The right variable for the right argument

Tyler Cowen links to an Edward Hugh post:

So, what do you do about the problem of secular stagnation? Again here there is divergence of opinion. Some still seek to treat the phenomenon as if it were a variant of the liquidity trap issue. Most notable here is Paul Krugman, who continues to hope that massive quantitative easing backed by strong fiscal stimulus will push the economy back onto a healthy path. But if the issue is secular stagnation, and the root is population ageing and shrinking, it is hard to see how this can be. The fact that Japan is just about to fall back into deflation 2 years after applying a monumental Quantitative Easing problem seems to endorse the idea that the problem may have no “solution” in the classical sense of the term.

Hugh’s conclusion may be sound, but the analysis here is muddled.  First of all, the lack of inflation in Japan has the exact opposite implication of what Hugh assumes.  If Japan’s problems were structural, then this would show up as excessive inflation.  If Japan is falling back into deflation, then this suggests an AD problem, not a structural problem.

I frequently see people making arguments without knowing what data points they need to defend these arguments.  For instance people often use unemployment and RGDP data interchangeably, whereas they actually have very different implications. Because Japan faces a falling population, and a rapidly falling working age population, its RGDP growth prospects are quite weak.  So Hugh is right on that point; Paul Krugman’s proposed demand stimulus would not lead to a growth surge in Japan. But what about unemployment?  Here demand stimulus could help, if Japan had an unemployment problem.  But does it? The unemployment rate in recent months has been the lowest in decades.  Even the inflation data cited by Hugh is misleading. Abenomics has raised the price level in Japan, reversing a secular decline.  The near term expected deflation is associated with falling oil prices, and is probably just as transitory as the previous high inflation following the April 2014 sales tax increase. Trend inflation is well below Abe’s 2% target, but better than under the previous (deflationary) regime.

The focus of Hugh’s piece is Finland.  He points to the very weak recovery, and suggests that structural factors are involved. Perhaps so, but some of the data he cites point in exactly the opposite direction.  Finnish unemployment has been rising, and at 9.2% is at the highest rate in more than a decade.  Meanwhile Hugh’s post shows inflation in Finland falling to zero. Those data points suggest a lack of aggregate demand, not structural problems.

Despite all of these reservations, I actually agree with most of Hugh’s conclusions.  Austerity wouldn’t do much for Finland, nor would fiscal stimulus.  Finland probably does have some structural problems (he cites falling productivity and a rapidly falling working age population), and wage growth overshot productivity.  That’s why it’s not doing as well as Germany or Austria.  But if you are going to convince people like Krugman, you need to use the right data to support your arguments. Very few pundits do this.


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34 Responses to “The right variable for the right argument”

  1. Gravatar of LK Beland LK Beland
    28. March 2015 at 09:31

    I think it is worth pointing out that involuntary part-time employment is still a problem in Japan:

    http://static.cdn-seekingalpha.com/uploads/2014/9/23548463_14117497580626_rId13.png

    There is probably still a bit a slack in the Japan job market (albeit not nearly as much as in Europe; it may even be a bit tighter than in the US). They will probably benefit from extra monetary injections.

  2. Gravatar of Major.Freedom Major.Freedom
    28. March 2015 at 09:56

    “If Japan’s problems were structural, then this would show up as excessive inflation.”

    That is false because structural problems are manifested *ALSO* in cash holding changes, either abnormally low cash holding preferences or abnormally high cash holding preferences.

    It is simply not the case that with structural problems people the world over will behave like robots and continue to “spend” in accordance with some mechanistic version of the QTM.

  3. Gravatar of Major.Freedom Major.Freedom
    28. March 2015 at 10:00

    “If Japan is falling back into deflation, then this suggests an AD problem, not a structural problem.”

    This false statement follows from the first false statement above.

    Deflation is not solely a money supply issue. Deflation is an effect of subjective valuations of both real and money variables.

    Japan “falling into” deflation (as if it were some kind of abyss or pit, so scientific!) does not “suggest an AD problem.”

    What actually “suggested” that AD is a problem is your own (false) theory that colors and interprets the historical data so that you can only perceive AD being the cause.

  4. Gravatar of E. Harding E. Harding
    28. March 2015 at 10:38

    “If Japan is falling back into deflation, then this suggests an AD problem, not a structural problem.”
    -Agreed, though MF’s first comment here has a point -structural changes may lead to more being required of the central bank to preserve AD. Also, as you’ve previously pointed out, unemployment is not always a demand-side problem (e.g., Great Stagflation, Russia in the 1990s, Russia today).

  5. Gravatar of Hiding behind “Secular Stagnation” | Historinhas Hiding behind “Secular Stagnation” | Historinhas
    28. March 2015 at 11:51

    […] Scott Sumner comments on a post by Edward Hugh: […]

  6. Gravatar of Major.Freedom Major.Freedom
    28. March 2015 at 14:49

    Release the hounds!

  7. Gravatar of benjamin cole benjamin cole
    28. March 2015 at 16:31

    Excellent blogging. BTW, Nikkei 225 up 30% in last year and Japanese corporate profits at all-time highs.
    Japan will prove an interesting experiment if they can maintain their QE program. Can people be attracted into the labor force from early retirement or can women be attracted into the labor force? Japan has a low labor force participation rate.
    Also, will Japanese productivity rise if businesses invest in plant and equipment as they are more confident in the future?
    BTW, Japan is monetizing their national debt at a rate that will result in a debt-free nation in about 10 years.

  8. Gravatar of Jim Glass Jim Glass
    28. March 2015 at 16:57

    Kinda off topic but certainly related to other posts here…

    The British low-productivity/high employment conundrum considered.

    http://blogs.lse.ac.uk/politicsandpolicy/how-to-return-to-growth-and-solve-the-productivity-puzzle/

  9. Gravatar of Jim Glass Jim Glass
    28. March 2015 at 17:35

    More seriously off-topic, I don’t know if this has been noted here already (or, if not, whether it’s worth noting now) but…

    DeLong just suggested a change in the Federal Reserve Act to legally require the Fed to target nominal wages…

    The easiest way to fix this problem would be to revise the Federal Reserve Act”Š”””Šperhaps to add “healthy rate of nominal wage growth” to the list of Federal Reserve monetary policy objectives.

    ISTM that in practice this effectively suggests that NGDP targeting be made law, as the end result would be very much the same due to the same principles in action, while an NGDP target would be much easier to administer than a nominal wage target.

    Another surrender to the Market Monetarists, if without quite explicitly admitting it.

    IMHO, FWIW.

  10. Gravatar of ssumner ssumner
    28. March 2015 at 18:22

    LK, Yes, and just to be clear the easy money did drive down the unemployment rate in 2014, despite the so-called “recession.” I favor additional monetary stimulus in Japan, enough to get some sort of Fisher effect in long term rates.

    E, Harding, Yes, and I’ve always argued that part of the high Eurozone unemployment rate is structural. It tends to be high even during boom years.

    Ben, Yes, but some of that “money” is interest-bearing, and hence debt. I.e. bank reserves. But as long as rates are this low, the BOJ should do more.

    Jim, Thanks for the links. If we level targeted wages along a plus 2.5% or 3% trend line, it would be far superior to current policy.

  11. Gravatar of Derivs Derivs
    28. March 2015 at 19:32

    “BTW, Nikkei 225 up 30% in last year and Japanese corporate profits at all-time highs.”

    What’s SPX plus Yen depreciation?? Toyota should get cheaper than Ford? Panasonic, Sony, and Pioneer should go for a discount?? Not if markets are efficient, they shouldn’t.

  12. Gravatar of Ray Lopez Ray Lopez
    28. March 2015 at 22:10

    It’s too bad Sumner does not respond to MF, since MF often makes the best points. Indeed, as MF implies, an aging demographics population like Japan (and arguably Finland, though Nokia’s demise may be a reason behind their lag), will hold more cash. Old people hoard cash, since they are uncertain about the future, and Japanese old people live the longest in the world, beating out even the former record holders, the Greeks.

    If I have a choice between adopting the logic of Edward Hugh, whose e-book on Japan I bought, and Tyler Cowen, who discovered Sumner and is ranked as one of the leading 100 thinkers of today (and with whom I’ve traded emails), versus Scott Sumner, well that’s no contest. Independent thinkers vs confirmation bias polemicist.

  13. Gravatar of Benjamin Cole Benjamin Cole
    28. March 2015 at 23:19

    Scott Sumner: Re bank reserves.

    Yes, but John Cochrane points out that a central bank can pay interest on bank reserves…by printing (digitizing) money and placing new lucre into reserves. A central bank can pay interest on reserves with more reserves. Taxpayers can skate free.

    Like a lot of interesting ideas, it is too bad we do not have several lifetimes and economies (and authority) to try out different ideas and see if they work.

    I will say this: Japan has $7,500 in cash (yen equivalent) per resident in circulation and a deflation problem (yes, I know cash is only part of the money supply–I am just pointing out how deflation-prone Japan has become).

    Maybe Japan can “get away” with eliminating their national debt. For Japan, that may not be a big deal, was they owe the money to themselves, but it would allow lower taxes on productive behavior.

    I cannot fathom why the United States does not pursue the “monetize the debt” solution for all the years it can. I know of no business operator anywhere who would not leap at a chance to wipe out debt scot-free.

    And in the case of the US, the central bank could monetize debt while doing a big service in correcting weak aggregate demand.

    It speaks of a federal public agency—the Fed—having become hidebound, ossified, conservative, timid. So different from other federal agencies.

  14. Gravatar of Ray Lopez Ray Lopez
    28. March 2015 at 23:35

    @Jim Glass– the DeLong piece you cite does not directly support NGDPLT, it says: “The easiest way to fix this problem would be to revise the Federal Reserve Act”Š”””Šperhaps to add “healthy rate of nominal wage growth” to the list of Federal Reserve monetary policy objectives.” – nominal wage growth is not exactly the same as NGDPLT (though I’m sure there’s a correlation). Also DeLong is a fertile mind and he’s full of ideas, sometimes contradictory, unlike our host here who is monothematic, so I’d not put too much stock in this post

    @Benjamin Cole – sometimes I think you are a troll pretending to be a Sumner supporter, so outlandish are your proposals. The USA could also get rid of all their federal debt by saying that all debt held by foreigners as of a certain date is null and void, and only US citizens who are already of record as being bondholders, holding say less than $100k of debt, will be honored. The dollar would ceased being the reserve currency of the world, but apparently that’s small beer to you. It’s easy to advocate destroying money when you don’t have any (as you don’t).

  15. Gravatar of ssumner ssumner
    29. March 2015 at 09:37

    Ray, If you’ve truly “traded emails” with Tyler Cowen then that demonstrates that Tyler is a better man than me. More polite for starters.

    So old people like cash, did the BOJ run out of paper and ink?

    I used to respond to MF until I realized he paid no attention to anything I said, and kept mischaracterizing my views.

    Ben, That sounds like a Ponzi scheme.

  16. Gravatar of Major.Freedom Major.Freedom
    29. March 2015 at 12:39

    “I used to respond to MF until I realized he paid no attention to anything I said, and kept mischaracterizing my views.”

    I’ve challenged you on many occasions to show this repetitive accusation, and you never have.

    Since you have not shown it, I can only speculate as to why it keeps being levied. I believe you have stopped responding for two main reasons. One is that you don’t like it that I seriously challenge your theories with such fervour. My criticisms are trenchant and no-holds-barred. It is why your followers rush to defend you. They know what I say is harsh, but honest. Honesty is according to your own pronouncements not to preferred approach, only a necessary evil (as per Rorty). Students not wanting to be given an F are quite impressionable aren’t they? So you have come to believe that what you teach has some validity.

    The other reason is that when you realized I will never agree with your socialist ideology in money and all that springs forth from it, you would rather not waste your time trying to find agreement.

    Those are the main reasons. Accusing me of misrepresentation, without evidence or proof, is your publicized excuse so as to paint yourself with the moral high ground.

    For the tenth time, I challenge you to find just a single statement or post you have written that I have “misrepresented”. This is admittedly a challenge that has unfair elements, as I would have to be a judge in it, and I could easily just deny it and give some excuses. But I am honest, and I can admit it here if I did so. But this is not all on me, because you accused me of misrepresentation, and the only way I could defend against that accusation would be for you to prove it, to me, and thus you make me a judge.

    What I think is happening that I am explaining your theories with such brutal honesty that you are finding out yourself that it is untenable, and rather than admit that you believe in untenable theories, and thus throw away all that investment and time, and reputation, you try to convince yourself and others that it’s got to be misrepresentation. I’m an easy target. I don’t have a Nobel Prize so you don’t have to pump my tires like you do Krugman all the time. It must be irritating to have to say what you think others need to hear in order for you to get what you want, than to tell the truth.

  17. Gravatar of Major.Freedom Major.Freedom
    29. March 2015 at 12:42

    Ray said:

    “An aging demographics population like Japan (and arguably Finland, though Nokia’s demise may be a reason behind their lag), will hold more cash. Old people hoard cash, since they are uncertain about the future, and Japanese old people live the longest in the world, beating out even the former record holders, the Greeks.”

    Sumner replied:

    “So old people like cash, did the BOJ run out of paper and ink?”

    See how Sumner totally dodges the point? Instead of admitting that yes, there are real factors that affect cash holding and spending, Sumner once again prays to the Gods and asserts the same old “It’s the BOJ’s responsibility to print more then!”, which of course just appears that deflation is solely caused by insufficient money printing.

  18. Gravatar of Ray Lopez Ray Lopez
    29. March 2015 at 16:45

    @MF – right on brother. I’m actually surprised I’m still here, un-moderated, and Sumner even bothers with one-liner responses to me, even though they’re not on topic as you say. And, as you say, put yourself in Sumner’s shoes: would you throw away your life’s work, the reason you are famous on the blogosphere, to concede that NGDPLT is worthless? Not very wise. Like an owner of a food franchise that sickens people with unhealthy food but is profitable, you must put dollars over principles. I’m sure Sumner himself does not eat his own cooking. It would not surprise me when and if the USA ever adopts NGDPLT that Sumner would be found to have put his money in Swiss francs or gold.

  19. Gravatar of Major.Freedom Major.Freedom
    29. March 2015 at 18:27

    Market monetarism seems to advocate exploiting old Japanese people. If they saved cash for retirement, they shall suffer from inflation reducing the purchasing power of their money, for the sake of the vanity of market monetarists, and younger Japanese people in the short run, and also to suffer in the longer run from the resulting malinvestment and correction.

    Old people and anyone else who accumulates money must be sacrificed on the altar of the NGDP God.

  20. Gravatar of Don Geddis Don Geddis
    29. March 2015 at 19:46

    Oh no! MF and Ray are now responding to each other. It’s like someone pointed one mirror at another, and the stupidity just reflects back and forth to infinity.

  21. Gravatar of Larry Larry
    29. March 2015 at 23:05

    Many (most?) things have multiple causes. Just because something isn’t the primary cause doesn’t mean that it isn’t relevant.

    I.e., you can have supply side problems AND demand side problems at the same time. Fixing either one is a win.

  22. Gravatar of Major.Freedom Major.Freedom
    30. March 2015 at 03:11

    Don Geddis:

    Light does not reflect back and forth an infinite number of the times between two mirrors placed in parallel. Due to heat loss and attenuation there are a finite number of times light from the same source can reflect back and forth.

    I guess we should add scientific illiteracy to your already existing economic illiteracy?

    Oh I’m sorry, you were just looking for validation from your tribal clan as a substitute for rational argument again. Never mind, ignore the above.

  23. Gravatar of Daniel Daniel
    30. March 2015 at 03:46

    Ben Bernanke is now blogging

    http://www.brookings.edu/blogs/ben-bernanke/posts/2015/03/30-why-interest-rates-so-low

  24. Gravatar of Floccina Floccina
    30. March 2015 at 07:11

    I am glad you wrote this because when I read stories like that where that say, having fewer workers (or even fewer relative to the number of retired people) would cause unemployment rather than full employment and a climb in wages. I think what am I missing. Your post helps me think maybe I am not missing anything.

    Also I really do not see why an economy cannot have full employment along with “secular stagnation”.

    I have mused about an idea that technology and mechanization or better organization could possibly change in such a way that over some period of time jobs could be eliminated faster than the economy can find uses for the newly unemployed. That is a different story from “secular stagnation”.

  25. Gravatar of Jose Romeu Robazzi Jose Romeu Robazzi
    30. March 2015 at 19:13

    @MF, Ray
    You guys seem to realize that there is a money demand function, and that perhaps old japanese people have demand for money. In previous posts you seem to support some sort of “free currency”. Let’s suppose we had some sort of commodity currency. Let’s also assume that Hayek beat Keynes for the hearts and minds of economists and politicians sometime in the middle of the 20th century, so around now we had free banking (I am not being ironic, i dont’t think free banking is a bad idea). Wouldn’t these free banks, perceiving high demand for currency, offer more money to those old japanese retirees ? Oh, and before you argue that in a competitive market banks could not leverage so much, maybe other entrepreneurs perceived that demand too and allocated more capital do the industry, creating new banks … I asked this question before, that none of you answered. How is that different from a central bank (yes, a not so democratic and free institution, please don’t elaborate on that) that issues money based on a widespread futures market on NGDP ? If you don’t like inflation, set NGDP = RGDP and expected inflation to zero. Or, if you are truly (misesian) austrian , set NGDP to ZERO, and get inflation = -rgdp. In my view, you should not be discussing the idea, because low NGDP growth rates will lead you closer to the austrian ideas … That’s how I see it.

  26. Gravatar of Floccina Floccina
    31. March 2015 at 08:31

    +1 for Jose Romeu Robazzi’s.

  27. Gravatar of Ray Lopez Ray Lopez
    1. April 2015 at 20:58

    @J.R.R. – “Wouldn’t these free banks, perceiving high demand for currency, offer more money to those old japanese retirees?” Offer more money? You mean offer higher interest rates? Anyway, I don’t see any paradox at all. If you wish to converse more email me at ray lopez 88 at g mail d ot com.

  28. Gravatar of Major.Freedom Major.Freedom
    1. April 2015 at 23:37

    Jose Rameu:

    “You guys seem to realize that there is a money demand function, and that perhaps old japanese people have demand for money. In previous posts you seem to support some sort of “free currency”. Let’s suppose we had some sort of commodity currency. Let’s also assume that Hayek beat Keynes for the hearts and minds of economists and politicians sometime in the middle of the 20th century, so around now we had free banking (I am not being ironic, i dont’t think free banking is a bad idea). Wouldn’t these free banks, perceiving high demand for currency, offer more money to those old japanese retirees ?”

    What do you mean “offer more money”? Are you suggesting producers in a free market compete with each other to be the biggest charity giver? In a free market, profit and loss guides investment and production.

    If cash preference rises (from what baseline? Why that baseline and not another? Are you using the right baseline?), then in a free market that means there has been a shift in not only preferences concerning money, but also a shift in preferences concerning saving/investment and consumption. That of course implies that coordination between producers requires anything within the two extremes of only a change in the production, both absolute AND relative in magnitudes, of the money commodity, or only a change in the production of “other than the money” commodity, also both absolute AND relative in magnitudes. And also qualitative changes are included that cannot be quantified but are integrated by human actors in part in magnitudes.

    I must emphasize that it is completely absurd to believe that you can observe a change in money holding times, such that total spending changes by a certain amount, that the correct proportion of change that should occur to money is that which reverses the resulting fall in spending.

    Individuals do not coordinate that way. They coordinate through relative changes and relative changes only. Merely observing total spending doesn’t give it any credence or validity in social coordination.

    Should you alter your saving and investment to consumption ratio, and should you change what you invest in and what you consume, based on what you believe will happen to NGDP, only has bearing on coordination with other people to the extent that your relative production and consumption activity is coordinated with other people’s production and consumption activity. The result of that coordination, along with the supply of money, and relative nominal demands and profitabilities, determines in full the level of NGDP. The causation does not go from NGDP to RGDP. The causation direction is subjective knowledge and preferences causes both NGDP and RGDP. RGDP does not cause NGDP and NGDP does not cause RGDP.

    A 99% collapse in NGDP has ZERO effect on RGDP. How can that be? It is because the collapse in NGDP is invariably one side of the coin, the other being a collapse in RGDP. People do not decide to suddenly collapse their spending by 99% (which is the same thing as a sudden surge in cash preference and a sudden distaste for investment and consumption, unless there was something seriously wrong with social coordination in the relative sense. The collapse in NGDP is a symptom, an effect, of the same cause for the collapse on RGDP. RGDP cannot be measured by numerical statistics like percentage change in growth because of the incommensurability of real goods. There is no mathematical relationship between NGDP and RGDP. They are both functions of individual preferences and activities.

    When people speak of collapse in NGDP, what they are referring to is on the ground some people actually decreasing their cash preference and spending more out of their incomes, but with other people increasing their cash holding times by more so that total spending falls. It makes no sense to claim that inflation will help those who are trying to spend more and hold less cash! But we are supposed to ignore these people and pretend they deserve to be sacrificed for the sake of those who are accepting all that additional cash from the gracious givers of it (through exchange).

    So to answer your question, there is no mathematical formula that can tell us that banks in a free market either would, or what you seem to be getting at which is that they should, “offer more money” to their customers.

    In a free market, it goes by individual choices and individual circumstances. One bank may find that their customers are holding higher cash balances. That of course requires other people to hold lower cash balances, holding all else equal.

    Almost everyone wants to have more cash, ceteris paribus. Ask anyone if they would accept a helicopter drop.

    The reason people hold cash is not because they want inflation and higher prices. It is because they want more purchasing power. Inflation according to some arbitrary socialist rule of money printing does not help. In a free market, some of the increased demand for cash may be satisfied by a higher production and supply of money, a some of the increased demand for cash may be satiafied by lower prices.

    There is in fact no way for anyone to know just how the changed demand should be “allocated” among various factors, without recourse to the requisite information and individual preferences that ONLY a free market can generate.

    I often get the question from socialists “OK, then just how would free banking accommodate changes in the demand for money?” They cannot help but think in terms of a socialist dictator, a singular mind to control it, and thus scoff at the free market solution of there being no single solution knowable by anyone. We free market folks know that the only way for anyone to even come close to knowing whether the money supply is too low or too high, is by participating in a free market.

    Trust me when I say that socialists will NEVER be satisfied or contented by what a free market contains and results in. It is why they are socialists in the first place.

    I have zero, and I mean zero, obligation, futy or responsibility to convince or satisfy a socialist with respect to any details of what I as an individual have to offer them in a free market. They are by virtue of their socialist cause not interested in free market interaction. To them not having a mental handle on the totality of society is clause for anxiety and contempt for other people choosing for themselves. Socialists are socialists because they believe, and may be right or wrong on it, that they can’t get from others what they want if they had to respect their individual property rights.

    Sumner is a monetary socialist because he is convinced, rightly or wrongly, that he won’t be able to get what he wants from other people unless their property rights are violated by thugs with machine guns at the ready so as to coerce them into giving Sumner what he wants. Sumner is spending his life as a mean, contemptuous hater of monetary liberty, unwilling to admit his intellectual investment was a mistake, and unwilling to deal with his fellow human beings in a peaceful, respectful manner that allows them to choose what they want for themselves that itself doesn’t aggress against others’ persons or property. I won’t use the phrase “jerk” to characterize Sumner, but if I had no class I might have.

    If a bank in a free market experiences a money outflow on net, then that is a signal that that bank is performing poorly. Its profitability will decline ceteris paribus. That will tend to lead investors to withdraw their capital out of that bank and into other investment opportunities (which are always positive even in the deepest depths of the Great Depression).

    That shift in capital allocation to more profitable opportunities will tell us whether that capital should get invested in another money producer’s business, or say a food or education producer’s business. Relative profitability will dictate what it is that consumers actually want more of. If they want more money, they can invest in the production of it. They can end up with more money than they started with. But the profitability will have to be positive in money production. If it is negative, then that means the resource factors needed to produce money are “too expensive” which is to say other producers are paying the high prices because their own business activity is valued by consumers, which means consumers have enough money and don’t want more at that time.

    If people start “hoarding” money, that will start to make money production very profitable, because the prices of resources needed to produce money will fall.

    There might of course also be a rise in the profitability of other goods than money. Whatever the relative rates of profit are, that tells investors how much capital to allocate to more money production relative to other goods production.

    If money production is volatile, I see no reason why people cannot just hold a higher percentage of their total assets in money, as priced of course in money. Instead of cash being 10% of a portfolio, it could be 50%, and the rest are assets with very low prices but no less real value.

    Then that higher cash balance can act as a buffer against temporary and unexpected money production supply issues.

    The only reason why there is so often a “cash shortage” is because inflation has encouraged a habit of holding low cash to total assets, and thus making it easy for cash holding changes to make it very difficult to support the high prices of assets, which then has profitability ans employment consequences.

    “Oh, and before you argue that in a competitive market banks could not leverage so much, maybe other entrepreneurs perceived that demand too and allocated more capital do the industry, creating new banks … I asked this question before, that none of you answered. How is that different from a central bank (yes, a not so democratic and free institution, please don’t elaborate on that) that issues money based on a widespread futures market on NGDP ?”

    I have answered this question repeatedly.

    The difference is that a central banker cannot know how much additional money is possible while retaining coordination, nor do they do know where new money should be produced, nor who should really produce it, nor what means should be utilized, nor what prices to pay, nor even the form the money should take.

    Socialism cannot mimic a free market. It is a practical impossibility.

    Free markets are not guided by aggregates, it determines them.

    “If you don’t like inflation, set NGDP = RGDP and expected inflation to zero. Or, if you are truly (misesian) austrian , set NGDP to ZERO, and get inflation = -rgdp.”

    I don’t know where you got the notion that Austrianism requires or calls for or implies a fixed quantity of money, but that notion is false.

    You’re setting up a false dichotomy. You say the only alternative to inflation is socialist plan A or socialist plan B. It is not the fact that prices rise in the aggregate that is the problem. The problem is that central banks are predicated on aggression against peace, and they distort individual economic calculation and cause widespread economic hardships.

    Having prices remain the same is not a solution. It is just another form of violent intervention into a world where prices would otherwise be on a declining trend as productivity improves.

    “In my view, you should not be discussing the idea, because low NGDP growth rates will lead you closer to the austrian ideas … That’s how I see it.”

    Your view is quite frankly wrong, sorry.

  29. Gravatar of Don Geddis Don Geddis
    2. April 2015 at 15:02

    Ah, MF. Such a glorious multipage wall of rambling text. You have such passion and energy! If only you could be redirected to be productive and constructive. But alas, all you seem able to achieve is inducing irritation and annoyance. Such a shame.

  30. Gravatar of Edward Edward
    2. April 2015 at 17:47

    “In a free market, some of the increased demand for cash may be satisfied by a higher production and supply of money, a some of the increased demand for cash may be satiafied by lower prices.”

    Insofar as the former is true, (which is most likely what would happen on a “free” {anarchist} money market, because of money illusion}) you have no grounds to oppose NGDPLT because it mimics the operations of what such a market can do. (Yes, Yes, I know.. “VIOLENCE! ECONOMIC CALCULATION, RAPE!” Keep up your ranting pal. You’re like a wet blanket strangling the growth of libertarian ideas in the REAL WORLD, because you sound so much like a batsh***t crazy person that people think, “My God, are libertarians really like this? Scott and all the other sane libertarians on this blog have to expend Sisyphean effort tolerating your ranting and rambling nonsense. and trying to break past it

    “Sumner is a monetary socialist because he is convinced, rightly or wrongly, that he won’t be able to get what he wants from other people unless their property rights are violated by thugs with machine guns at the ready so as to coerce them into giving Sumner what he wants. Sumner is spending his life as a mean, contemptuous hater of monetary liberty, unwilling to admit his intellectual investment was a mistake, and unwilling to deal with his fellow human beings in a peaceful, respectful manner that allows them to choose what they want for themselves that itself doesn’t aggress against others’ persons or property. I won’t use the phrase “jerk” to characterize Sumner, but if I had no class I might have.”

    Talk about the pot calling the kettle black!!! Even YOU have to give credit for Scott not banning you from the site (yet), which he would do if he truly was “mean”. And you’re the one with no class, buddy. (And a lot of chutzpah)

    “We free market folks know that the only way for anyone to even come close to knowing whether the money supply is too low or too high, is by participating in a free market.”

    Pious Platitudes. You’re not the only one who supports a free market. What you really mean is anyone who doesn’t support anarcho-capitalism is excluded by definition.

    “I have zero, and I mean zero, obligation, futy or responsibility to convince or satisfy a socialist with respect to any details of what I as an individual have to offer them in a free market. They are by virtue of their socialist cause not interested in free market interaction. To them not having a mental handle on the totality of society is clause for anxiety and contempt for other people choosing for themselves. Socialists are socialists because they believe, and may be right or wrong on it, that they can’t get from others what they want if they had to respect their individual property rights.

    What this really means is that you’re too much of a moral and intellectual coward to examine what your world would really look like, and attempt to offer people more than stern, puritanical lectures ranting at them “VIOLENCE!, VIOLENCE! and the occasional “RAPE” given that the vast majority of people do NOT share your ideology. Libertarian Consequentialists understand that we have to offer concrete benefits before more people sign up. We also don’t mindlessly equate all levels of coercion with each other.

  31. Gravatar of Edward Edward
    2. April 2015 at 17:56

    And I shouldn’t forget Ray Lopez, the new kid on the block.

    While MF’s post show a certain kind of crazy logic to them, Ray’s posts are oftentimes totally incoherent, other times good for laughs

  32. Gravatar of Floccina Floccina
    3. April 2015 at 09:46

    “Wouldn’t these free banks, perceiving high demand for currency, offer more money to those old japanese retirees?” Offer more money? You mean offer higher interest rates? Anyway, I don’t see any paradox at all. If you wish to converse more email me at ray lopez 88 at g mail d ot com.

    If a bank issues currency and people hold more of that bank’s currency that will strengthen the bank’s currency and allow them to issue more currency so they can make more money.

  33. Gravatar of Jose Romeu Robazzi Jose Romeu Robazzi
    3. April 2015 at 16:01

    @MF, Ray
    When people want to hold more cash or cash substitutes, that will certainly make it cheaper for any financial intermediary to issue liabilities. Even under commodity money, financial intermediaries will find ways to offer commodity certificates (since there is demand for them), making it somehow more profitable to intermediate (and probably stimulating the production of more of those commodities). In a free banking world, the banks deemed secure enough would be able to expand the balance sheet (because it would be costless to do so) and would find destination for those liabilities on the asset side.

    MF, this is why I think you your grasp of MM is poor. I asked “…how is that (free banking) different from a central bank that issues money based on a widespread FUTURES MARKET on NGDP ?” and you went berserk about socialist planners, “The difference is that a central banker cannot know how much additional money is possible while retaining coordination…” you said. I agree with you, central bankers (planners) can’t possibly get it right( thanks Hayek), that is why a MARKET is better.

    Please notice that, If I understood correctly, Prof. Sumner has been proposing NGDP level targeting at a modest rate (let`s say 4.5% or 5%), coordinated by a MARKET in expected NGDP. No central planner here. If market participantes start perceiving weakness in AD (=people willing to hold more cash balances), they will bet on a lower than target NGDP futures and through this mecanism people will have their demand for cash satisfied by a MARKET. If the opposite happens, if people perceive stregth in AD (=people willing to hold less cash) they will bid up the NGDP futures market, propting a reduction in money supply. Again NO CENTRAL BANKER. No socialist planning. Relative prices will continue to change, this time only based on a fraction of the nominal spending of the economy. Simple, workable. No need to estimate NAIRU as in IT, no need to estimate potential RGDP and “choose” an inflation target. So much better than what we have today. It is worth a shot.

  34. Gravatar of Postkey Postkey
    14. May 2015 at 09:40

    The New Paradigm in Macroeconomics: Solving the Riddle of Japanese Macroeconomic Performance by by Richard Dr Werner is, amongst other things, a superb analysis of the Japanese economy.
    Part of a review from Amazon.
    ” . . . These arguments are bolstered with convincing empirical analysis from Japan, where the author has worked in financial institutions. He therefore has an inside view on the money markets and can speak with an authority born of working knowledge, rather than, as is unfortunately the case with most academics, the armchair. The empirical story charts the housing bubble in Japan, the inevitable bust and then failed attempts to stimulate activity. Sounds familiar? There is political insight too, as we learn that the working practice of central banks differs from the ideology they publicly espouse. The current orthodoxy is exposed as effectively a facade behind which rentiers extort the rest of the population. Unusally for such a radical work, the statistical analysis will pass the exacting standards of even the pickiest academic economist. It’s technical in parts but justifiably so, and repays the effort many times over. The technicalities refer to real world entities and processes, unlike those of conventional theory, which means that if you dig hard enough you will find your way through.”

    http://www.amazon.co.uk/product-reviews/1403920745/ref=acr_search_hist_5?ie=UTF8&filterBy=addFiveStar&showViewpoints=0

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