Paul Krugman: Before and after market monetarism
Here’s Paul Krugman in November 2008, when the fed funds policy target was 1.0%:
Actually, before I get to the math, some concepts. Nearly every forecast now says that, in the absence of strong policy action, real GDP will fall far below potential output in the near future. In normal times, that would be a reason to cut interest rates. But interest rates can’t be cut in any meaningful sense. Fiscal policy is the only game in town.
Commenter “dwb” just sent me this recent Krugman column commenting on the ECB’s recent refusal to cut its policy rate from 1.0%:
Most notably, last week the European Central Bank declined to cut interest rates. This decision was widely expected, but that shouldn’t blind us to the fact that it was deeply bizarre. Unemployment in the euro area has soared, and all indications are that the Continent is entering a new recession. Meanwhile, inflation is slowing, and market expectations of future inflation have plunged. By any of the usual rules of monetary policy, the situation calls for aggressive rate cuts. But the central bank won’t move.
Meanwhile a strange virus seems to have taken over the University of Chicago. But first a little background. When I was there in the late 1970s there was no theory more ridiculed than Keynes’s “liquidity trap.” Now we have two of the most famous Chicago economists making liquidity trap-type arguments. Here’s Richard Posner:
The more serious objection to the Fed’s pushing down interest rates is that it probably would have little effect on borrowing, consumption, production, and employment. The reason is that interest rates are already very low, yet borrowing is lackluster.
And here is Gary Becker:
The Fed tries to stimulate economic activity through open market operations; that is, by buying assets, such as treasury bills, US government bonds, and debt issued by the private sector. These actions directly lower interest rates, and a little more indirectly also raise the reserves of banks. Through a variety of aggressive open market operations since the financial crisis began in 2008, the Fed has accumulated several trillion dollars of assets. In part due to these actions, interest rates on treasury bills are close to zero, and the excess reserves of American banks have increased to a mind-boggling level of almost $1.5 trillion.
The Fed cannot do much more to lower interest rates.
I really miss the old UC, the one that reflected the views of Milton Friedman:
Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy.
. . .
After the U.S. experience during the Great Depression, and after inflation and rising interest rates in the 1970s and disinflation and falling interest rates in the 1980s, I thought the fallacy of identifying tight money with high interest rates and easy money with low interest rates was dead. Apparently, old fallacies never die.
Admittedly neither Posner nor Becker are macroeconomists. And what they say is technically true—nominal rates cannot fall much further. But neither discusses other types of monetary stimulus, hence they both leave the impression that the Fed is out of ammo, and that Fed policy has been easy.
HT: Gregor Bush, Saturos
PS. Any Chicago students reading this blog are encouraged to supplement your studies with this excellent essay on monetary economics by frequent commenter Lorenzo.
PPS. Marcus Nunes also has a post on Becker.
Tags:
11. June 2012 at 15:55
Someone help me write a love letter…
“Dear Public Employee Unions,
XXXXXX
love,
morgan”
11. June 2012 at 16:10
Becker says that QE2 was combined with IOR, which undercut its effectiveness. This is essentially the MM position as well, correct? So Becker seems to get it.
But instead of screaming at the Fed to stop sabotaging itself with its IOR policy, Becker concludes that the Fed is out of ammo.
Maybe QE3 would be pointless with the current IOR policy, but it isn’t like IOR is written in the stars.
The proper conclusion to Becker’s post is not that QE3 is doomed to fail; it’s that the Fed is choosing to be ineffective.
11. June 2012 at 16:40
The world is upside down – I agree with Krugman but disagrees with Becker. I haven’t my views – but they surely have.
11. June 2012 at 17:06
Since Scott was complaining a short while ago about the AEA’s interests, he should be glad to see the newest AER has;
Statistical Modeling of Monetary Policy and Its Effects (#2)
Christopher A. Sims
Haven’t read it, but suspect it has something to do with this;
http://www.nobelprize.org/mediaplayer/index.php?id=1743&view=1
11. June 2012 at 17:07
The only legacy I see coming out of market monetarism is the dubious distinction of convincing Keynesians that central banks can still print money and bring about price inflation at the zero bound, if they rely on people other than bank lenders.
Big woop. Market monetarists are only 100 years behind Joe Blow on the street asking why the Fed shouldn’t send him a check for his garbage assets.
It’s “Helicopter Ben” caricature hilarity imagined to be “serious” policy.
11. June 2012 at 17:25
Cedric,
This is why I was right about the politically palatable way to move the needle.
End IOR and set a 2% inflation LT starting today.
This satisfies conservatives because as soon as we run past 2%, we are going to raising rates.
This IMMEDIATELY means Congress is BUYING ITSELF EASING if it starts cutting spending.
The message is clear:
Fire teachers, DMV workers, postal employees, etc
And the Fed will make sure demand stays up, the stock market goes up and we don’t eat it on Europe.
11. June 2012 at 17:28
I’m a rising second year at the University. I’m very curious to see how the main economics major sequence will treat policy response to recessions.
11. June 2012 at 17:30
The only good thing from DeKrugman in ages:
http://www.youtube.com/watch?v=RrGEzQJ56ew
11. June 2012 at 17:35
Morgan, I love it. http://media.tumblr.com/tumblr_lwudxidwA61qbbi50.gif
11. June 2012 at 17:38
Thanks for the link!
We live in a time when the depressing power of simple narratives is starkly displayed.
11. June 2012 at 18:07
Saturos
Your wish for an SS “call-out” arrived long before Xmas!
11. June 2012 at 18:36
Chicago ’85…i’d like to think that Becker is comparing everything monetary policy has done in last 3-4 yrs to everything that the regulatory and legal environment has done last 3-4 yrs..the guy’s also 81 yrs old cut him some slack
11. June 2012 at 19:17
Scott,
I’m re-posting a comment that I left earlier, but it’s far more appropriate here:
I asked John Cochrane on his blog what he thought of NGDP targeting and this was his response
Any chance you could stage a hostile takeover of the UC economics department?
11. June 2012 at 19:44
SG,
Cochrane concedes the potential efficacy of buying *private* debt, does he not? I certainly recall him discussing the political problems entailed, but advocating it nonetheless. That would open the door to at least some Selgin/Sumner hybrid policy. (I prefer “Sumgin” to “Selner,” but am open to persuasion.)
Mind you, this was all a few years ago, and I have not a clue where Cochrane stands on the issues currently, save what you have reported.
11. June 2012 at 20:03
So I have had a couple hours to think about the game play of:
1. End IOR
2. Run a 2% Level Target on CPI
On #1, #2 solves the fear some conservative have about inflation, nagging back there is if IOR was 0% of even negative, we might get a ugly taste of how effective IOR has been at putting $1.2T into play and not feeling it.
That may not be true, BUT since conservatives WANT to screw the bankers, they still have to be convinced the bankers get screwed without killing the patient.
That’s why #2, essentially, under a LT, we can slash $1T in public spending, and at MINIMUM there is no negative effect – thanks Sumner.
And at a maximum slashing $1T in public spending = >$3T in accumulated private market growth in 24 months – thanks Morgan.
—-
I GET that NGDP at L is beter than a LT on Inflation.
BUT, the major gain from status quo at 30K feet is the LT part.
So attach the LT part to CURRENT Fed policy – thats no big ask.
So you can pay for it, with a real conservative populist pitch on ending IOR, and they will be grateful.
Granted this all needs to happen @ Nov. 2012, but it seems actually doable.
11. June 2012 at 22:43
A video worthy of Major Freedom:
http://www.youtube.com/watch?v=4SNVx7Nl65M&feature=relmfu
Really, I thought LearnLiberty was better than this.
11. June 2012 at 23:14
But this one is much better: http://www.youtube.com/watch?v=PLTfOAYfbao&feature=relmfu
11. June 2012 at 23:37
Interesting that PK would link to James Hamilton’s blog for his assertion that because “…interest rates can’t be cut in any meaningful sense. Fiscal policy is the only game in town.”
Krugman apparently neglected to read the following conclusion to that Hamilton post, or he simply chose to ignore it:
“What we need is some near-term inflation, for which the relevant instrument is not the fed funds rate but instead quantitative expansion of the Fed’s balance sheet. I continue to have concerns about implementing the latter in the form of expansion of excess reserves, which ballooned by another quarter trillion dollars in the week ended November 5. Instead, I would urge the Fed to be buying outstanding long-term U.S. Treasuries and short-term foreign securities outright in unsterilized purchases, with the goal of achieving an expansion of currency held by the public, depreciation of the currency, and arresting the commodity price declines”
Should this be placed in the category “Be Careful what you Link to”?
12. June 2012 at 01:22
Michael Darda has gone after the ECB: http://mkm.na.bdvision.ipreo.com/NSightWeb_v2.00/Handlers/Document.ashx?i=716ee8a098ad4112960dac860a4db904
12. June 2012 at 01:27
Great videos Saturos. Every time he has to go through the whole spiel ‘they have to decide whether they will spend more today and less tomorrow or they will decide to spend less today and more tomorrow” I laughed out loud
12. June 2012 at 01:38
“Really, I thought LearnLiberty was better than this.”
The Davies videos aren’t.
12. June 2012 at 01:39
“Your wish for an SS “call-out” arrived long before Xmas!”
Sorry Marcus, I realize you posted on Becker and Posner on your blog before I posted them here.
12. June 2012 at 03:23
I think rather than just say:
“Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy.”
It might be better to say
1) Changes in nominal interest rates lag changes in the economy.
2) It’s real interest rates that matter, not nominal rates.
3) In considering whether money is tight, it’s important to consider the rate of inflation of financial assets and the trend in the supply of safe tradeable collateral.
Recently the supply of safe collateral has fallen catastrophically. This forces up the price of (and lowers the return of) safe assets, while having the opposite effect on unsafe assets, whose population increases by contagion.
This increase by contagion adds a negative supply and demand dynamic, to the problem. Such feedback effects are extremely dangerous. Naively, such a system becomes unstable as the phase margin approaches 0.
12. June 2012 at 04:05
[…] The bizarro world of how economists are certain economists are discussing monetary policy nowadays. Share this:EmailPrintStumbleUponLike this:LikeBe the first to like this post. links ← Browsing Catharsis – 06.11.12 […]
12. June 2012 at 04:20
Saturnos:
I didn’t think the learn liberty video was all that bad.
I do think leaving off business investment was a mistake. It was like consumer loans (including mortgage lending for investment in single family residences) is the whole thing.
Still, the basic supply and demand framework is correct. If they went further and argued that the proper interst rate is the one with a fixed quantity of money, or one where all money is backed by gold, then it would have gone from “good as far as it went” to really bad.
Market monetarists don’t favor having the Fed target interest rates. I think that most of us expect that, today, with a proper Fed policy, the free market would raise interest rates.
It is like inflation targeting. The Fed shouldn’t target inflation at all, according to Market Monetarism.
But with the Fed targeting inflation and using interest rate instruments (or the ECB doing it,) and spending on output is far below trend, and something is likely to make fall further, then “lower rates” and “higher inflation” are better than having the central bank stand pat or raise interest rates or lower inflation.
But the right policy is commit to get spening onto a target growth path in a year (or maybe two) and adjust the quantity of base money however much necessary to get it done (which could be increases or decreases,) and let the market determine interest rates and inflation (and exchange rates real output, employment and unemployment.)
12. June 2012 at 04:32
Saturnos:
I didn’t think the learn liberty video was all that bad.
I do think leaving off business investment was a mistake. It was like consumer loans (including mortgage lending for investment in single family residences) is the whole thing.
Still, the basic supply and demand framework is correct. If they went further and argued that the proper interst rate is the one with a fixed quantity of money, or one where all money is backed by gold, then it would have gone from “good as far as it went” to really bad.
I worry a bit that one could read between the lines and see an implied story of low interest rates in the past, high debt, and then an inevitable decease in spending in the present. This of course, ingores that those who were lending in the past, and built up lots of assets, are able to spend more in the present. But that sort of error was not explicitly made, it just seemed that large debts and less spending by those in debt was played up without the offsetting effects.
Market monetarists don’t favor having the Fed target interest rates. I think that most of us expect that, today, with a proper monetary policy (or really, a shift to a sensible egime,) the free market would raise both nominal and real interest rates.
It is like inflation targeting. The Fed shouldn’t target inflation at all, according to Market Monetarists.
But with the Fed targeting inflation and using interest rate instruments (or the ECB doing it,) and spending on output is far below trend, and something is likely to make fall further, then “lower rates” and “higher inflation” are better than having the central bank stand pat or raise interest rates or lower inflation.
But the right policy is commit to get spening onto a target growth path in a year (or maybe two) and adjust the quantity of base money however much necessary to get it done (which could be increases, but maybe decreases,) and let the market determine interest rates and inflation (and exchange rates real output, employment and unemployment.)
12. June 2012 at 04:56
Which is more important: eliminating IOR or additional asset purchases? Suppose you had to pick one or the other.
From the standpoint of a noneconomist, eliminating IOR seems like an easier sell: banks will use their money more if they aren’t paid to hold it. “Further easing” is less convincing — pushing on a string, etc.
12. June 2012 at 05:19
Part of the purpose on IOR is to set an interest rate floor. They don’t want the banks to buy treasuries and drive the interest rates on those down, not to mention that it’s a loop, since the money the banks payed would return as reserves.
12. June 2012 at 05:41
Cedric, Yes, he gets IOR, but the rest . . .
Lars, I know the feeling.
Patrick, Yes, but when he won the prize I recall him saying he had no opinion on the recession.
Basil, Let me know what you find.
Lorenzo, Unfortunately you are right.
Kaiser, I don’t need to cut him any slack, even at age 81 he’s probably the smartest economist in the world.
SG, He doesn’t seem to realize that the Fed has lots of other options. Nor does he explain why markets respond strongly to rumors of QE.
Vivian, We think alike. A few weeks back I did a whole post discussing how he misinterpreted Hamilton’s argument. Put Krugman and Hamilton in the search box if you are interested in finding it.
Thanks for the links Saturos.
Peter N, Good points, but the easiest way is just to look at expected NGDP growth relative to target.
srw, I’m tempted to say “neither” as both of them are far from optimal (I prefer NGDPLT.) I suppose I would prefer eliminating IOR, if those were the only two choices.
12. June 2012 at 05:50
Peter N,
As I believe Lars Svensson has recommended, the solution is to charge a negative IOR. Make the banks do the helicopter dropping for you. Even if they buy government debt and accumulate more reserves, they will still have to figure out what to do with those reserves, because it’ll be costing them money to keep it in the mattress, so to speak.
In any case, the Fed should be buying up all the US’s debt so banks don’t even have a chance to get in on this action. If the Fed is so powerless to affect AD, as everyone seems to be saying, then the Fed could wipe out the US national debt with a stroke of the pen.
12. June 2012 at 06:13
As long as IOR is less than what the Fed is earning on its investments, the more reserves banks want to park at the Fed the better. If banks wanted to put 100% reserve at the Fed and earn 0.25% and have the Fed buy up the entire national debt, that’s great.
Why are we thinking like Keynesians? The Sumner Critique applies to the reserve ratio just as much as it does to fiscal policy. If banks increase reserves and the Fed locks them in a vault, then, yes, that’s deflationary. But the reaction function of the Fed would be to buy an equivalent amount of bonds making it a wash.
12. June 2012 at 06:49
Propagation of Ideology:
As long as IOR is less than what the Fed is earning on its investments,
The Fed neither earns nor invests.
Earning implies producing something of value that the open market is free to accept to reject, in exchange for money. The market is not free to accept or reject US dollars due to taxation and legal tender.
Investing implies saving what one has earned. Since the Fed does not earn, it does not invest.
If banks wanted to put 100% reserve at the Fed and earn 0.25% and have the Fed buy up the entire national debt, that’s great.
Yeah asset bubbles!
12. June 2012 at 07:05
regarding my question: which is better / eliminating IRO (or making it negative, ala svenssen), OR asset purchases.
I should rephrase it. Assume NGDPT is adopted. Then, which single tool would be most effective in raising NGDP quickly to the target level? I understand that the effect on expectations is critical, but expectations require credibility. Which underlying tool (not simply an announcement) would have the desired impact most quickly.
12. June 2012 at 07:24
‘Patrick, Yes, but when he won the prize I recall him saying he had no opinion on the recession.’
That’s because he admits macro hasn’t even resolved controversies from the 30s.
12. June 2012 at 07:55
Bill,
The guy was reasoning from price changes. Lower rates mean more lending, higher rates mean less. When rates go down, spending goes up today and goes down later. We are borrowing demand from the future. The interest rate where the Fed “doesn’t intervene” is “correct” in a way that present rates are not. When the Fed intervenes in the markets the interest rate no longer reflects individual time preference. (As if the Fed were imposing price controls.)
He sounds exactly like Major Freedom. Come to think of it…
12. June 2012 at 08:19
Major – I use words as they are defined in the dictionary, not the way they are defined in your imagination.
http://dictionary.reference.com/browse/earning
http://dictionary.reference.com/browse/invest
And there’s no evidence that full reserve banking would cause asset bubbles.
12. June 2012 at 10:27
Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy.
The trouble with just making this statement as a flat assertion is that it is deeply counter-intuitive. It sounds like Milton Friedman trying to be zen. Saying that it has to be true because Milton Friedman says so only works for people who regard the word of Milton Friedman as infallible holy writ. Lots of people don’t, you know.
What this statement needs is an explanation of why it is so and some empircal evidence to back it up. High interest = easy money is easy enough. Too easy money causes inflation. Inflation necessarily raises interest rates just to stay ahead of inflation. I think most people can understand this.
The reverse is the harder case to make. As I understand it, the case is somewhat like this. Extremely low interest rates can be a symptom of a depressed economy because of the dearth of good investment opportunities. Judging from the reaction to the latest drop in interest rates, I think most people understand this. The question, then, is whether a depressed economy is necessarily the result of too-tight monetary policy. That’s where the real controversy lies.
Speaking for me, I was skeptical. It sounded like Milton Friedman trying to be zen. And then I noticed that whenever the Fed announced a new round of QE in order to lower interest rates, interest rates responded by rising. It was that, more than anything else, that convinced me there was something to it.
12. June 2012 at 10:48
Propagation of Ideology:
Major – I use words as they are defined in the dictionary, not the way they are defined in your imagination.
http://dictionary.reference.com/browse/earning
http://dictionary.reference.com/browse/invest
Dictionary definitions derive from people’s imaginations.
And the definitions in that dictionary prove my point. The Fed doesn’t satisfy either definition. Notice the word “service” in the earning definition? That disqualifies the Fed. Since the Fed doesn’t earn, they can’t invest any earnings either.
And there’s no evidence that full reserve banking would cause asset bubbles.
I was not referring to the full reserve banking part, I was referring to the Fed monetizing the entire national debt part.
12. June 2012 at 10:51
Saturos:
The guy was reasoning from price changes. Lower rates mean more lending, higher rates mean less. When rates go down, spending goes up today and goes down later. We are borrowing demand from the future. The interest rate where the Fed “doesn’t intervene” is “correct” in a way that present rates are not. When the Fed intervenes in the markets the interest rate no longer reflects individual time preference. (As if the Fed were imposing price controls.)
He sounds exactly like Major Freedom. Come to think of it…
I don’t reason from price changes. I also don’t reason from spending changes. You do reason from spending changes, so if anyone is reasoning incorrectly…
The bolded part is true however.
12. June 2012 at 14:00
What do you consider the best arguments against market monetarists’ views of NGDP targeting as a solution to our problems? You scoff at liquidity trap, reasoning from price, etc., but can it be that those errors keep prominent economists, macro and not, from endorsing market monetarism?
You’ve burned a lot of bytes here in refuting economists hopelessly captured by political and glamorous cocktail parties. But guys like Becker and Posner are another, non-hackery matter, they speak at financial conferences, can get published and televised anywhere, have their calls returned by Warren Buffet, journalists and politicos of all persuasions.
Market monetarist will win the intellectual battle when they catalogue and respectfully refute the concerns of that ilk. Win the intellectual consensus today, form the political constituency tomorrow that provides political cover for Fed (or legislative) action to change the Fed’s stated mandate. And http://www.becker-posner-blog.com/ does take comments.
Or listen to Morgan and tilt your efforts to Fox Business and Tea Party rallies. It definitely worked for 2nd amendment and anti-tax activists.
(It’s not a sports blog, but Go Kings, Go!)
12. June 2012 at 17:54
srw, You couldn’t just do negative IOR, or even zero IOR, by itself, you’d have to reduce the monetary base to prevent NGDP from overshooting. If you didn’t change the IOR (i.e. kept it at 0.25%) I’m not sure whether you’d have to increase or decrease the monetary base–it depends on how high the NGDP target path is set.
Essayist, I think it helps to think in terms of NGDP, not inflation and RGDP. Then you can define tight money as a policy that reduces NGDP, and there is strong empirical evidence that falling NGDP expectations tend to reduce nominal interest rates.
I accept your point that more explanation is needed, but have mercy on me—I’ve done thousands of posts and can’t explain all my underlying assumptions in each post.
bababooey, As far as influencing others, I’m already having success beyond my wildest dreams, so I suppose I need to just keep doing what I’m already doing. Lots of people tell me what I should do to be more effective, but no one else knows what it’s like to be in my shoes, with all my constraints, weaknesses, and limitations, etc.
Perhaps if Becker and Posner had read my National Affairs article they might feel differently, but they probably haven’t. I’d also note that they aren’t macroeconomists, so they aren’t my real target (which is my fellow macreconomists.)
I’m shocked to hear that you are a hockey fan–I thought you’d be more a NBA fan. Congratulations on the Kings. 🙂
13. June 2012 at 02:15
MF, so you think OMOs are like price controls?
13. June 2012 at 04:01
Saturos:
MF, so you think OMOs are like price controls?
I don’t just think it. They are like price controls. Market time preference manifested interest rates are not permitted to exist. The non-market, governmental Fed sets a particular overnight interest rate, and a particular base money. The market process of private property and exchange is not deciding these things.
13. June 2012 at 05:56
bababooey I know who you listen to on the radio though. I love that shouw
Scott there’s no doubt you’re effective, I always say you really are Friedman 2.0 as you do have his persausive powers.
This doesn’t mean you’re right about everything-not syaing you’re all wrong either. Intutitvely it does sound good though as they say “seeing is believing” We wont know it works until it’s tried. This is the one advantage accoring to people like Noah Smith of a model-its a way to test it without the trial ane error of empirical failure. Obvioulsy we can’t try every idea and even those that make intutitive sense it’s less costly to at least attempt to submit them to modeling. Again I speak as an interested layman I don’t know how to put together a rigorous model just saying this is the premise.
Stephen Williamson may say that “real econoists” wont take it serioussly without a certain type of mathematical model-but who knows, Friedman made it far without one.
I think at least in part he may be feeling the resentment that the pros alway feel when those they see as amateurs poach on their turf.
13. June 2012 at 09:11
MF, In what way do credit markets fail to reflect individual time preferences when the central bank lowers interest rates through monetary injection?
13. June 2012 at 18:55
Thanks Mike.
13. June 2012 at 21:35
Saturos:
MF, In what way do credit markets fail to reflect individual time preferences when the central bank lowers interest rates through monetary injection?
You pretty much answered your own question. Interest rates, according to me, MEAN something. And when I say mean something, I mean they mean something about individual actions in the market.
In a free market of money production, interest rates will rise when time preference rises (meaning people prefer more present consumption relative to future consumption), and interest rates will fall when time preference falls (meaning people prefer more future consumption relative to present consumption).
The reason why interest rates rise when people prefer more present consumption to future consumption, is because when people reduce their investment spending and increase their consumption spending, it brings about a fall in economic costs (in money) relative to economic revenues. Do you see how that is the case? Investment spending adds to economic costs. Reducing investment spending subtracts from economic costs.
Well, when costs fall relative to revenues, that makes rates of of profit rise. When profits rise, so do interest rates. Interest rates are a function of profits. (This is why we see a long term correlation between NGDP and interest rates. It’s because NGDP growth means more nominal profits, and NGDP decline means lower nominal profits).
I think you can figure out what happens when the reverse happens, that is, when time preference falls. Everything goes in the opposite direction.
So now that you know how interest rates reflect time preference in a free market, it should be easy to see how introducing central banks into the mix, who influence interest rates themselves by way of money printing and credit expansion, would lead to prevailing interest rates that fail to reflect individual time preferences, and by extension, why malinvestment (investments not aligned with actual time preferences) would occur, and why structural corrections are necessary for return to healthy sustainable growth.
I direct your attention now to the fact that even though NGDP has been rising at 4-5% annually since 2010, the Fed is keeping the fed funds rate at 0.25%, and prevailing interest rates are continuing their 30 year bull market fall. I hope you suspect what I do, which is the extent of malinvestment that is currently taking place in the US, and all around the world (since the world’s central banks are coordinating their record setting, massive inflationary run since 2008).
I fear that 2008 was but a tiny taste of what is now inevitable. People like Sumner who have called for inflation during the good times, and who have called for even more inflation during the bad times, are going to go down in the record books as intellectually responsible for widespread economic calamity and, unfortunately, deaths. They simply do not know what they do. They do not know how destructive communist institutions really are to civilization, because they don’t understand how the market works. They’re chained to the same old tired positivism and garbage in, garbage out idealistic models that presuppose the a priori theory that central planning works.
Since they screwed it up for future generations, I am just here to show the future generations that people like Sumner had no excuse for their ignorance. They had ample opportunity to learn about economics and how the market works. They had ample opportunity to listen to the myriad of people like me who are pleading for them to see the light.
Money printing is not a panacea. It never was, and never will be. As long as humans need to work to produce wealth, monopolized money printing can only destroy the division of labor. It looks like it works because it serves as a quick fix, but the REAL problems persist, and are just delayed to the future.
6. July 2012 at 00:58
The only problem with your argument Major Freedom is your boundless not supported by evidence believe that people spend differently in their life, the vast majority of people pretty much spends every penny. It’s only when you get to the high sphere of.the market when people can actually decide how to spend their money.
Also, you’re doing Ketchup economics.