market prices can only exist in a market setting. But you called that “imaginary.” Why? Because you know we don’t have market prices.
“It’s pathetic.”
It’s you!
2. April 2014 at 19:06
Philippe:
You are claiming output and employment are being hampered because we don’t have your imaginary world ideal of NGDPLT.
NGDPLT is not being imposed in any country. And yet, you claim it would make the world better.
Why are you allowed to base your ideas on an imaginary construct, but not me?
2. April 2014 at 19:09
“I am trained in psychology”
I sincerely hope no individual ever turns to you for professional help as you are clearly a profoundly dishonest and manipulative individual.
2. April 2014 at 19:23
Philippe:
“I sincerely hope no individual ever turns to you for professional help as you are clearly a profoundly dishonest and manipulative individual.”
Well, I am not a professional psychologist. I just said I was trained in it, so while I do help people help themselves, I don’t do it for money.
Actually I am very loyal, discrete, honorable, and understanding. I do admit to manipulating people, but not to exploit them, but to help them make themselves better people according to their own unmolested self-esteem and self-awareness. I am open and encourage getting to the core beliefs, where things can get quite hostile and primordial.
I do it because I am fascinated about the human mind.
I am definitely not dishonest, because I really do believe in what I am saying. I could be wrong, and I invite you to demolish my ideas. But I can’t promise you’d succeed.
2. April 2014 at 19:27
I’m beginning to suspect you might be that Molyneux weirdo.
2. April 2014 at 19:37
Vince Cate,
Here’s some more examples, mostly with rising debt levels.
1) UK 1746, 1752, 1757, 1767, 1771, 1781, 1795-6, 1799-1801, 1805, 1809, 1812
Public debt was 90.7%, 105.2%, 104.5%, 141.2%, 120.9%, 133.2%, 124.1%, 139.9%, 176.0%, 176.8%, 177.5%, 189.1%, 189.0% and 188.1% of GDP in 1746, 1752, 1757, 1767, 1771, 1781, 1795-6, 1799-1801, 1805, 1809 and 1812 respectively according to the IMF. Inflation was 6.0%, 5.3%, 10.9%, 7.9%, 5.7%, 6.1%, 11.2%, 5.1%, 7.1%, 21.7%, 6.0%, 8.4%, 7.5% and 8.9% in 1746, 1752, 1757, 1767, 1771, 1781, 1795-6, 1799-01, 1805, 1809 and 1812 respectively according to Measuringworth. Long term interest rates averaged 3.65%, 2.89%, 3.39%, 3.37%, 3.55%, 5.22%, 4.52%, 4.80%, 5.07%, 4.71%, 4.92%, 5.04%, 4.49% and 5.08% in 1746, 1752, 1757, 1767, 1771, 1781, 1795-6, 1799-1801, 1805, 1809 and 1812 respectively according to Measuringworth.
2) Netherlands 1816-7, 1825, 1846, 1853-4, 1861-2
Public debt was 131.8%, 120.9%, 195.0%, 189.4%, 185.0%, 158.3%, 135.7%, 121.6% of GDP in 1816-7, 1825, 1846, 1853-4, 1861-2 respectively according to the IMF. Inflation was 6.1%, 7.8%, 6.4%, 6.7%, 5.0%. 9.9%, 5.3%, and 6.0% in 1816-7, 1825, 1846, 1853-4 and 1861-2 respectively according to the “NATIONAL ACCOUNTS OF THE NETHERLANDS, 1800-1913”. Long term interest rates were 5.87%, 5.73%, 4.51%, 4.15%, 3.95%, 4.29%, 3.94% and 3.93% in 1816-7, 1825, 1846, 1853-4 and 1861-2 respectively according to the “NATIONAL ACCOUNTS OF THE NETHERLANDS, 1800-1913”.
3) New Zealand 1916-20
Public debt was 102.7%, 116.5%, 128.1%, 137.7% and 132.7% of GDP in 1916-20 respectively. Year on year inflation was 7.9%, 9.8%, 12.3%, 9.2% and 15.4% in the third quarter of 1916-20 respectively according to Statistics New Zealand. Long term interest rates averaged 3.82%, 3.98%, 4.07%, 4.15% and 4.16% in 1916-20 respectively.
4) UK 1917-20, 1937, 1940-2
Public debt was 97.8%, 119.1%, 142.8% and 137.8% of GDP in 1917-20 respectively, 158.7% of GDP in 1937 and 121.1%, 133.7% and 153.2% of GDP in 1940-42 respectively according to the IMF. Inflation was 21.0%, 15.0%, 6.0% and 15.6% in 1917-20 respectively, 5.6% in 1937, and 13.3%, 10.1% and 6.6% in 1940-2 respectively according to the Michael Bordo database. Long term interest rates averaged 4.57%, 4.40%, 4.63% and 5.32% in 1917-20 respectively, 3.28% in 1937 and 3.40%, 3.13% and 3.03% in 1940-2 respectively according to the Michael Bordo database.
5) Netherlands 1937
Public debt was 120.9% of GDP according to the IMF. Inflation was 5.6% according to the Michael Bordo database. Long term interest rates were 3.13% according to the Michael Bordo database.
6) US 1946-8
Public debt was 121.2%, 105.7% and 93.6% of GDP in 1946-8 according to the IMF. Inflation was 8.5%, 14.4% and 7.8% in 1946-8 respectively according to the Michael Bordo database. Long term interest rates were 2.43%, 2.50% and 2.80% in 1946-8 respectively according to the Michael Bordo database.
7) Canada 1947-8
Public debt was 131.6% and 113.0% in 1947 and 1948 respectively according to the IMF. Inflation was 9.4% and 14.4% in 1947 and 1948 respectively according to the Michael Bordo database. Long term interest rates were 2.56% and 2.93% in 1947 and 1948 respectively according to the Michael Bordo database.
Note that I am not excluding years with high interest rates. I’m simply recording cases with high debt levels and high inflation rates and they all happen to have low interest rates.
Are there any examples of advanced nations with high debt levels, high inflation levels and long term interest rates that are actually *above* the inflation rate? Yes, but not many. There’s Belgium in 1982-4, Italy in 1988-95 and Greece in 1993-7. But none of these examples resulted in hyperinflation either.
2. April 2014 at 19:42
Super secret:
Everyone’s that Molyneux weirdo. Shhhh…
2. April 2014 at 19:43
The public debt data for New Zealand came from the IMF Historic Public Debt database of course, and the long term interest rate data came from the New Zealand Official Yearbook.
2. April 2014 at 19:46
“You KNOW that market prices can only exist in a market setting. But you called that “imaginary.” Why? Because you know we don’t have market prices.”
No. Your argument is that market prices can only exist in your imaginary ‘anarcho-capitalist’ universe where government doesn’t exist. You say that prices are not market prices if the market reacts to actions by the government or the government has an effect on the market.
Another way of stating your argument is: “prices in the real world are not market prices because market prices can only exist in imagination land”.
2. April 2014 at 19:47
Yeah you’re him alright.
2. April 2014 at 20:02
Philippe:
“No. Your argument is that market prices can only exist in your imaginary ‘anarcho-capitalist’ universe where government doesn’t exist.”
You mean it makes no sense that market prices can only exist in an actual market?
“You say that prices are not market prices if the market reacts to actions by the government or the government has an effect on the market.”
Do you have any conception of what a market is? Or would you call prices in North Korea market prices as well?
What you are describing when you talk about prices, are hampered prices.
There is no controversy in understanding market prices to be prices that would prevail in a market.
“Another way of stating your argument is: “prices in the real world are not market prices because market prices can only exist in imagination land”.”
So I take it then that your belief that employment and output will be higher in your imaginary fairy tale land of NGDPLT, is something I should reject as well for the same exact reason of NGDPLT being “imaginary”?
“Yeah you’re him alright.”
Boo!
2. April 2014 at 20:07
The only real way in which inflation would ‘hamper economic calculation’ is if the inflation was highly erratic and unpredictable, or exceptionally high. Other than that, the only supposed effect on economic calculation is cantillon effects, which Hayek concluded were so minor they could be ignored in a relatively stable system.
The same negative effects would exist with erratic and unpredictable deflation. Deflation is actually much more problematic for economic calculation as it is much harder for price level to adjust downwards. And a completely stable price level is a myth.
2. April 2014 at 20:12
“You mean it makes no sense that market prices can only exist in an actual market?”
Imaginary ancap world is not ‘an actual market’. We have no idea what imaginary ancap world would be like in reality as no such world has ever existed. Maybe once you disband the government gangs and warlords take over soon after. No one knows. It is a complete fabrication.
In real world markets, prices are agreed between buyers and sellers. Governments do things which can lead those buyers and sellers to agree to different prices. But those prices are still agreed between the buyer and seller in a market.
2. April 2014 at 20:17
Philippe:
“The only real way in which inflation would ‘hamper economic calculation’ is if the inflation was highly erratic and unpredictable, or exceptionally high.”
That is precisely what occurs in non-market money systems. It’s erratic by virtue of not being driven by profit and loss constrained to property rights, but political whim backed by guns.
“Other than that, the only supposed effect on economic calculation is cantillon effects, which Hayek concluded were so minor they could be ignored in a relatively stable system.”
They are not minor. They are large enough to generate the business cycle.
“The same negative effects would exist with erratic and unpredictable deflation.”
It’s easiest to predict free market money production.
“Deflation is actually much more problematic for economic calculation as it is much harder for price level to adjust downwards.”
Market driven deflation is not problematic for calculation. You are observing deflation caused by prior inflation.
Prices are harder to adjust downward in inflationary economies. You’re observing prices in an inflationary economy and making claims about imaginary world prices.
“And a completely stable price level is a myth.”
So is a completely stable NGDP.
2. April 2014 at 20:20
Philippe:
“You mean it makes no sense that market prices can only exist in an actual market?””
“Imaginary ancap world is not ‘an actual market’.”
An actual market is not an actual market?
“We have no idea what imaginary ancap world would be like in reality as no such world has ever existed.”
No such world of democracy before democracy ever existed, and yet people believed democracy would be better than monarchy.
No such world of NGDPLT exists, and yet you believe it would be better.
Again, why are you allowed to base your beliefs of a better world on “imagination”, but I’m not? I notice you have been dodging that question.
“Maybe once you disband the government gangs and warlords take over soon after. No one knows. It is a complete fabrication.”
We are already in a world of warlords.
“In real world markets, prices are agreed between buyers and sellers.”
Using non-market generated money, which means non-market prices.
“Governments do things which can lead those buyers and sellers to agree to different prices.”
Not only different prices, but different interest rates as well.
“But those prices are still agreed between the buyer and seller in a market.”
It’s not a free market. It’s a hampered market. The hampering of prices leads to malinvestment.
2. April 2014 at 20:39
“Using non-market generated money, which means non-market prices.”
Say I currently sell goods priced at $10 each. Then I hear that the government is going to print loads of dollars. And say for example that in response to the news I decide to raise the price of my goods to $15. It’s my choice to do that. It’s the buyer’s choice to accept the price. This is a market price – the price at which I am willing to sell a certain good in terms of dollars. Say my good was previously worth a small lump of gold. After my dollar price hike, the good is still worth a small lump of gold. It’s just the good’s price in dollars that I have changed.
2. April 2014 at 20:42
“An actual market is not an actual market?”
Ancap world only exists inside your imagination. You can’t describe imaginary markets that only exist inside your imagination as ‘actual markets’ because they are not ‘actual’. It is complete unfounded speculation that you could have a functioning market economy without a government.
2. April 2014 at 20:51
Philippe:
“Say I currently sell goods priced at $10 each.”
Was the income of the person you’re selling it to affected only by changes in relative marginal utility of consumers who ultimately purchase the products and/or the money of that person’s activity, or was the income affected by changes caused in part by a central bank which made this individual’s income different from what it otherwise would have been had their income been determined solely by consumer preferences?
“Then I hear that the government is going to print loads of dollars. And say for example that in response to the news I decide to raise the price of my goods to $15. It’s my choice to do that. It’s the buyer’s choice to accept the price.”
Suppose the increase in the price of the goods you sell is not equal to the increase in price of goods that others sell, due to the fact that your buyers are only willing to offer a max of $15 due to their income being limited to what it is, while say the demand for other goods can rise more because of the fact that other people’s incomes have actually increased by virtue of inflation at this time?
How can you guarantee that the REAL coordination between you and other sellers is still in synch?
“This is a market price – the price at which I am willing to sell a certain good in terms of dollars.”
It isn’t a free market price which is what investors need to be coordinated. That is a hampered market price.
But this is semantics. You can call it whatever you want. The relative prices of goods is not the same.
“Say my good was previously worth a small lump of gold. After my dollar price hike, the good is still worth a small lump of gold. It’s just the good’s price in dollars that I have changed.”
How do you know you have changed it in such a way that investment in what you are selling, is not too great and not too small relative to other possible investments? What if you would have invested not in those goods, but in other goods given that the prices rise MORE for those other goods?
How can you be sure the real production is in coordination with your peers if the resulting prices is not driven only by market forces from consumers, but by government?
2. April 2014 at 20:53
“Ancap world only exists inside your imagination.”
So market prices don’t exist then.
“You can’t describe imaginary markets that only exist inside your imagination as ‘actual markets’ because they are not ‘actual’.”
No, I can rightly say that an actual market does not exist precisely because of violent intervention from the government.
“It is complete unfounded speculation that you could have a functioning market economy without a government.”
It is completely unfounded speculation that we need a government or else we wouldn’t have a functioning market economy.
2. April 2014 at 20:56
“Was the income of the person you’re selling it to affected only by changes in relative marginal utility of consumers who ultimately purchase the products and/or the money of that person’s activity”
That has nothing to do with economic calculation.
2. April 2014 at 21:05
“How can you guarantee that the REAL coordination between you and other sellers is still in synch?”
You never can anyway. But the only way supposed cantillon effects would have any real effect is if there were systematic and persistent mistakes made by sellers and buyers which led to investments which later turned out to be unprofitable as a result of those mistakes. And that would only happen if for some reason all the investors and entrepreneurs involved were completely incompetent.
2. April 2014 at 21:15
“How do you know you have changed it in such a way that investment in what you are selling, is not too great and not too small relative to other possible investments?”
This is a risk that you always face with any investment decision. It is not unique to the example I gave. If you think it is a fundamental problem then you are saying that markets are not necessarily efficient or optimal due to the chronic problem of uncertainty.
2. April 2014 at 21:16
Philippe:
“Was the income of the person you’re selling it to affected only by changes in relative marginal utility of consumers who ultimately purchase the products and/or the money of that person’s activity”
“That has nothing to do with economic calculation.”
Actually it does.
The demand from your buyer may well have been affected by the fact that interest rates are different from those determined by market time preferences and so his industry’s investment was impacted differently from other industries, such that he offers you $10 instead of $15 or $5, which then impacts your investment in the production of those goods.
This is the source of malinvestment. Expanding certain industries more than others due to monetary manipulation.
“”How can you guarantee that the REAL coordination between you and other sellers is still in synch?””
“You never can anyway.”
Ah but in a free market the profit and loss mechanism will help ensure that is you make a real side mistake, you are punished earlier than later. With central banking, real side errors continue to be made because they are, for a time, nominally profitable.
“But the only way supposed cantillon effects would have any real effect is if there were systematic and persistent mistakes made by sellers and buyers which led to investments which later turned out to be unprofitable as a result of those mistakes.”
Correct!
“And that would only happen if for some reason all the investors and entrepreneurs involved were completely incompetent.”
Incorrect! You can’t call someone whose radio has been jammed a terrible listener. You can’t call someone whose eyes have been blinded that he is a terrible navigator.
Investors cannot observe free market prices, so they are literally blind to being able to make economic decisions based on free market prices. Yet it is free market prices that they need so that they don’t continue making the kinds of errors that persist in central banking systems.
Investors do not, and should not, be regarded as “incompetent” for not being able to parse free market driven portions of price changes, and central bank driven portions. It’s too much to ask.
I mean, take yourself. Not only did you not even consider potential economic calculation distortions in selling your goods for $10 a pop, caused by central banking, but you positively said that the circumstances surrounding you selling a good for $10 instead of another good for another price, has nothing to do with economic calculation.
What you are not taking into account accurately, due to it being impossible to do, is exactly what investors as a group cannot do as well. You’re not incompetent for not being able to know it. You’re prevented from knowing it because it isn’t observable.
You said it yourself. A free market is just an imagination. It isn’t observable. And that is EXACTLY why the capital structure is distorted because of socialist money.
2. April 2014 at 21:19
Philippe:
“How do you know you have changed it in such a way that investment in what you are selling, is not too great and not too small relative to other possible investments?”
“This is a risk that you always face with any investment decision.”
Yes, but in a free market your errors would be revealed sooner rather than later.
“It is not unique to the example I gave.”
There are levels within that single category of risk.
“If you think it is a fundamental problem then you are saying that markets are not necessarily efficient or optimal due to the chronic problem of uncertainty.”
No, I am saying that government hampered markets are not efficient or optimal due in part to the chronic problem of non-market money production affecting prices in necessarily non-market ways and thus leading to painful corrections later on instead of minor corrections in the present.
2. April 2014 at 23:06
“This is the source of malinvestment. Expanding certain industries more than others due to monetary manipulation.”
No, it’s part of the simple-minded ABC theory which is made-up BS based on dubious assumptions and rejected by everyone but a little cult based in alabama.
“Ah but in a free market the profit and loss mechanism will help ensure that is you make a real side mistake, you are punished earlier than later. With central banking, real side errors continue to be made because they are, for a time, nominally profitable”
Ah but pure assertion no facts.
“You can’t call someone whose radio has been jammed a terrible listener”.
IN my example their radio has not been jammed.
“And that is EXACTLY why the capital structure is distorted because of socialist money.”
Pure assertion, no facts, no argument beyond circular reasoning and the repetition of ideological slogans.
“Yes, but in a free market your errors would be revealed sooner rather than later.”
you’re talking about imaginary land again aren’t you.
“No, I am saying that government hampered markets are not efficient or optimal”
Of course you are. You always argue for ideological and emotional reasons. However if you recognise as you did above that people can’t predict the future and there is always uncertainty, this raises the possibility that markets are not always efficient or optimal.
You really need help.
Oh and by the way Molyneux, what you did to those kids and their poor families is disgusting.
3. April 2014 at 01:19
Major_Moron
Economics […] is a deductive science, akin to formal logic and mathematics.
In other words, when facts get in the way of a good story (like they do most of the time) the proper Austrian response would be to disregard the facts.
Were you born a moron or were you dropped on your head when you were small ?
3. April 2014 at 01:48
This might be of help to some of those here:
http://rationalwiki.org/wiki/Fun:Austrian_school
3. April 2014 at 02:42
“Federal Reserve: The arm of the government that creates the business cycle. When it lowers interest rates, that sends out radio signals to investors’ brains and makes them too dumb not to make ridiculous loans.”
3. April 2014 at 03:00
I say we grant the observation that the fed can’t hit the inflation target regardless of logical error because it illustrates the folly of inflation targeting and the entire body of worship of price stability mandates. If it’s broken, it must either be fixed or abandoned for a more effective nominal target.
3. April 2014 at 03:40
Mark, a falling debt/GDP ratio implies the deficit is under control. In this case the bonds and currency are not in danger. It is when the deficit and debt are both large that investors avoid bonds and the central bank ends up buying in large amounts with new money. Can you find any cases where the debt and deficit are both very large (over 90% GNP and more than 40% of government spending has to be financed). Outside of Japan it seems like these conditions lead to high inflation after a few years.
But my point above was if investors were not buying the government bonds then either the central bank buys them or it lets interest rates go up. But if it lets interest rates go up then it can become obvious that the government can not afford the debt. So the normal case seems to be the central bank keeps buying bonds, even when all logic shows they are printing too much money and causing inflation.
3. April 2014 at 04:37
Philippe:
“This is the source of malinvestment. Expanding certain industries more than others due to monetary manipulation.”
“No, it’s part of the simple-minded ABC theory which is made-up BS based on dubious assumptions and rejected by everyone but a little cult based in alabama.”
Glad you agree it is the source of malinvestment.
“Ah but in a free market the profit and loss mechanism will help ensure that is you make a real side mistake, you are punished earlier than later. With central banking, real side errors continue to be made because they are, for a time, nominally profitable”
“Ah but pure assertion no facts.”
Ah, but pure assertion it is no facts, no facts.
“You can’t call someone whose radio has been jammed a terrible listener”.
“IN my example their radio has not been jammed.”
Your example is not accurate to the real world of socialist money.
“And that is EXACTLY why the capital structure is distorted because of socialist money.”
“Pure assertion, no facts, no argument beyond circular reasoning and the repetition of ideological slogans.”
Pure assertion that it is pure assertion, no facts, no argument beyond circular reasoning and the repetition of ideological slogans.
“Yes, but in a free market your errors would be revealed sooner rather than later.”
“you’re talking about imaginary land again aren’t you.”
You’re talking about imaginary land whenever you think of ways the world can be better than it is in the moment.
You believe that NGDPLT will improve output and employment, and yet NGDPLT is not being imposed in the real world, and hence it is imaginary land.
Why do you base your beliefs on imaginary land? You continue to evade addressing this point.
“No, I am saying that government hampered markets are not efficient or optimal”
“Of course you are. You always argue for ideological and emotional reasons.”
You always argue for ideological and emotional reasons, and believe it is a flaw, and so you want the attention on others instead of you regarding this alleged flaw.
Everyone is an ideologue, and everyone adheres to an ideology. An ideology is just a set of ideas. You have a set of ideas. That means everything you say is the product of an ideology.
“However if you recognise as you did above that people can’t predict the future and there is always uncertainty, this raises the possibility that markets are not always efficient or optimal.”
Does not follow. I don’t have to predict the future before I can know that violent intervention makes things worse.
“You really need help.”
In what way?
“Oh and by the way Molyneux, what you did to those kids and their poor families is disgusting.”
Wait, do you ACTUALLY believe I am him? Hahahaha
3. April 2014 at 04:39
Daniel:
“In other words, when facts get in the way of a good story (like they do most of the time) the proper Austrian response would be to disregard the facts.”
No, that is not an accurate “in other words.”
No facts have yet gotten in the way of Austrian theory, so they have not even had the opportunity to disregard them.
“Were you born a moron or were you dropped on your head when you were small ?”
Yawn.
3. April 2014 at 04:44
Tom, You are not insulting, and rarely foolish.
3. April 2014 at 05:28
Vince Cate,
Out of the 69 historic cases of high public debtcoupled with high inflation that I’ve looked at, I can only find four cases where deficits exceeded 40% of revenue, and they all involve the UK: 1917-18, 1942 and 1947.
And even Japan has never run deficits that large in recent years. According to the IMF’s Historic Public Finance dataset the largest deficit was 34.6% of revenue in 2009. According to the IMF World Economic Outlook (WEO) it was 30.1% of revenue last year and is projected to fall to 20.4% of revenue this year and to 16.8% of revenue the next. Similarly, the US deficit peaked at 37.1% of revenue in 2009, was only 17.5% of revenue last year, is projected to fall to 14.1% this year and to 11.6% the next. Furthermore, the IMF WEO projects that gross general government debt as a percent of GDP will start *falling* in Japan this year and in the US next year.
3. April 2014 at 08:01
“Tom, You are not insulting, and rarely foolish.”
One out of three isn’t a bad start I guess. I’ll work on it.
5. April 2014 at 21:23
I think the idea of the low nominal rate tight money world is just not widely understood or accepted yet, even though it’s so obviously true. I meet people in their 20s who are still running scared from their parent’s stories of the Great Inflation.
I do wonder how much the Fed is the prisoner of their fears about what the bond markets will do if Yellen comes in one day with a 3% inflation target. I don’t think they understood in 2008 how painful the alternative would be, and I’m afraid they won’t understand next time.
9. April 2014 at 08:25
Mark, if I recall correctly, in Bernholz book he studies 29 cases of hyperinflation and he decided that debt over 80% of GNP and deficit over 40% of spending was the common characteristic ahead of time. So this was the best predictor of hyperinflation he could come up with.
Are you ignoring hyperinflation cases?
http://www.goldonomic.com/Monetary_regimes_and_inflation.pdf