No matter how cynical I get, I can’t keep up

Commenter Ben Cole likes to point out that the Wall Street Journal was dovish when Reagan was President, but then became hawkish under Democratic Presidents.  It looks like they are back to their old tricks:

But Mr. Trump is counting on tax reform and deregulation to boost growth to 3% a year from 2%. If that growth happens, the Yellen-Powell Fed may believe it has to raise rates rapidly, endangering faster growth. Guess whose policies will be blamed? Not the Fed’s.

This is why the old “hawk vs. dove” monetary debate isn’t all that relevant at the current moment. Outsiders like Messrs. Warsh and Taylor, or Columbia’s Glenn Hubbard, believe that tax reform and deregulation can increase the economy’s capacity to grow above 3%. They therefore might raise interest rates more slowly than the Yellen-Powell faction would.

Translation:  Now that we have a Republican President we need easy money to hide the fact that Trump’s “pro-growth” policies are likely to fail.

They are right about one thing, with a 2% inflation target the question of hawks and doves becomes far less important; it’s really about competence vs. incompetence.

PS.  I wonder what John Taylor thinks of the WSJ claim that he’d be more dovish than Yellen.



15 Responses to “No matter how cynical I get, I can’t keep up”

  1. Gravatar of foosion foosion
    9. October 2017 at 15:26

    It was fun to watch the usual rightwing suspects argue both that Fed policy would quickly destroy the economy and that Fed policy was designed to help Obama by helping the economy.

  2. Gravatar of Benjamin Cole Benjamin Cole
    9. October 2017 at 16:55

    I am red-faced with embarrassment to see my name in the lead paragraph. I am too flustered to make a comment except to agree with this post.

  3. Gravatar of Ram Ram
    9. October 2017 at 17:04

    No defender of the WSJ editorial page, but I think I know what they are saying. They believe that cutting MTRs and loosening regulations will lead to faster growth in potential output, while others believe this will not (at least not much). If the economy does grow faster, then the latter group will see this against the backdrop of unchanged potential output, and so will tighten, while the former group will see this as reflecting increased potential output, and so will not tighten. While such a positive supply shock would also be disinflationary, motivating a looser monetary policy, this reaction would presumably be the same from both groups. The idea, then, is that given the dual mandate, the group skeptical of neoliberalism will altogether pursue slower growth than the the group convinced of neoliberalism. I actually think this a decent prediction, if unfortunately imprecise.

  4. Gravatar of ssumner ssumner
    9. October 2017 at 17:54

    Ram, That’s giving them way too much credit. If the supply side reforms really do lead to faster growth in potential, Yellen isn’t going to prevent that from happening.
    Has the WSJ editorial page suddenly become a bunch of vulgar Keynesian Phillips curve nuts? Do they think monetary policy is that powerful? If so, why did the WSJ not favor an expansionary monetary policy during the Great Recession? Or does it only boost growth when there are GOP presidents?

  5. Gravatar of Ram Ram
    9. October 2017 at 18:11

    Right, that’s a puzzle. But I think it’s a superficially plausible story.

  6. Gravatar of Benjamin Cole Benjamin Cole
    10. October 2017 at 05:12

    Having recovered my composure….

    Scott Sumner correctly ponders the towering hypocrisy that is standard-issue in D.C.

    Money should be tighter and federal deficits will ruin us (but not when our party controls the White House and Congress).

    BTW, the Reaganauts were tough and smart; Ronald himself proposed stuffing the Fed into the Treasury Department, where it would report to the Oval Office.

    Those were the days!

    But things have changed. While the political right-wing has its reasons for dodgey stances, the academic right-wing has become increasingly strident, even doctrinaire, dogmatic and one-dimensional on monetary policy.

    I recently mentioned Harry Johnson, a lion and legend of right-wing economics from the 1950s through the 1970s, when his life was struck short by stroke. “For the economics profession throughout the world, the third quarter of this century was an Age of Johnson,” James Tobin eulogized.

    Yet Johnson, Chicago prof and standard-bearer, actually chastised his right-wing monetary-obsessed colleagues for being more concerned about inflation than employment. Johnson was even so indiscreet as to describe monetary policy as sometimes an instrument of class warfare.

    Then we have Milton Friedman, who in October 1992 criticized the Fed (in the WSJ op-ed pages no less) for being too tight, after the Fed had cut the discount rate from 10% to 3%. The cut in rates was not enough, said Friedman. The CPI then was running above 3%. Yet Friedman wrote, “It is hard to escape the conclusion that the restrictive monetary policy of the Federal Reserve deserves much of the blame for the slow, and interrupted, recovery from the 1990 recession.”

    When was the last time a right-wing economist decried a “restrictive monetary policy”? Maybe it was Friedman in 1992.

    The right-wing academic credo today: “You can’t be too rich, too thin, or have too-tight a monetary policy.”

    In 1998, Friedman also advocated Japan go heavy on quantitative easing.

    Today right-wing economists are evidently obligated to continuously sound the klaxons on inflation, to hold QE in disregard, and advocate a smaller central bank balance sheet, etc.

    An interesting economic historical study would be to put a timeline on right-wing monetary economics, and then try to illuminate underlying causes. Is this part of the polarization of our society?

    If Trump, by being a GOP president (sort of) can silence the right-wing cacophony regarding inflation and monetary policy, if might be his sole accomplishment.

  7. Gravatar of Scott Freelander Scott Freelander
    10. October 2017 at 06:19

    Perhaps a parsimonious explanation for Republican hypocracy on this issue is that Republicans wanted a bad economy under Obama purely for political gain.

  8. Gravatar of Major.Freedom Major.Freedom
    10. October 2017 at 14:09

    “Translation:  Now that we have a Republican President we need easy money to hide the fact that Trump’s “pro-growth” policies are likely to fail.”

    What did you believe NGDPLT was about? It is specifically designed to bring about unlimited easy money in an attempt to hide the fact that central banking causes whole economies to fail merely by existing and not being exposed to market forces.

    Market forces are necessary against any activity in order for it to sustainably integrate into the rest of the division of labor.

    Socialism does indeed fail, perhaps this should be a lesson acknowledged on this blog already? Kind of strange it has not.

  9. Gravatar of Mark Mark
    10. October 2017 at 22:48

    “It was fun to watch the usual rightwing suspects argue both that Fed policy would quickly destroy the economy and that Fed policy was designed to help Obama by helping the economy.”
    Um, I’m pretty sure the argument is (true or false), was, always has been, that lowering the interest rate spurs short term gains, to the benefit of the incumbent, at the expense of the long run, by creating or exacerbating bubbles.

  10. Gravatar of Major.Freedom Major.Freedom
    11. October 2017 at 09:04

    The Harvey Weinstein case proves that “conspiracies” can go hush hush for many years, including many people in the know, about horrible crimes committed, before finally becoming generally known.

    Everyone who ever said “Bah, that’s a conspiracy theory, surely if what you say is true there would have been ‘someone’ to blow the whistle” are premature in their mindset and are appealing to faith, nothing more.

    It never stopped me from investigating because I am more concerned with truth than popularity, the above is just for the usual yokels on this blog who don’t understand human behavior because they only know the stories they tell themselves

  11. Gravatar of Major.Freedom Major.Freedom
    11. October 2017 at 17:44

    The Weinstein story is a distraction to this:

    **READ THIS**

  12. Gravatar of Christian List Christian List
    12. October 2017 at 12:02

    I’m actually kind of relieved. To this point you could think that the Editorial Board was extremely ignorant. It was to be feared that they believed what they were writing. Now it’s clear that they are just biased.

    @ Scottie F.
    Using a word like “parsimonious” followed by an imagined word like “hypocracy” (???) is really gold. Keep it up.

  13. Gravatar of Benjamin Cole Benjamin Cole
    13. October 2017 at 03:43

    Interesting to note the web-based information services out there.

    “This week, PayScale released the Q3 2017 PayScale Index, which tracks the increase in pay for employed workers across the U.S. and Canada.

    The Index showed that wages increased for the ninth consecutive quarter, growing 0.7 percent since Q2 2017 and 2.8 percent since Q3 2016. Real wages — the buying power of workers’ earnings, when inflation is taken into account — improved as well. During the previous quarter, real wages were 7.4 percent lower than before the recession. In Q3, that narrowed to 6.9 percent lower.”


    By this metric, real wages have not recovered to 2008 levels.

  14. Gravatar of TravisV TravisV
    13. October 2017 at 13:48

    Draghi: Substantial Monetary Stimulus Is Still Needed

  15. Gravatar of ssumner ssumner
    15. October 2017 at 07:36

    Ben, Please stop presenting idiotic false data. Nobody seriously thinks that real wages are 7% lower than in 2007.

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