There’s nothing so powerful as . . .
. . . an idea whose time has come. Or so they say.
Here’s what the Goldman Sachs endorsement triggered (from Business Insider):
Over the weekend, Goldman came out with a report calling on the Fed to embrace Nominal GDP targeting: In other words, set as a goal for the economy that nominal GDP that we saw back in 2007, and then produce enough inflation so that we got there.
Now Bernanke is out with a new speech about monetary policy in the post-Great Recession era, and though he doesn’t say that much substantive, he does talk more about trying to more clearly express monetary policy goals.
According to PIMCO’s Bill Gross, that’s code for… targeting Nominal GDP.
Meanwhile, Chicago Fed President Charles Evans has been making similar comments, about weighting the Fed’s mandate much more towards the full employment/growth end of the spectrum, even if it means high inflation.
All of which means you should really be reading the work of Bentley Economist Scott Sumner, who has been writing forever about the benefits of Nominal GDP targeting, and who is sure to be the hottest economist in the world, as this takes off.
You can start by watching his lecture below.
Here’s The Daily Bell:
The latest sub-dominant social theme seems to have to do with NGDP targeting. What this means is that central banks (specifically the Fed) ought to target “Nominal Gross Domestic Products.” This is being suggested for both the Bank of England and the Fed 154127845 The Economist is the latest to jump aboard this particular train.
ANTHONY J. EVANS
IT SEEMS like Mervyn King has abandoned the Bank of England’s (BoE) inflation target, with the consumer price index (CPI) apparently stuck well above 2 per cent. But has King privately taken up a different sort of target altogether? A more credible alternative that continues to gain momentum is to set a nominal GDP (NGDP) target instead. Setting a target for the nation’s gross domestic product unadjusted for inflation (what F.A. Hayek referred to as the “total income stream”) has several arguments in its favour. Such a target allows gains in productivity to reveal themselves in price deflation over the long-term, and it turns the attention of policymakers towards market expectations rather than the previous month’s inflation figures. Scott Sumner’s proposal for the Adam Smith Institute is an interesting investigation of the topic and suggests such a target may well be an improvement, and is worth giving serious attention.
And how come nobody invited me to this talk?
BOSTON —
Federal Reserve Chairman Ben Bernanke suggested the central bank is considering steps to better signal how it is likely to act.
The Fed has been considering whether to provide more explicit guidance on its plans for interest rates. One idea would be to more explicitly tie changes in its interest-rate policy to forecasts for employment and inflation measures.
Mr. Bernanke said “forward guidance and other forms of communication about policy can be valuable” and added he expected “to see increasing use of such tools in the future.” He made his remarks Tuesday at a Federal Reserve Bank of …
Let’s make that QE instead of interest rates. And keep doing it until FORECASTS of inflation and employment are on target. And then let’s replace employment and inflation with NGDP. A long way to go, but even the longest journey begins with a single hint from Mr. Bernanke.
I will be in DC this weekend. I hope I am able to report something interesting next week, but I can’t be sure. The way things are going I may have to buy a cell phone and “get a life” as Morgan would say. And I’m having more and more problems with my $287 Acer computer (powered by 2 gerbils in a spinning wheel), where Internet Explorer is now almost useless and Firefox is getting worse every day. I’m thinking of one of those big Apple computers with a 27 inch screen and the computer built into the screen. But I hate change.
It’s nice to be called “hot.” I doubt any of my students ever used that term in faculty evaluations. Which reminds me of this song by the immortal Buster Poindexter:
HT: Andrew, Gabe, dwb, James of London.
Tags:
18. October 2011 at 18:40
The Goldman news also got one of Greg Mankiw’s coveted links, with his usual vague not really endorsing anything (but isn’t it interesting he linked to that) bit.
Sounds like you are very hot right now, Scott! I believe this is what winning looks like in the real world.
18. October 2011 at 18:41
Now you just have to convince a bunch of people that it won’t lead to persistent or even hyper-inflation.
18. October 2011 at 18:59
Brad DeLong has reprinted part of the GS piece on his blog.
And Scott Sumner is “the hottest economist in the world.”
I hope everyone keeps buzzing “Market Monetarism,” the great term coined by Lars C.
Congratulations to Scott Sumner. If Sumner prevails, and if NGDP prevails, and if we have an economic recovery, the debt to Scott Sumner will be incalculable (although Sumner will probably work up some stats).
Maybe even Sumner’s enthusiastic sidekicks will get a bone (me!).
18. October 2011 at 19:00
New computers! Finally, something on this site in my wheelhouse.
The computer you are describing is referred to as an “All-in-one”. Over at the apple store, they start at $1200. I’m unfamiliar with your personal consumer trends, but if your technophobia trumps your valuephilia (is that a word?), then I’d say the entry level apple all-in-one would be fine for you. But if you are just fine with windows, there are win7 based all-in-ones as well. Prices are obv much easier to swallow. Here’s the lineup at newegg:
http://www.newegg.com/Product/ProductList.aspx?Submit=ENE&N=100006736%20600030539&IsNodeId=1&bop=And&Order=RATING&PageSize=20
May I ask if there’s a reason you aren’t considering a laptop? Seems more fitting an economist turned global conqueror. Congrats on all that, btw!
18. October 2011 at 19:00
Congrats Scott — this is your moment!
18. October 2011 at 19:06
Seeing professor Sumner rise to national prominence is a little like watching your favorite local band make it big; you want to proclaim to everyone else that you’ve been a fan before they were.
Keep up the good work professor!!
18. October 2011 at 19:23
Behave responsibly, split the difference, find something like this:
http://boston.craigslist.org/nwb/sys/2656855888.html
On the phone side force yourself into Android, learn what works and doesn’t with tech, it will sharpen your commentary.
You have much bigger moments, the worm still has to turn.
18. October 2011 at 19:28
Congrats Scott, this is really neat. I agree with CA’s sentiments, though for me, it’s more like I’m the FBI agent who was warning since 1998 that Al Queda was planning something big, and nobody listened to me until it was too late.
(That’s supposed to be funny; body language is tough over the Internet.)
18. October 2011 at 19:55
Scott,
Congratulations on the success of your pretty lonely struggle. I hope the (little) victory will let you be a bit more self-assured and less deferential to some well known economists in the field.
18. October 2011 at 20:03
After possibly getting the world’s central banks to change policy a new challenge is in order for you. This should be an easy way to pick up a nice little nest egg for your retirement in California.
” Wanted: a plan for the painless death of the euro. The reward: a quarter of a million – sterling, of course.
Those in need of spare cash amid troubled economic times could do worse than apply for a new prize set up by Lord Wolfson, who is offering £250,000 to the person who comes up with the best plan for winding up the euro in an orderly way.
The Wolfson Economics Prize, launched today, will be the second largest cash prize to an academic economist after the Nobel Prize. ”
” Policy Exchange, a think-tank, will now send a pack to 200 of the world’s top economics departments, with details of how to apply. The organisers hope to tempt thinkers of the calibre of the Nobel laureates Joseph Stiglitz, Paul Krugman and Chris Pissarides.
Daniel Finkelstein, chairman of Policy Exchange, said: “We are interested not only in the subject matter itself but also in prizes. We are trying to make sure the people with the best solutions to this crisis find us.”
Lord Wolfson admitted the prize – coming from a non-eurozone country and soliciting ways to break up the currency bloc – could be received badly in Europe. But he insisted he wanted the euro to continue: “I don’t want the euro to collapse. If it could be avoided that would be the best possible outcome. Like everyone in Europe, I hope it can muddle through.”
The organisers are giving entrants until the end of January 2012 to formulate their plans, and want experts to take into account the full legal, economic and political ramifications of their solutions.
But Lord Wolfson said there was a possibility that there would be no plan at the end of the process. “That in itself would be quite revealing,” he said. “
18. October 2011 at 20:17
What are you doing in DC? Are you giving a talk? If so, is it open to the public?
18. October 2011 at 20:19
I add my congratulations to you, Scott, but of course this is just the beginning of the process. I look forward to reading macro textbooks in 10 years – maybe the next generation of policy-makers won’t repeat the mistakes of the current one.
18. October 2011 at 20:24
Dr Bernanke has no capacity for dealing with instability in the US economy — in particular, social instability…
18. October 2011 at 20:32
Something tells me that this last gasp of conservative central bank-based macroeconomic policy won’t last long. A new birth of fiscally active and energetic government is on its way, both in Europe and in America. You can drink the toasts to the departed neoliberalism in glasses engraved with “NGDP level targeting”.
And Bernanke’s goose is cooked, no matter who the next President is. When all those fixed income, stagnant income and newly unemployed Americans who are capsized by the second dip are then hit with a wave of rising prices, I don’t think they are going to be in a friendly mood when the pundits explain to them, “Bernanke decided to increase prices, but re-label price increases as an ‘increase in NGDP’ so that it would sound better.”
It’s almost hilarious watching mentally disordered European leaders strangle their own economies to death with the crazy-bad economic theories of this dying era. After activist government saves the world, people will look back on this idiot age of heads-up-their-asses politicians and free market economists, and wonder what they could possibly have been thinking. You can join them now in the pantheon of ignominy: Greenspan, Obama, Merkel, Geithner, Cameron, Trichet, Sumner.
18. October 2011 at 20:34
The sad thing is that Earl Thompson died before this.
18. October 2011 at 20:35
Can I say both “well done” and “keep it up”?
18. October 2011 at 20:49
congrats,
18. October 2011 at 22:40
Scott
A hearty congrats.
18. October 2011 at 23:11
“Americans who are capsized by the second dip are then hit with a wave of rising prices, I don’t think they are going to be in a friendly mood when the pundits explain to them, “Bernanke decided to increase prices, but re-label price increases as an ‘increase in NGDP’ so that it would sound better.”
It’s almost hilarious watching mentally disordered European leaders strangle their own economies to death with the crazy-bad economic theories of this dying era.”
Dan,
This is why Scott STILL has a card up his sleeve (altho I’d have played it by now)…
The entire discussion still has to be had about future expectation of raising rates.
That’s where the judo kicks in.
EVERYONE angry about an inflation bump is instantly mollified if they are promised a clear moment when interest rates get raised EVEN if unemployment doesn’t drop.
Let me repeat: Level targeting of NGDP (say at 3%) is a PROMISE that we raise rates without regard to inflation / unemployment.
It is that promise that fixes the economy. The promise to raise rates without regard to: a) unemployment b) Fed tinkering – that’s the winning argument.
18. October 2011 at 23:12
[…] – NGDP targeting, on top of the world. […]
18. October 2011 at 23:17
Congrats Scott!
18. October 2011 at 23:26
Congrats, Scott, well deserved.
Also a question: If a real shock reduced RGDP by half, a NGDP level targeting central bank may be forced to preside over a doubling of the price level to keep nominal spending on its level path. How would you respond to that specific concern/criticism?
18. October 2011 at 23:43
It’s really, really sad to me to see people buy into more inflationary voodoo. That’s one of the reasons I comment on this blog, I knew that Scott was the monetary crank of the future. I’ll keep doing my small part to fight evil.
18. October 2011 at 23:44
Scott,
Take it from Ula, when you’ve got it flaunt it:
http://www.youtube.com/watch?v=VJpx3fZeZqI&feature=player_embedded
I ought to know. I feel the same way. That is, I’ve only been recently (sort of) discovered.
But truly. Your contribution is terribly important to the progress of macro.
FLAUNT IT, BABY!
18. October 2011 at 23:48
That said, Scott runs a fantastic blog and deserves his accolades.
18. October 2011 at 23:59
Scott,
You said no one ever gave you an intelligent reason why inflation mattered. Let me give this a try. I’d suggest reading the chapter “Indirect Exchange” in Mises’s Human Action if you want the full Austrian treatment.
Reason #1
Rising prices discourage saving. Even inflation under control, rising prices force people to invest in equity or debt markets that are complicated and risky and the average person doesn’t understand. Further, it encourages more consumption in the present at the expense of saving. Saving is what drives economic growth and inflation punishes it.
Reason #2
The injections of new money that cause prices to rise affect different prices at different times and to different extents. The price level DOES NOT just rise. Inflation produces a revolution in relative prices which forces production to shuffle around.
19. October 2011 at 00:07
John,
I acknowledge those reasons and I know that Scott does as well.
Do you acknowledge the gargantuan costs of of disinflation?
Empirically we know that disinflation leads to a lower long term growth trend for nations that undertake it below a certain level. Is it worth it at that point?
The answer is NOOOOOO!
19. October 2011 at 00:22
Disinflation isn’t so bad, especially in smaller, culturally homogenous countries like Latvia, Estonia, Ireland. All can agree to disinflate rather than inflate and devalue. In smaller, dysfunctional, culturally homogenous countries like Greece it’s really tough.
In larger countries it’s really tough to all agree to disinflate, so you have to cheat via inflation.
And cheating come with huge risks of moral hazard from governments off the hook, risks of hyperinflation, and general misallocation of resources, the two first points Scott never really adresses, even if cheating works in the short term. A touching faith in politicians doing the right thing when cheating is par for the course because honesty doesn’t work isn’t great.
Credit where credit is due, though, Scott. It does look like things are going your way. It’s going to be a wild ride.
19. October 2011 at 00:31
James in London,
You wrote;
“Disinflation isn’t so bad, especially in smaller, culturally homogenous countries like Latvia, Estonia, Ireland.”
What are you smoking? Would you care to compare notes? Or is the fact that almost all of those nations will be waiting a decade before they exceed their previous peak in GDP according to the IMF too impolite.
BTW, I have cousins in both Lithuania and Ireland. I’d love to compare notes.
19. October 2011 at 00:51
I think the Bank of England has had an implicit nominal GDP target since independence in 1997.
The official inflation target is 2%, but the Monetary Policy Committee minutes show that they have a trend growth target of 2.5%, giving you a nominal GDP target of 4.5%.
It’s not so surprising therefore that the BoE seems to be targeting nominal GDP – my impression is that they have always done so, even if the legislative framework doesn’t include a GDP target.
19. October 2011 at 01:00
Andrew,
I’ve been a close reader of the BOE’s minutes for a while and I fail to share your conclusions. In my opinon the BOE is targeting inflation. Moreover they are targeting headline inflation. At 2%. No matter what. It sucks huh? (Especially given the huge increase in the VAT.)
19. October 2011 at 01:10
Scott,
What strikes me tonight is how few of your European readers are really up on European monetary trends. It’s disturbing, although not really surprising.
Mark
19. October 2011 at 02:12
Congratulations Scott, hope your ideas come to be implemented soundly! I know I have been very excited for you ever since you proved to me (and others!) that central banks still have the ammunition to keep economies growing at a more steady path, and especially can still bootstrap economies that have gone through damaging deflation.
Keep up the good work!
Also, if you want to squeeze more life out of your old computer, try Google Chrome as a web browser. I’m consistently impressed with how fast it loads and works when browsing the web. Though I don’t load it up with any add-ons; not sure if that is what is slowing your Internet Explorer and FireFox.
19. October 2011 at 02:39
Mark, forget about Europe. Advancing market monetarist arguments in the US context may be tough enough, but here in (Northern) Europe? forget about it. There is nearly no acknowledgment that nominal shocks have real effects. When I try to discuss these things with people here in Denmark they look at me like I am insane. Inflation is evil and that is all that matters. This is not only the position among right-wing cranks – it is the position among nearly everyone. Our best chance is to see The Fed adopt NGDP targeting in the US and then hope that when it works it will inspire people around here to revise their views.
19. October 2011 at 03:53
Congratulations Professor Sumner. This is a wonderful accomplishment. To have convinced so many people, without a being at a fancy ivy league school and fancy school, simply through the power of rhetoric and persuasion!
When will we see you at another live public speaking event! Surely, someone will invite you!
19. October 2011 at 03:54
Call up Delong, he’ll tell you which apple laptops are good ones. The Natick mall has an apple store.
19. October 2011 at 04:00
There ye go Scott: You have arrived … I hope you enjoy being cool 😉 Congratulations!
19. October 2011 at 04:06
This is the dawning of the age of Sumner.
No more demand side recessions! NGDP tagets, Singapore style forced savings programs and Swiss style domocracy for all!
There’s a sign I’d like to see at OWS – although somehow I don’t think that’s what the protesters have in mind.
19. October 2011 at 04:25
Long, lonely road coming to an end. Now here are some serious recommendations:
Get a new computer. Lenovo, perhaps. They’re manufactured in China. 🙂
You need a short book of one liners. I cannot emphasize this enough, and it should be our job (as your groupies) to help you. But you need to figure out what works for you (what you can deliver with a straight face).
More importantly, you need a narrative. Imagine this conversation:
Barbara Walters:
“So, for those of us who don’t know any economics, explain for us what nominal GDP targeting is?”
Scott:
“Well, Barbara, it’s like this…”
Like what? You need a STORY. Most people – non-economists especially – think in narratives. Narratives explain why everyone still thinks Reagan was a fiscal conservative.
– “NGDP targeting is like steering a ship, Barbara. Right now we’re sailing through a storm, but our captain – the Fed – waits till we’re off course, then scrambles like mad to correct it. So this storm, the worst we’ve seen in 80 years, is blowing our economy us south, but our captain is telling us they can’t turn the wheel until we have solid evidence we’re already off course. Meanwhile, all the passengers see the ship heading toward a coral reef and are freaking out, making it nearly impossible for the captain to do his job. All I’m saying is the captain should steer the ship based on where the navigators are telling him, and he should tell his passengers and crew that is what he intends to do so they don’t freak out and can help him do his job.”
A narrative is more than a simile – although you should have a battery of those too (driving a car looking in the rear view mirror, etc.). A narrative is about 30 seconds to 60 seconds, and is a story.
Setting
Character/hero
exposition
conflict
climax/resolution
Make your narrative good – compelling, even gripping, because the opposition has already built its narrative. Otherwise, you’ll get your moment, someone will ask you something and you’ll give a great academic explanation (which you do), and some guy will come on and dismiss EVERYTHING you say as ivory tower BS cause Barbara, “let me tell you how the real world works”. They won’t counter your argument, they will simply dismiss it as irrelevant and people (who don’t understand what you’ve said) will nod their heads because by golly, if it isn’t dumbed down enough to understand in 30 seconds then it must be wrong.
You should have a few other narratives in your back pocket to answer the questions you’re going to get. For example:
Barbara: “Scott, a lot of people look at your ideas and think they’re going to cause a lot of inflation. Why do you want inflation to go up?”
When you next get invited to an interview or talkshow, get a colleague and do a practice run. Tell them to write down a list of one sided questions and throw them at you. Practice reframing unfair questions. A lot of people think they can wing it, but delivering an interview well is a skill, and it can be learned.
Hopefully the Nobel comes before you’re dead.
19. October 2011 at 04:42
Scott,
Congratulations. I hope the powers that be at Bentley realize what they have and take care of you.
19. October 2011 at 04:57
Congratulations Scott. I have been following you since your begining in the blogosphere and I am amazed by the way you have increased your audience. Keep going !
19. October 2011 at 05:09
Mark Sadowski
20% cuts for all in Ireland and Latvia (not Lithuania) were not so bad. No one died. No riots. Acceptance was near universal following their blowout parties in the years up to 2007, they knew they had to pay. For what it’s worth, Lithuanian NGDP looks on its long term track to me, growing strongly though still below the artificially high, off-trend, blowout 2007 figures. The acceptance is the same we are people are putting up with in the UK as real incomes fall 2.5% per annum. It really isn’t such a different feeling, Ireland now and not lasting so long vs UK now and for several years.
The US still does not really recognise it ever had a leverage party and, if there was one, foreign creditors should pay for investing in it via default or devaluation (the latter enabled via Scott’s “victory” inflation). Although foreigners won’t feel so bad as the default risk will go away.
19. October 2011 at 05:28
I wish people realized that what makes a nation rich isn’t oil, diamonds, gold, or good monetary policy, but human freedom. Without that an economy has nothing. The people will always be poor and miserable. An NGDP target may well be a better way to do monetary policy, but it’s just a piece of a puzzle. The best monetary policy without liberty yields nothing while a nation that has a true free market system can take monetary issues in stride.
19. October 2011 at 05:45
Maybe instead of buying a smart phone you should invest in a Teflon suit and industrial strength hand sanitizer before your trip to Washington? Once you have a “seat in the room”, then you really hear the intellectual attacks…and nothing gets done without compromise. Congrats nonetheless, it’s always cool to see more diversity of thought in policy circles. But watch out the concentration of intellectual hotties is pretty high…smart,humble, funny ones are always needed. Wait, that probably applies to all places and all professions.
19. October 2011 at 06:08
“I’ve been a close reader of the BOE’s minutes for a while and I fail to share your conclusions. In my opinon the BOE is targeting inflation. Moreover they are targeting headline inflation. At 2%. No matter what. It sucks huh? (Especially given the huge increase in the VAT.)”
Are you serious? Inflation is currently over 5% and they have started a new round of QE. The idea that they are targeting 2% headline inflation regardless is crazy.
Incidentally there was a fair bit about NGDP targeting in the business section of the Telegraph today. Mostly hostile, but there you go.
Scott, I wish you would post more about the UK – sometimes I think macroeconomics means the study of the American economy. I really don’t think it’s sufficient to say “structural issues.” Of course there are huge structural issues, but the inflation is something else. Steady NGDP growth (a little over 4%) but the highest inflation we’ve had in 20 years, and real growth is terrible. People are starting to talk seriously about stagflation. Given that you agree with (presumed) BoE policy, I think it behoves you to explain.
What is the path of the economy in the counterfactual where the BoE was targeting 2% inflation (i.e. the legal target)?
19. October 2011 at 06:08
Scott,
As someone else asked, will you be giving any talks/lectures while you are in DC? Or will you be too busy sidling up next to Obama while he announces your nomination as the next chair of the Fed? Good luck for a trip with hopefully interesting results to show!
19. October 2011 at 06:48
Scott. My setup. 11″ Macbook Air with a 27″ screen in the office. The air is light as light can be when you’re on the road.
I’m a developer and spend all day on my computer. Ex windows guy and those things now gross me out. Ick.
Macbook Air $1,200
http://www.apple.com/macbookair/
27″ display $999
http://www.apple.com/displays/
19. October 2011 at 07:13
Scott,
It would be silly to congratulate someone whose ideas have been recognised without any mention of a suitable technology to put them into practice, but, Ok, there you are, vindicated..SO BLOODY WELL MAKE SURE IT WORKS!!!!
19. October 2011 at 07:18
@Tommy Dorsett: If a supply side shock reduces RGDP by half, you’ve got bigger things to worry about than monetary policy. We’re talking total nuclear apocalypse or something in that realm. Stock up on all the canned food and ammunition you can.
I’ll second Tony McGovern’s comment. If you are giving a talk open to the public, I’ll do my best to be there.
19. October 2011 at 07:20
@ Trap,
Do not despair, look at Kantoos’ blog and find out why what may, MAY, work in the US if Scott prays to the right Washington deities, will probably not be implementable (hence not considered appropriate) in Europe, for a multitude of institutional reasons. It could be in Denmark, but then Denmark would have to break its vows to shadow the EUR pending a change of mind of Danish voters. Why not cross the Sont? Sweden is on the right path..
19. October 2011 at 07:21
Salem, the UK NGDP growth rate has been falling again, it rose only 3% over the last four quarters.
The Daily Telegraph writers mostly draw inspiration from Simon Ward, who believes the GDP numbers are less credible than the CPI numbers.
The BOE are clear about targeting the *forecast* for (headline) inflation, not the current inflation rate. The language they use to communicate that is usually pretty good.
That the vote for £75bn QE was unanimous this month was impressive, I thought, given that there were three votes for rate rises as recently as May. It gives me hope they at least want to avoid the mistakes of 2008.
It’s still depressing that the language they use about the aims of QE is so vague, and Mervyn King endlessly drones on about how rebalancing of demand from creditor nations is necessary for UK growth, etc.
19. October 2011 at 07:45
Scott,
Now that you’ve gone mainstream, do we need to worry about you getting a permanent spot in national newspaper, forgetting how to think rationally, and criticizing all new economic ideas?
19. October 2011 at 07:50
Don’t get an Apple! They make fine products, but if you don’t like change, learning their operating system will drive you crazy.
I heartily recommend a big screen. A laptop that is powerful enough to drive an external monitor is probably the way to go. That way, you can take it with you when you travel, but when you are at home, you can have a lot of visual space to work on.
Also, how many different programs do you use in a day? If you use a bunch of programs, you might want a computer with the programs on a special memory type. The memory is in addition to a hard drive, so it makes opening the programs much, much more responsive. It’s a bit pricey, though. Let me know if it interests you and I’ll get you more information.
19. October 2011 at 07:52
Mark Sandowski,
Disinflation is the enemy huh? Would it be bad for a 10% inflation country to tighten to 3% like the US in the 1980s? Of course lower inflation will slow GDP; GDP is the final output measured in dollars. More dollars in circulation means a higher GDP.
I really believe that the correct answer to people who point to slower GDP growth is who cares? If we became much more productive and lots of people voluntarily left the workforce to take care of their kids or take longer vacations, it would dampen GDP. Also, economic growth in general depends on saving. If you want faster growth, you should force people to save more but by doing so you’re lowering their utility.
I’d rather live in a society where people have more options and freedom about how
to live their lives than a society with high GDP growth. An essential part of that freedom, for me at least, would be the freedom of knowing that money wouldn’t melt in my pocket or bank account through inflation. The beauty of economics is that a free society with hard money and the proper, limited use of government coercion will be far more prosperous than a country whose government limits the ability of the citizens to engage in mutually beneficial transactions and surreptitiously taxes them through inflation.
19. October 2011 at 07:55
@James in London
“The US still does not really recognise it ever had a leverage party and, if there was one, foreign creditors should pay for investing in it via default or devaluation (the latter enabled via Scott’s “victory” inflation). Although foreigners won’t feel so bad as the default risk will go away.”
A lot has to do with who had the party… The bottom 80% didn’t get much of the punch.
On a side note, one of the virtues of CDS is that it makes plain for all to see how hurtful default expectations are vs. currency devaluations. In a single currency environment, we can know this without CDS (by comparing one year rates for Greece to one year rates for Germany, the supposed “safe” economy). For multiple currencies, exchange rate uncertainty shrouds this, and CDS show the market’s expectations.
When CDS costs rise more than interest rates, that says there is opportunity for a country to improve the real economy by printing money – it says, in effect, the concern about default is outpacing the concern about price levels. The real return on investment would go UP if there was more monetary expansion, because the improvements to REAL GDP (fewer bankruptcies, more economic activity, more taxes, more revenue, less unemployment) outweigh the losses due to a depreciating currency. If we’d had deep CDS markets in Argentina during its deflation, we might have learned something.
19. October 2011 at 08:08
In a decade everyone will be saying “we are all Sumnerites (Sumnarians?) now”.
19. October 2011 at 08:09
John,
Human freedom is neutral in the long run…we need to keep focused on the bureau of statistics. If they say GDP is higher then things are better. Public and private gdp are at least equal…doesn’t matter which one we get. I guess that math is just too complicated for your simple mind.
19. October 2011 at 08:13
Also, I absolutely agree with Statsguy about the narrative. If you already don’t have one, you need one. However, in keeping with the ship analogy, I would go with something more like: “You’re sailing down the eastern seaboard and a giant storm blows you into the Atlantic. Instead of turning back to the coast, you return your heading back to South. In some sense you’re back to “normal”, but you certainty won’t land where you planned.”
19. October 2011 at 08:16
@Rien,
Kantoos does indeed produce some very enlightening posts. I agree that given “the one size fits all” nature of the Euro there are limits as to how well any monetary rule will work, but NGDP targeting would still be an improvement, no?
As for Denmark, the fixed exchange rate has a nearly quasi-religious status. I guess when there is no sense of the importance of nominal shocks then the policy regime doesn’t really matter. I should add that now would probably not be a good time to go flexible anyway since the “safe harbor” status of Danish government debt would probably cause an appreciation of the DKK which I guess is not really what we need right now.
19. October 2011 at 08:23
lets hope we are not targeting those forecasts that called for 4% growth in Q3 2011 as recently as 9 months ago.
I am half serious… just as the Fed looks at “core” CPI, trimmed mean CPI, and so on which is a better predictor of future CPI (less volatile, captures the underlying trend), probably the target will become the analogy applied to NGDP. Certain components I think are significantly more volatile than the rest (eg business investment, inventory) and do not capture the underlying trend very well. sounds like a PhD dissertation for some eager student who wants Ben’s job 20 years from now.
19. October 2011 at 08:27
@John 18. October 2011 at 23:59: As someone who has read Human Action, let me try to address your points:
Reason 1: There is a difference between savings in the form of currency and capital savings. Inflation reduces the incentive to “currency save”, because it lowers the return. It also reduces the incentive to “capital save”, but only because our tax system taxes inflation based returns. If there were no capital gains tax, people would actually invest more in capital and less in currency since capital automatically increases in price to adjust for the increased prices of the goods which it helps produce. Capital savings is what drives growth, because capital increases the productivity of labor. Currency savings does not, because it has no effect on the capacity for production.
Reason #2: Just as new injections of money cause relative price shifts, so too do central bank generated contractionary shocks. Relative price shifts are not one sided. If too low interest rates cause malinvestment, too high interest rates cause maldisinvestment. When the central bank decreases the money supply, quick adjusting prices, such as commodities, will have lower relative prices than slowly adjusting prices, such as labor.
19. October 2011 at 08:42
Gabe,
I’m bad at math and not very smart. I never figured out how to use math to glorify the state.
James Oswald,
I appreciate that you’ve read Human Action but I think you’re making a couple fairly simple errors here. On point 1, currency saving is the prerequisite for capital saving. You have to save money in dollars before you can invest it, the more currency saving you have, the more capital investments become possible. I hope I can convince you on that point at least. There aren’t many arguments as open and shut as that one in my opinion.
On point 2, I absolutely agree with you about relative price adjustments going either way. I would never say otherwise. That’s why I oppose any central bank action at all or even the existence of a central bank. What I’ve been saying earlier is that in the case a boom, the central bank should keep it’s hands off during the inevitable correction. They should not step in to prevent prices from falling in a way the market wants. That’s very different than me arguing for them to simply tighten.
If you have to have a central bank, they should follow the advice of Bagehot and, in the case of a panic, lend only to good banks (solvent but illiquid) at a high rate of discount.
19. October 2011 at 08:45
John,
“I wish people realized that what makes a nation rich isn’t oil, diamonds, gold, or good monetary policy, but human freedom. Without that an economy has nothing. The people will always be poor and miserable. An NGDP target may well be a better way to do monetary policy, but it’s just a piece of a puzzle. The best monetary policy without liberty yields nothing while a nation that has a true free market system can take monetary issues in stride.”
Quite right. NGDP target is, at best, the least harmful way of having a central bank.
I also would ideally want a deflationary approach. Selgin’s proposal, where NGDP growth is at the trend rate of total factor productivity (I hope I’ve got that right) would be the least harmful kind of NGDP targeting by a central bank, I think, because it would distort price signals the least.
19. October 2011 at 08:48
James Oswald,
I think it’s extremely important to emphasize saving in currency. Even in a case where a guy takes what’s left of his paycheck and immediately invests it, someone has to save in currency to actually buy capital goods. If you want to buy more expensive capital goods, you have to save even more in currency. In a system with very high inflation, almost no capital formation would take place because all production would focus on immediate consumption.
Reread the Chapter on Indirect Exchange. Mises will take you through exactly why inflation punishes capital accumulation.
19. October 2011 at 08:52
W. Peden,
I agree but just to get terminology straight, it’s inexpedient to call falling prices due to productivity gains deflation. Deflation should be monetary contractions where the money multipliers reverses through the banking system. A side effect, and ultimately, the cure for this monetary contraction is falling prices. The money supply could grow, but if productivity grows faster, prices will fall. I don’t think that this should qualify as deflation. Sorry to bug about semantics, but I actually defining inflation and deflation in relation to money is very important. I’ll try to be better about it myself.
19. October 2011 at 09:06
Gabe,
I should add that without freedom, the government can’t even keep the statistics growing the way they want. Just ask the USSR.
19. October 2011 at 09:11
So my “Sumner Summer Tour- 2010” T shirt is going to be worth something? Sweet.
I’ve got the in-one iMac with mammoth screen. PCs are great at work, where the Tech guys handle everything. At home, my personal computer should work like a toaster or microwave, plug and play, and the IMac does it better than a PC.
19. October 2011 at 09:57
@Statsguy
Awesome advice!
19. October 2011 at 10:38
I have put NGDP level target questions on my Money & Banking exams this semester. And Scott Sumner is required reading.
19. October 2011 at 10:51
Krugman has up a new post supporting NGDP targeting, although he still thinks it isn’t the best policy, it is worth trying:
http://krugman.blogs.nytimes.com/2011/10/19/getting-nominal/
“At this point, however, we seem to have a broad convergence. As I read them, the market monetarists have largely moved to an expectations view. And now that we’re almost four years into the Lesser Depression, I’m willing, out of a combination of a sense that support is building for a Fed regime shift and sheer desperation, to support the use of expectations-based monetary policy as our best hope.” -Paul Krugman
19. October 2011 at 11:23
On Krugman – to pick a nit………
NGDP targeting is not just about inflation expectations as he says it is. It really is not. It is about INCOME expectations. It is about certainty. That the Fed has our back. That the Fed will absorb the tail risk. That the Fed will protect us from the deflationary end of the world .. and that therefore we can be more confident about spending, hiring and investing.
It is about confidence. That the Fed is on our side for a change. That we do the expecting and the Fed does the targeting – and commits to hitting the target.
19. October 2011 at 11:24
[…] any case, as Scott Sumner recently said, “There is nothing so powerful as an idea whose time has […]
19. October 2011 at 11:58
Have you ever read anything in Physica A about monetary policy, Scott Sumner? The econophysics movement appears to be gaining traction, and you might want to cover their stuff on monetary policy…
http://www.sciencedirect.com/science/article/pii/S037843710800040X
19. October 2011 at 12:06
Holy shit Scott, Krugman just full on went NGDP:
http://krugman.blogs.nytimes.com/
19. October 2011 at 12:07
Congrats! Long overdue, I say
19. October 2011 at 12:10
Kudos to Krugman. I had the over/under for Krugman to support NGDP targeting at 6 months at least.
Let 10/19/2011 be remembered as the day Scott Sumner vanquished his greatest enemy! All hail Scott Sumner!
🙂
19. October 2011 at 12:10
Scott,
Hey, maybe we can get together while you’re here in DC. Drop me an email.
19. October 2011 at 12:13
Hmmm, I tried posting this as “Not the same Jeff” to differentiate from the other commenter with the same name, but it was held up for moderation. So here it is under my usual name:
Scott,
Hey, maybe we can get together while you’re here in DC. Drop me an email.
19. October 2011 at 12:27
DeLong, Goldman Sachs, Krugman… game, set, match. Congrats, Prof Sumner.
Chris Giles on how screwed UK NGDP looks in the new figures:
http://blogs.ft.com/money-supply/2011/10/19/a-uk-nominal-gdp-nightmare/
19. October 2011 at 12:29
No, Krugman is still “testing the waters”, which is natural. He favors it mostly as a good “selling point”, where you avoid “forbiden words like “inflation”.
19. October 2011 at 12:44
“And how come nobody invited me to this talk?”
Because you were the topic of conversation. If they had invited you, they would have been sending a clear signal, and they aren’t ready to send it. Certainly not at an off-calendar event.
This fight is about to become biblical. You and Krugman are now on the same side (which I said from the beginning). The enemy is the Austerians, and their champion is ZeroHedge. Yes, a blog, which now has greater readership than many mainstream news outlets. But why should you be surprised? Market Monetarism was basically evangelized on a bunch of low-tech blogs…
Know thine enemy… Among other things, ZeroHedge fancies itself libertarian (as do you). ZeroHedge considers NGDP targeting, and QE, to be “Keynesian”. You are, therefore, a Keynesian. (who knew ?!?) But I would not dismiss them out of hand as a bunch of nutcases. They post a great number of sophisticated, data intensive articles, and they have a canny ability to create pithy acronyms. Moreover, they are 100% right about the incompetence and corruption in the state/regulatory apparatus vis-a-vis finance.
It might be time to brush up on your Hayek…
19. October 2011 at 13:07
Scott, this is incredible. Now lets just hope that the Fed will start listening.
I am afraid that ECB don’t understand this discussion at all…
Once again Scott, you have done a great service to the US economy and to the global economy. Thanks!
19. October 2011 at 13:09
I tried reading ZeroHedge for a while, but I could not stand it. Those people WANT the end of the world – and they are doing their best to create it.
Its all in expectations – and ZeroHedge knows what they want to get people to expect.
19. October 2011 at 13:20
Mark Sadowski,
The BoE targets NGDP at 5.3% – check out David Beckworth’s chart.
http://macromarketmusings.blogspot.com/2011/01/is-uk-secretly-targeting-ngdp.html
19. October 2011 at 13:22
Would you write a post laying out the actions you would like the Fed to take. Thanks.
19. October 2011 at 13:24
P.S. I understand that you want to target NGDP. I also understand that you think a futures market in NGDP would be a good idea as a way to determine whether we are on target. (I like that idea as well.) What I don’t understand is what you want the Fed to do to achieve its NGDP goal.
19. October 2011 at 13:26
For those that are surprised at Krugman and Delong, you should know they want to get the economy moving. Their preferred policy is fiscal policy at this juncture, but NGDP might work.
Note they win no matter what. If NGDP targets work, then the economy improves. If they don’t work, then they can advocate for more fiscal stimulus.
Even the now famous Jan Hatzius of Goldman said that fiscal policy would help NGDP targeting. And if you read between the lines of his report, it’s clear he favors NGDP targeting only because fiscal stimulus isn’t a political option.
Scott – nice work. I am glad NGDP targeting is getting more attention.
I still think you should ask Mr. Hatzius why he uses MMT style thinking in many of his notes.
19. October 2011 at 13:37
Yep, now comes the crushing blow…
http://krugman.blogs.nytimes.com/2011/10/19/getting-nominal/
DeKrugman, Matty et al.
The REASON targeting NGDP will be adopted is that it promises:
1. when we are going to raise rates.
2. that we’ll continue to raises rates and piss on booms.
3% level targeted NGDP is essentially HARD MONEY.
http://www.indexmundi.com/g/g.aspx?c=us&v=66
If you try to factor in 2Z% inflation (which the Fed and Tea Party won’t accept), to get 5% level..
http://www.indexmundi.com/g/g.aspx?v=71&c=us&l=en
By my numbers we’re still coming in hot.
19. October 2011 at 13:38
@ Lars
Mario Draghi takes over from Trichet soon. Draghi is Italian, HE IS A GOLDMAN ALUM, and he is not keen to see Rome fall again so soon. We are celebrating Trichet’s retirement at Watch City Brewing Company end of this month.
@ JimP
ZH wants the end of the world, and they are doing their level best to create it. It is not by accident they selected Tyler Durden as their stage name – a psychotic alter ego running a large conspiracy to to destroy the artificial “unmanly” aspects of civilization, and return us to a purer state of hunter/gatherer barbarism. The crew at ZH _want_ a mass collapse of civilization. They are the enemy, and the fight is indeed biblical. ZH has one advantage, too – to win, all they need to do is make sure the status quo prevails, and the politicians are unable to agree on any sort of change that could avoid catastrophe.
19. October 2011 at 13:46
Stats
Exactly. The pleasure they take in creating fear and horror is amazing to me.
Scott has often made the point that economics is not morality – but for ZH economics is a chance to release and allow to run wild the most base kinds of emotions – for revenge and for a general blood letting. They are really amazing. And I very much agree that this is a biblical struggle – between the forces of light and the forces of darkness.
19. October 2011 at 13:49
That post everyone is talking about from Krugman is the closest I have seen him come to saying “I was wrong”.
Good job Scott.
19. October 2011 at 13:50
Way to go Scott!
Next step for Scott and everyone: don’t let a good idea be perverted into something unrecognizable and bad
19. October 2011 at 13:53
It is of course true that both Brad DeLong and Paul Krugman read this blog. I bet they are reading this. I just wish they would openly post on here. NGDP targeting needs all the firepower it can get – and they have a lot of it.
19. October 2011 at 14:02
I feel like positive, or at least open-minded discussion of nominal GDP level targeting has been growing exponentially since you started blogging. Great work, Prof. Sumner. I think you probably also owe Tyler Cowen a handshake, because a lot of us might not have discovered this blog if not for his links to and generous praise of it.
I’ve always been rather skeptical that economic theory gives us much in the way of knowledge about how the economy works, but I find thinking through the theories interesting. In any event, if trial and error is our only hope in economic policymaking, better we try ideas for which we can tell a (comparatively) compelling story as to why it would work. And of all the ideas proposed during this crisis, NGDP level targeting, and the story you tell about why it would work, seems to me to be the most compelling. I wouldn’t bet a ton on its unambiguous success, but then I wouldn’t bet on anything economic these days. It’s time to try something different though, and I really think your idea’s time has come, thanks in no small part to your unyielding defense of it in this forum.
19. October 2011 at 14:17
http://delong.typepad.com/sdj/2011/10/what-needs-to-happen-for-the-fed-to-successfully-target-the-level-of-nominal-gdp.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+BradDelongsSemi-dailyJournal+%28Brad+DeLong%27s+Semi-Daily+Journal%29
From DeLong – combine monetary and fiscal – direct monetization of spending. I read in a paper somewhere that this is the best way to do it. And the ECB could sign up too. (ha ha)
19. October 2011 at 16:07
JimP,
The combination of monetary and fiscal policy seems to be Hatzius’s preferred policy as well. He just thinks there is zero political possibility of any more fiscal stimulus happening.
19. October 2011 at 16:13
DeLong still doesn’t understand. As a Keynesian, he is so hung up on interest rates as a transmission mechanism. He doesn’t see that when QE is implemented when rates are near zero, long term rates rise.
19. October 2011 at 16:27
I do NOT see this as a battle between ZeroHedge and NGDP targeting(sumnerian MMTers). The NGDP targeting crowd had been completely ignored until recently. The NGDP targeting does use hte feds own logic/mythology to criticize how the fed operates. This self evident truth that the Fed is not acting in accordance to it’s own stated goals started to encorach into the court-economist-priesthood. The priesthood started to grumble and criticize the power base that it is supposed to be defending. So then the establishment has to eventually engage these grievances, they have to pacify the court preists if they want to have any hope of holding off the accumulating masses of riff raff at zerohedge.
The guys here hope to be allowed to kiss the ring of the elite so they are not angry and are wiling to help save the printing press for the elite. The zerohedge guys know they will never benefit from the elite printing press power and they do see the current system as a scam.
NGDP targeters don’t have to convince zerohedgers…because the establishment is working right now without zerhedge consent.
NGDP targeting will not bring about economic stability…but I am glad I recognized this movement early…it will make it more fun to watch the spectacular failure.
19. October 2011 at 16:34
DeKrugman knows I’m right.
My numbers say that from 1999 onward at 5% NGDP level, right now we’re 6%+ too high…. we should be raising rates.
And if you use 3% NGDP, we’d have a much lower price level now hitting that target.
Here’s RGDP:
http://www.indexmundi.com/g/g.aspx?c=us&v=66
Here’s CPI:
http://www.indexmundi.com/g/g.aspx?v=71&c=us&l=en
—-
No matter how you slice it, level NGDP means we are raising rates pretty god damn soon.
But feel free to check my numbers!
19. October 2011 at 17:16
First I will comment on Zerohedge so as to put it behind me, for this evening is about celebrating Scott’s success. My concern is that a part of the far left is merging with some of the far right in wanting to abandon money…one way this is manifest is in the idea of resource based economies. Hopefully such a conversation will not go national in our lifetimes but if it does, people on the far left, should they marge with the far right, may not realize just how far back in time the far right would like to take them and how much would be lost. Then the struggle would be between the idea of resource based economies or a return to landowners only having the vote. Yikes. Okay, suffice it to say that Scott you still have plenty of challenges ahead. Now back to the party…
19. October 2011 at 17:16
Using your numbers, we’re running at 5.7% compounded annual rate over the 10 year period you selected. This includes a time period when NGDP was coming off of the post 1979 inflation peak. Using an NGDP target, Fed should have tightened in 2005 and 2006.
Monthly numbers better:
http://www.usinflationcalculator.com/inflation/historical-inflation-rates/
You can see annualized inflation running at at 5.4% in August of 2008, and you can imagine the Fed freaking out. Then in october 2008, goes down to 1.1%, and Fed probably thinking they need a few more months of that to hit their annual inflation target. (meanwhile, rest of us banging our heads against the wall trying to figure out why the Fed isn’t stabilizing anything – because commodities overshot in the summer and they were trying to compensate, but failed to observe they were overshooting – or, possibly, certain folks like plosser felt the Fed was finally doing a good job and could be doing even better.
One wonders why Plosser didn’t breathe a word in, say 2005?
So, I think you are right that the Fed is unlikely to do much to restore the NGDP growth trajectory to the pre-2008 trend, because that trend was too high for them. I think all the current NGDP endorsement will mean is that if the economy really grows at 1.8 to 2.2% next year, they’ll let inflation hit 3%, and we’ll creep along for a while like that. The inflation will help a little with debt load, and will stabilize a little. Real growth will pick up a bit. It’s still going to be a slog.
You know what the difference between 2010 and 2011 was? Oil price. If Brent had been sub $80 or even sub $90 through the summer, we’d have gotten QE3. If oil prices come down, the NGDP target will lift real growth substantially.
19. October 2011 at 17:21
Morgan, FRED has a nice add-on for Excel now (or is it Excel has a nice add-on for FRED?)
I’ve got $9148.6 billion as the starting point (1Q 1999) for NGDP. Is that what you have?
19. October 2011 at 17:27
Congrats. We all know you had plenty of days over the years when you felt like a lone voice in the wilderness. But time was good to you and all that focus finally made a difference. At 57 years of age, I will keep that focus in mind, as I work on my own goals that have finally become crystal clear. Thanks for being an inspiration.
19. October 2011 at 18:49
Becky,
Yes there are those on the left and the right who are both mad that some people have the power to pull 1 trillion dollars out of their pockets to bail themselves out while the rest of us are expected to raise our taxes to pay for any expenses incurred in bailing out Lyod Blankfein and Jamie Dimon. This is the source of much of the anger seen in the Tea Parties and OWS. Both movements have been co-opted as much as possible so that their energy is focused back into existing political parties instead of against the money printing powers.
This does not mean that all these people “don’t want money”. That is ridiculous. I would like a free market in money and a end to special government granted privelages for certain groups to create money.
Zero Hedgers only want to see the coming destruction because they believe that the current political economic situation is unsustainable…we tried to change it’s path and that failed. Government is still attempting to grow it’s power exponentially and we are seeeing the results. Things can only get better when the current system is scrapped.
We do not believe that the end of JP Morgan would have been “the end of civilization” as many of the suckers here seemed to believe. it would be the beginning of something new and good and the end of something old and corrupt.
19. October 2011 at 18:54
Thanks John, Ben, and Tom. Commenters have greatly assisted me by suppling lots of links and constructive criticism.
Chaco Kevy, I heard Macs have fewer viruses. Is that right?
I have an iPad–which I was thinking of making my laptop. Except I can’t access my work email via my iPad.
CA, Yeah, and I was a fan even before you!
Morgan, Thanks for the tip.
Bob, I still relish your very first comment: “Finally, a man worth killing.”
Thanks Krzys, I’ll try.
Richard, Interesting, but the euro isn’t my forte.
Tony, A talk at the Atlantic Economic Association, but you must register, and it’s expensive. Also at the Treasury, but that’s not open.
Thanks Rajat.
William, First he needs to fix NGDP, then think about social issues.
Dan, Don’t look now, but the number one government “activist” economist in the world just endorsed NGDP targeting. We’ll see who the dinosaurs really are when the national debts start piling up.
TGGP, Yes, that’s sad.
Thomas, Edeast, Joe2. Thanks.
Thanks Martin,
Tommy, If the RGDP fell in half because population fell in half, I’d let NGDP fall in half. If it was because productivity fell in half, I’d keep NGDP stable, and let real wages fall in half by doubling the price level, not cutting nominal wages and causing unemployment.
In other words, I’d target NGDP per capita.
John, No, inflation doesn’t discourage saving, unless nominal interest is taxed. (Fisher effect) But in that case the problem isn’t inflation, it’s rising NGDP.
The second problem is also rising NGDP. If prices rise because of a supply shock (higher oil prices) and NGDP is constant, then the relative price changes are appropriate.
James, Didn’t Latvia just have a depression?
Although they didn’t really have many good alternatives–I’ll grant you that.
Andrew, You may be right, I’ve heard similar things. But in 2009 they sure weren’t.
Thanks Jason.
Trap, Lars Christensen is working on Denmark.
Thanks Joe, That’s where I plan to buy it.
Thanks Mbk.
Gregor, That’s a good post.
Statsguy, Great ideas. I’ve worked with the nautical metaphor before.
Brian, No, they don’t.
Salem, I don’t know enough to know whether I agree. What’s their long term target? If inflation has averaged over 2% (and I think it has for quite sometime) why do they have a 2% target? Are they doing level targeting, trying to catch up for the shortfall in 2009? What I agree with is the concept of fiscal austerity combined with NGDP targeting. But I don’t know whether the UK has enough NGDP growth, they may well need more.
If, Thanks.
Thanks for the tips Claudia.
Johnmleemk, Yes, but not really public.
Thanks for the tips Philip.
Rien, Will I get blamed if it doesn’t?
more to come . . .
19. October 2011 at 19:22
James Oswald, Not really open to the public.
Britmouse, Thanks for the info.
Jeff, no, don’t worry.
Thanks for the info TravisA.
Thanks Tim.
dwb, You said;
“lets hope we are not targeting those forecasts that called for 4% growth in Q3 2011 as recently as 9 months ago.”
Not a problem with level targeting.
Thanks for the tip Bababooey–that’s the way I’m leaning.
Thanks JTapp,
Jason, I have a post on that now.
JimP, Yes, I have a slightly different take–but that’s progress.
Blue Aurora, Can you quickly summarize?
Thanks Jon and libfree.
Jeff, Sorry, No time.
Marcus, Yes, that’s something I’ve talked about too.
Britmouse, That’s quite a slowdown, I recall in Q1 the rate was over 5% y-on-Y. I guess UK policy is still way too tight.
Statsguy, I guess I’ll have to take a look at ZeroHedge–never heard of it.
Thanks Lars.
Russ, Google my “open letter to Paul Krugman” from early 2009.
TC, I should ask him for a job.
Statsguy, Remind me, I’ll try to make it to Waltham.
Thanks Liberal Roman and Mike DC.
Ram, Yes, I owe Tyler a huge amount, but also many commenters like JimP and Marcus, who supplied valuable links.
Gabe, I look forward to the big test.
Thanks Becky.
19. October 2011 at 19:35
“Using an NGDP target, Fed should have tightened in 2005 and 2006.”
This has ALWAYS been my argument for Scott. I have begged him run the numbers and make the argument.
I’m not trying to dance around and say we have to use 1999, although it is a good one since it pegs right before a crash.
I’m saying Scott have a BETTER STRONGER argument, by not just pointing at 2008 and saying “start!” and instead noting 2008 would have BEEN AVOIDED had his machine been running.
That said Stats, the Fed would use the switch to ratchet down inflation over the long term…. it’ll be a 4% or lower target.
Dustin, do you have a link?
19. October 2011 at 20:52
I’m sorry Morgan. A link? For the add-in? http://research.stlouisfed.org/fred-addin/
You can just download the stuff into Excel yourself too. http://research.stlouisfed.org/fred2/series/GDP?cid=106
Start anywhere. See where we would be with 3% NGDP growth since 1988. Or 1999. Or whatever.
I’ve wasted hours of my life doing stuff like this ever since I discovered Sumner. I must be mad.
20. October 2011 at 00:49
Britmouse,
1. If the BoE were just targeting the forecast of headline inflation, then why is it currently over 5%? They would have tightened in the past. It’s not like the current rates are unexpected. They have an unofficial NGDP target.
2. You can’t favour NGDP targeting, but then strip out VAT increases. The VAT increases are part of P*Y, or nominal wages, or whatever.
“If inflation has averaged over 2% (and I think it has for quite sometime) why do they have a 2% target? Are they doing level targeting, trying to catch up for the shortfall in 2009?”
They have a 2% target because that’s what the law says. And it’s not a level target. But they haven’t been paying attention to their legal target for some time, and because the government doesn’t want rate tightening, they haven’t been called on it officially.
20. October 2011 at 04:04
Wow! I didn’t expect a response from you Scott, given the level of busyness you have to deal with!
Econophysics is essentially statistical mechanics applied to finance and economics. Some famous econophysicists include Joseph L. McCauley, Rosario N. Mantegna, H. Eugene Stanley, Didier Sornette, and Jean-Phillippe Bouchaud.
I recommend reading this book by Joseph L. McCauley for more information on the econophysicists.
http://www.amazon.com/Dynamics-Markets-New-Financial-Economics/dp/0521429625/
The econophysics movement ought to be paid attention to by Austrians, monetarists, neoclassical thinkers, Keynesians, and all stripes.
20. October 2011 at 04:05
Wow! I didn’t expect a response from you Scott, given the level of busyness you have to deal with!
Econophysics is essentially statistical mechanics applied to finance and economics. Some famous econophysicists include Joseph L. McCauley, Rosario N. Mantegna, H. Eugene Stanley, Didier Sornette, and Jean-Phillippe Bouchaud.
I recommend reading this book by Joseph L. McCauley for more information on the econophysicists.
http://www.amazon.com/Dynamics-Markets-New-Financial-Economics/dp/0521429625/
The econophysics movement ought to be paid attention to by Austrians, monetarists, neoclassical thinkers, Keynesians, and all stripes.
20. October 2011 at 04:05
Wow! I didn’t expect a response from you Scott, given the level of busyness you have to deal with!
Econophysics is essentially statistical mechanics applied to finance and economics. Some famous econophysicists include Joseph L. McCauley, Rosario N. Mantegna, H. Eugene Stanley, Didier Sornette, and Jean-Phillippe Bouchaud.
I recommend reading this book by Joseph L. McCauley for more information on the econophysicists.
http://www.amazon.com/Dynamics-Markets-New-Financial-Economics/dp/0521429625/
The econophysics movement ought to be paid attention to by Austrians, monetarists, neoclassical thinkers, Keynesians, and all stripes.
20. October 2011 at 04:05
Wow! I didn’t expect a response from you Scott, given the level of busyness you have to deal with!
Econophysics is essentially statistical mechanics applied to finance and economics. Some famous econophysicists include Joseph L. McCauley, Rosario N. Mantegna, H. Eugene Stanley, Didier Sornette, and Jean-Phillippe Bouchaud.
I recommend reading this book by Joseph L. McCauley for more information on the econophysicists.
http://www.amazon.com/Dynamics-Markets-New-Financial-Economics/dp/0521429625/
The econophysics movement ought to be paid attention to by Austrians, monetarists, neoclassical thinkers, Keynesians, and all stripes.
20. October 2011 at 04:07
They were unexpected in the forecasts for current inflation. In, say, 2009, how could the BOE forecast a 30% commodity spike and a VAT rise for 2011? But it would not have been correct to tighten monetary policy in the face of those supply-side shocks in any case, it merely makes the situation worse.
It should be common sense: if you whack nominal incomes down in response to a supply-side shock, you merely make real incomes even worse. Why would you want to do that?
I like to hope so. They certainly talk about nominal spending from time to time. But they forget about it in 2008, and they have allowed NGDP growth to fall to a 3% annual rate again this year.
I agree.
Prof Sumner, with respect to the high UK NGDP growth rate in 2011Q1 – it disappeared in the GDP revisions this month. They revised up the 2010 levels, and revised down the 2011 levels. 🙁
20. October 2011 at 04:12
Goddamn it, I posted too many times!
20. October 2011 at 05:30
Gabe, you’re absolutely right, there’s nothing at all mainstream – it’s just little ‘nibbles around the edges’. However the idea of RBE centers around people not needing to worry about daily economic activities (‘the smart’ people will take care of that) has been floated by people from many walks of life. Likely such ideas would never become an issue unless monetary systems really crashed in a big way. What I am looking at is making sure better ideas exist should systems fail to such a degree. My main objective: maximum amount of economic activity (and access) possible at the level of the individual in both monetary and non-monetary terms.
20. October 2011 at 08:03
Scott,
I don’t think someone like you needs to worry about viruses when making your decision. It is true that most viruses are designed for windows systems, but it is also true that just about every IT security consultant believes win7 is more secure than Mac’s OSX. The difference is in market share. If hackers were art thieves, Windows is the fancy painting at the museum, OSX is the high school art show, and Linux is your kid’s fingerpainting on the fridge. “Security through obscurity” is the line most often used.
But viruses as push attacks are becoming old hat. The new style are pull techniques; getting you to part with your secure information. I’ll let xkcd explain it: http://xkcd.com/792/
So yeah, if this whole “hottest economist in the world” thing doesn’t work out, you have a promising future as an identity thief… if you want it.
20. October 2011 at 19:49
[…] has been forgotten recently). There is wide agreement among economists on this from the left and the right, and yet peoples refusal to look at monetary policy in this frame is stopping society from putting […]
20. October 2011 at 22:17
@Trap
19. October 2011 at 02:39
“Mark, forget about Europe. Advancing market monetarist arguments in the US context may be tough enough, but here in (Northern) Europe?”
Agreed. But it makes me so mad!
@James in London
19. October 2011 at 05:09
“Mark Sadowski
20% cuts for all in Ireland and Latvia (not Lithuania) were not so bad. No one died. No riots. Acceptance was near universal following their blowout parties in the years up to 2007, they knew they had to pay. For what it’s worth, Lithuanian NGDP looks on its long term track to me, growing strongly though still below the artificially high, off-trend, blowout 2007 figures.”
Absolute rubbish. It will take the Baltic states nearly a decade to clear their 2007-2008 peaks at current rates. That’s not the long term track to me unless the long term track is going absolutely nowhere. Get real!
@John
19. October 2011 at 07:52
Mark Sandowski,
“Disinflation is the enemy huh? Would it be bad for a 10% inflation country to tighten to 3% like the US in the 1980s?”
First of all, it’s Sadowski, not Sandowski.
Secondly, The AS curve gets flatter the closer you get to zero. A little disinflation is good. Too much and you end up in a Depression. If current facts can’t persuade you of this then you are a lost case.
21. October 2011 at 00:50
TC
19. October 2011 at 13:20
“Mark Sadowski,
The BoE targets NGDP at 5.3% – check out David Beckworth’s chart.”
Yes, but what about the end part where it does not?
I get so irritated when I read comments like yours.
Kanttoos has made similar observations about Germany. And I still disagree vociferously. I have been through the numbers so many times and each time I still disagree. I wonder why? (Please carefully look at the numbers. I’ll lead you through a Chow Test if necessary.)
21. October 2011 at 08:49
Scott – can you give a bit more information about the Treasury meeting? Are you speaking about NGDP targeting?
21. October 2011 at 11:47
Blue Aurora, no you didn’t!
It was so compelling I was grateful to read it over and over and over.
21. October 2011 at 11:50
Sadowski,
Disinflation is good until public employee unions are gutted, once that happens, we can re-evaluate.
If they had already been gutted, were generating 2-5% productivity gains annually, and only had 401Ks…
You point my be exactly right.
21. October 2011 at 20:25
Morgan,
I know you know better. Moreover I know you know I know you better. Moreover I know you know you I know you I know you know I Know you know I Know you know……
Oh @#$%. I know you know what I mean.
@#$% *&!
Moreover, @#$% ^&*!
Did I leave anything out?
22. October 2011 at 15:24
Just remember, we’re gutting public employee unions.
And by gutting I mean they are going back the level of income they had in 1998.
They just aren’t that important.
Now they can either fight it out and drag this recovery out for as long as possible OR they (you) can just accept it is for what it is.
22. October 2011 at 17:48
Here’s the NYT sounding the Morgan Alarm:
http://www.nytimes.com/2011/10/23/opinion/sunday/will-dropouts-save-america.html?smid=fb-share&pagewanted=all
27. October 2011 at 17:36
Britmouse, Thanks for the info.
ChacoKevy, Thanks for the info.
Blue Aurora, I won’t read the book unless someone first convinces me it’s worth reading. What are the great insights?
Jason, I talked about the crash of 2008.