We need more journalists like Kelly Evans
I had not heard of Kelly Evans until a few days ago, when I ran across an anti-NGDP targeting piece that she wrote for the WSJ. I did a post that was very critical of the article. Lots of people might have taken that personally, but Evans came over here and engaged in a discussion with me and the other commenters. That showed class.
Now she has a new piece on NGDP targeting, which clearly shows that she’s done her homework. It’s very fair, presenting both sides of the debate.
I applaud her willingness to overlook the sometimes harsh tone of blogosphere debate, and engage with those of us who are working hard to change Fed policy.
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27. October 2011 at 05:50
Shows class. Also shows real professionalism too.
27. October 2011 at 06:13
You’ve probably addressed this at some point, but doesn’t the possibility that a Republican president will either fire or fail to reappoint Bernanke undermine any attempt on his part to drastically change expectations?
27. October 2011 at 06:22
Nick, I agree.
Pete, Yes, that’s why I think the Fed needs to make that commitment, and make it explicitly. The Fed is a very conservative institution, which takes the credibility issue very seriously. If they make a very public commitment for an NGDP target, with a large majority of the FOMC voting yes, then I’d expect them to carry out the commitment.
John Taylor’s spoken highly of NGDP in the past, so even though he has moved on, I think he could live with that target if he became Fed Chairman.
I see my role as changing the way the economics community thinks about monetary policy, not just Bernanke. I fully agree that he has only limited power.
I cynic might add that the GOP will favor easy money the moment they take office, but I’m no cynic. 🙂
27. October 2011 at 07:02
I don’t think I’ve seen many mainstream stories that both engage a topic that well AND include that many links to blogs. Impressive work, there might just be hope for the WSJ
27. October 2011 at 08:03
Kelly Evans:
Congratulations. Your ideas have evolved and you have let the world know that. Your audience reach is much larger than this blog. I myself think you have done a very important thing with that new article. For one thing the ECB staff might read it and think how they could get Europe growing again, which is the only real solution there is to the European debt crisis.
You have been very decent and professional in your work. Would that both more academics and more reporters were like you.
JimP
27. October 2011 at 08:10
Evans gets many kudos for changing direction and presenting the other side – when so many others are unwilling to look at both sides of the debate or unwilling to lose face.
27. October 2011 at 08:13
Good job Kelly, tell Laura Meckler to give you a foot massage.
You are still missing the truly conservative Kudlow hard money argument for NDGP.
You just drop it to 3 or 4%.
At those rates over the past ten years, we’d have had no fiscal crisis, and prices would have “stagnated” along with wages, and public borrowing would have been pushed aside by private borrowing…. we wouldn’t have been able to give public employees a bunch of raises.
Message: Hard money is perfectly compatible with a level target NGDP.
27. October 2011 at 08:33
Morgan,
As far as hard money nothing beats gold and its not as hard to convert to as people think. All the central bank has to do is stop issuing new money in any form and wait for the price of gold to start falling. Then lock in the gold price and insist that any new money issues going forward are 100% backed.
I stil like your 3% target better than Scott’s 5% because 3% gives us a shot at actual price stability and does a better job preventing a boom.
27. October 2011 at 09:11
Well, isn’t your comment (which I agree with) in your previous post about natural human revulsion against unnatural monetary stimulus (and, as I’ve argued, inflation) also cynical?
As I’ve argued before, I think that is the correct explanation– which is arguably worse for us than the explanation that relies on “evil.”
27. October 2011 at 09:13
Good for Ms. Evans. Making a mistake is okay; compounding a mistake for sake of honor is not.
The market Monetarists are making headway. Our next step must be to more directly engage policymakers. I sense we are winning already in the realm of informed opinion.
Yes, the right-wing will endorse Market Monetarism as soon as they are rid of Obama; John Taylor will lead the way. especially if we get into yet another war.
27. October 2011 at 09:16
Scott,
I still want to hear how we’ll deal with revised NGDP data.
http://bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
27. October 2011 at 10:11
Kudos to Evans (and her editor?) for a much improved argument. Still, she doesn’t seem to understand that interest rates are of only secondary (or maybe tertiary) concern. Not to mention that they could hardly be described as moderate now.
We could it, Friedman’s Difficult Idea.
27. October 2011 at 10:25
Definitely give credit to Ms. Evans for presenting a more balanced view.
It is unfortunate that the follow-up article will be online-only, while the print edition ran with the initial, disappointing version.
I am surprised and delighted that a journalist in one of Murdoch’s publications would care enough to respond to her critics. I hope the rest of the editorial department at the WSJ can learn to follow her lead.
27. October 2011 at 10:32
[…] Those who have followed the debate about NGDP in the US will know about the views of the Wall Street Journal. I steal this from Scott Sumner: […]
27. October 2011 at 10:32
Kelly Evans deserves a lot of respect for this. Thank you Ms. Evans…and Scott, good you acknowledge it.
27. October 2011 at 11:43
John: there could be harder money than gold, actually. The problem with gold is that people keep mining more of it, eroding its purchase power and inflating away savings. Why not extend your suggestion a bit by having the central bank not only stop creating new currency, but also NOT peg to gold. The amount of money in circulation today is all there is and all there ever will be. THAT is hard money!
If you can see why this is a stupid idea, then I’d like to know what’s so great about gold.
27. October 2011 at 12:47
Yeah, I’ve liked Kelly Evans since Thoma posted a link to her Greenspan interview. http://online.wsj.com/video/greenspan-prove-i-was-wrong/881A4154-8710-4BCB-952B-219E94F704FB.html
I thought she handled the interview quite well.
27. October 2011 at 13:40
Everyone, Let me just agree with the consensus view here, and not respond to each individual comment.
John Thacker, Yes, I am cynical at times.
27. October 2011 at 15:10
jj,
the problem with fixing the quantity of gold is, i think, that the quantity of gold ought to be in fixed ratio to the size of the economy, and the size of the economy really ought to be proportionate to the size of the population. Only then could there be long term price stability, i think.
28. October 2011 at 09:12
[…] the WSJ and Scott’s commentary. The article has a lot of links to a lot of good information (in particular here) on whether NGDP […]
28. October 2011 at 09:29
Thanks for the link to the Greenspan interview, Chaco, but let’s just say it confirms my initial reaction to Ms Evans’ abilities.
29. October 2011 at 00:48
JJ,
People tend to really miss the point about gold. To paraphrase Schumpeter, if someone favors free markets they should favor gold even if they know it has economic drawbacks. The primary virtue of gold is that it places control of money outside of the hands of politicians and bankers.
I think people are naive to think that we have a 2% inflation target because that’s economically optimal. A 2% inflation target allows the government to get the benefits of inflation, the same benefits a counterfeiter gets, without people objecting too much or rising prices getting out of hand. Economic doctrines serve politicians not the other way around.
By the way, in the Mises-Rothbard way of thinking, nearly any quantity of money is capable of performing all the services money can offer. If the Fed ceased any new money issues, our monetary system would still work as long as they replaced worn out bills and coins. Over a long enough time period, you may need smaller units of currency.
Aside from these minor concerns, the monetary system would work fine. We’d notice falling prices due to productivity gains which would bring into relief the fact that economic progress is about making goods more available.
There are two kinds of deflation. Productivity and monetary. Monetary deflation is the “bad” one that we associate with depressions. It usually comes about through a reckless credit expansion that gets exposed like subprime lending. Then, because of fractional reserve, loan losses magnify through the system leaving society with less money. Prices then have to fall quickly to align the lessened stock of money with the available supply of goods.
Productivity deflation is what would occur if the Fed fixed the current amount of money. Also, as population and business activity increased, the demand for money would slowly rise. The lowering of prices from productivity and increased economic size is much slower, and therefore much less disruptive, than monetary deflation.
I’ll admit I’m only really familiar with Austrian monetary theory so I’d be interested to hear why most people think that a fixed supply of money would be a bad thing. I’ve heard lots of people say it without offering an explanation and I always thought they just assumed that without thinking it through.
29. October 2011 at 02:04
John,
I generally don’t approve of a fixed quantity of any asset.
I would also agree with the productivity vs. monetary deflation distinction, but I would characterise monetary deflation differently: monetary deflation occurs when the supply for money is exceeded by the demand for money. By fixing the quantity of money with a Rothbardian 100% reserve financial system, you have about as much chance of money supply = money demand as you have of having the supply for housing matching the demand for housing if you fixed the quantity of houses.
I use houses as an example rather than a consumed good like food because, just as the velocity of money could theoretically change in line with changes in demand, the rate of sales of housing could theoretically change in line with changes in demand. I see no reason to see why this process of adjustment, assuming it occurs, would not be a total disaster.
I prefer the likes of Hayek and Selgin on money to Mises and Rothbard. My preference would be an economy with a free market in money and competing currencies + promissory notes, with no central bank.
As for 3% vs. 5%, as I’ve said before I like Selgin’s proposal in Less Than Zero of having NGDP grow at the trend rate of total factor productivity, which would mean a long-term productivity-driven deflationary trend and minimise the distortionary effect of central banking on the price system. The only reason why price inflation might be good, as I see it, is because prices as operating as incentives to producers to respond to fallen output.
I recommend Less Than Zero to everyone. If nothing else, it has some very good coverage of obscure parts of monetary history e.g. some of Friedman’s more deflationist views-
http://mises.org/books/less_than_zero_selgin.pdf
29. October 2011 at 05:40
John, You said:
“The primary virtue of gold is that it places control of money outside of the hands of politicians and bankers.”
Only someone who knows nothing of real world gold standards could believe that.
You said;
“Aside from these minor concerns, the monetary system would work fine. We’d notice falling prices due to productivity gains which would bring into relief the fact that economic progress is about making goods more available.”
Exactly the opposite. With NGDP targeting all deflation is productivity deflation–which is good. With gold you have frequent bouts of monetary deflation, which is bad.
You said;
“I’ll admit I’m only really familiar with Austrian monetary theory so I’d be interested to hear why most people think that a fixed supply of money would be a bad thing. I’ve heard lots of people say it without offering an explanation and I always thought they just assumed that without thinking it through.”
Instead of listening to “lots of people,” you might want to study what the experts think. It would be a horrible policy because any increase in money demand (due to say drug dealers hoarding more US currency) would be deflationary.
8. November 2011 at 08:23
[…] OK, that happened. Now I´ll come back nice and sweet and link to a bunch of their posts. I´ve been noticed. That´s also done. Now I´ll get an exclusive (a US first) with the “high priest” of NGDPT. […]