Why I am so repetitious

God save the Brits.  When I studied the Great Depression it often seemed like the British (both economists and journalists) were the only ones who understood that money was too tight.  Recall that they were the first (Europeans) to bail on the gold standard, and had the good sense to stay out of the euro.  It still seems they are ahead of us, at least at The Economist’s Free Exchange and the Financial Times.  Here is Ryan Avent:

Britain’s economy will be watched closely given the government’s relatively aggressive plans for fiscal consolidation. Can the Bank of England offset the contractionary impact?

That is exactly the question.  (The answer is yes, at least if we are to believe Paul Krugman when he explains away past austerity successes by pointing to easy money policies such as currency depreciation that were pursued concurrently.)  But note how rarely American reporters understand this policy interrelationship.

Here is Clive Crook at the FT:

As the monetary economist Scott Sumner has pointed out, Milton Friedman – name me a less reconstructed monetarist – talked of “the fallacy of identifying tight money with high interest rates and easy money with low interest rates”. When long-term nominal interest rates are very low, and inflation expectations are therefore also very low, money is tight in the sense that matters. When money is loose, inflation expectations rise, and so do long-term interest rates. Unreconstructed monetarists ought therefore to agree with Mr Magnus’s main point: under current circumstances, better to print money and be damned.

Admittedly, once that strategic issue is settled, difficult tactical questions arise. For instance, which assets should the Fed buy? As Alan Blinder, a former vice-chairman of the Fed, has noted, the recent policy of replacing maturing mortgage-backed securities on the Fed’s balance sheet with government debt has a secondary effect of reducing downward pressure on risk spreads, which is a pity.

I first did a post on that Friedman quotation back more than a year ago, and have done a dozen since using the exact same quotation.  But only in the past few weeks has it started to resonate.  Brad DeLong just linked to it a few days ago.   As far as Blinder is concerned, he recommended negative rates on excess reserves a few days ago in the Wall Street Journal.  Once again, I had to repeat the idea many times before the message broke through.

I apologize to longtime readers for my repetitiveness.  But there is a reason; ideas don’t get accepted unless they are repeated over and over again.  It is only in the past few months that I have seen other bloggers picking up on the NGDP targeting idea, which David Beckworth, Bill Woolsey and I have been pushing for years.

Next post:  “Why I am so egotistical”  (Doing a post that pretends to justify repetitiousness, while actually reveling in my ideas get airplay.  Time for a post on my biggest mistakes?)

HT:  Marcus



22 Responses to “Why I am so repetitious”

  1. Gravatar of Doc Merlin Doc Merlin
    30. August 2010 at 09:39

    If the multiplier is as low as Barro and others suggest it is, then IS-LM models and the fed moving last will cause tight money to happen any time there is lose fiscal policy and lose money when there is tight fiscal policy.

  2. Gravatar of JimP JimP
    30. August 2010 at 09:40

    Come on Scott. In my business all I do all day long is repeat myself. People pay me to do this.

    You were the first on this. The others are following along and that is the fact. No harm at all in saying so. None. It is something to be really proud of.

    I just wish Earl Thompson were still alive, and/or that he had posted on your site. There was one zany and smart guy.

  3. Gravatar of William Bruce William Bruce
    30. August 2010 at 09:52

    After the next post, I am putting in a request for “Why I am so wise/humbler-than-thou/Nietzschean/explaing-the-joke/solipsistic/Derridaist/Rortian/Ouroboros-y/Charlie-Kaufmanesque.” The self-referential blogosphere would feel only two things: shock and awe.

    [Merely a merriment — no snark intended.]

  4. Gravatar of Morgan Warstler Morgan Warstler
    30. August 2010 at 10:05

    “When long-term nominal interest rates are very low, and inflation expectations are therefore also very low, money is tight in the sense that matters. When money is loose, inflation expectations rise, and so do long-term interest rates.”

    I think we have a causality problem:

    Granted, we have low interest rates and we have tight money.

    We want loose money, so we need higher long term interest rates….

    As I keep advocating, we only need to ask ourselves WHAT would justify higher interest rates.

    The answer is liquidation of mortgages properties from insolvent banks.

    Ultimately, it is far healthier to modify prices than inflate capital.

    You can’t use imaginary sticky prices as a shield Scott, we have an IMMEDIATE LEVER to pull that would cause a FLOOD of lending activity at higher interest rates.

    You never get around this winning objection.

    Mark-to market ends sticky prices.

  5. Gravatar of Greg Ransom Greg Ransom
    30. August 2010 at 10:41

    This was obvious to everyone — for a reason.

    The British had stupidly returned to gold at the pre-war par — after an episode of massive money expansion and debt loading to finance WWI.

    In other words, the British had stupidly forced massive deflation on themselves in 1925 — in the face of union and unemployment policies that made wages unresponsive to general price level changes.

  6. Gravatar of Joe Calhoun Joe Calhoun
    30. August 2010 at 10:56


    I don’t think Clive Crook is a full convert. He spends the majority of that column arguing for more fiscal stimulus. He only gets around to monetary stimulus because he thinks Americans are too stupid to accept another fiscal package:

    “The political problem is that US voters, ever wary of big government, have wrongly decided that the first stimulus was an expensive failure. The administration is partly to blame. It oversold the likely effects of the first package and, worse, made it part of a broader agenda of expanded federal power. The message that the stimulus should be “timely, temporary and targeted” – a reassurance that many voters needed – got lost.

    One cannot know how many jobs the stimulus saved, but it is absurd to see high unemployment as proof that it was ineffective. More likely this shows how powerful the recession’s downward pull has been, and still is. Most economists think the stimulus helped a lot. Yet, as in other areas, President Barack Obama’s defence of his policy has been strangely diffident.”

    I’ve been having a…discussion…with a commenter on my blog about the deflation we had from July 08 to the end of that year. He’s an econ prof (I won’t say from where but I can’t believe this guy gets to teach) and swears we didn’t have deflation during that time because policy was easy which he of course identifies with low interest rates. The rise in the dollar, fall in gold, oil, platinum, copper, etc., TIPs spreads – it doesn’t matter. Policy was easy because the Fed cut interest rates. As far as he is concerned that is the end of the discussion.

    He is also convinced that the Fed is “powerless” as he puts it because rates can’t fall anymore and the banks are happy parking excess reserves at the Fed.

    I want to believe that this guy is the exception but then I look at a chart of the dollar index and can only conclude the Fed is just as clueless. Keep repeating yourself Scott, but I fear you are just banging your head against a brick wall.

  7. Gravatar of Joe Joe
    30. August 2010 at 11:56

    Professor Sumner,

    You note how Delong referenced you on this matter….

    Well, I point you to… http://delong.typepad.com/sdj/2010/08/first-draft-of-september-8-principles-of-economics-lecture-financial-markets-and-depression-economics.html

    Right at the last paragraph he says…
    “Unfortunately for me, the past three years have been overwhelmingly a “Minskyite” downturn. There has been no general shortage of liquid cash money–interest rates on safe alternative assets like short-term U.S. Treasury bonds have remained low. If we were in a primarily “monetarist” downturn with a cash shortage those interest rates would have skyrocketed, as they did in the early 1980s.”

    Look for Nick Rowe’s critique of this in the commentaries.

  8. Gravatar of Cameron Cameron
    30. August 2010 at 12:11

    I was going to share another article from bloomberg written by someone who didn’t understand monetary policy or bernanke’s speech(it claimed bernanke was trying to say he was out of ammo and wanted more fiscal stimulus…)but I can’t find it anymore.

    Instead I found this surprisingly good article on the subject. Bloomberg readers presumably sent angry emails advocating NGDP targeting and got the article pulled :p. Here it is.


  9. Gravatar of Lorenzo from Oz Lorenzo from Oz
    30. August 2010 at 12:24

    Morgan: there are always things people could spend money on. Playing with a sub-set of a specific type of asset is hardly going to change the current price of money/the price of future use of money nearly as effectively changing expectations about money in general.

    As for stickiness, even if housing was the only sticky price (no government prices are sticky, for example? no prices are set by contracts with terms?) there would still be sticky wages.

  10. Gravatar of Benjamin Cole Benjamin Cole
    30. August 2010 at 12:32

    Stay on point, and pound the point home–a key to PR (or propaganda–the Big Lie repeated often enough becomes true).

    Scott Sumner, you should enter Stage 2–propose concrete examples of what is needed in monetary policy, or even a unified battle plan. $40 billion monthly in QE until we seem some results? Twinned to Blinder’s proposal?

    Lay out a simple, easy-to-understand monetary battle plan, and get it on the table, so to speak.

    You have one huge advantage: The Fed prefers to mumble, when it speaks. They think that is sophisticated. (It does allow them to hedge their bets, and obfusaction-mysticism is in every Shaman’s tool-kit).

    But it leaves the floor wide-open for Scoot Sumner. If you propose a unified monetary policy battle plan, it has no competition in the space. The Fed is mumbling, so no one even knows if they have a plan. If you can get people talking about your concrete plan—man, that would be huge.

    I say go for it.

  11. Gravatar of Indy Indy
    30. August 2010 at 12:46

    Hmmm, the last post didn’t work for some reason, I’ll try again, Inflation is Sticky?

  12. Gravatar of Lorenzo from Oz Lorenzo from Oz
    30. August 2010 at 12:59

    Repetition is necessary, particularly when there are still inflation/hyperinflation doomsters out there: full professors and all.

  13. Gravatar of ssumner ssumner
    30. August 2010 at 15:01

    Doc Merlin, I agree.

    JimP, Thanks, you’ve been helping me from the beginning.

    William, Yes, and the scary thing is it’s all true. All one’s worst attributes get spread all over the blogosphere for all to see. Well . . . nobody’s perfect. And at least I don’t . . . nevermind.

    Morgan, I will do a new post soon on how to get those higher rates we need, the right way.

    Greg, Yes, but I think they are pretty good monetary economists even apart from their situation. But I grant you that painful experience is a good teacher.

    Joe, Calhoun, And the number one money textbook says it’s a myth that low rates mean easy money. But I guess no one reads the books they teach out of.

    Thanks Joe, That sounds flat out wrong. I’ll have a look.

    Cameron, Thanks. David Beckworth also sent that to me. it’s a pretty good article, compared to most of what’s out there.

    Lorenzo, That’s right.

    Benjamin, Thanks, I just may take your advice.

    Thanks Indy, I think Krugman’s basically right there, although I’m not used to using that graph, so I’ll have to think about it.

    Lorenzo, Yes Kotlikoff is a gloom and doom guy. It is possible that deficits could eventually force hyperinflation, but I greatly doubt it.

  14. Gravatar of Morgan Warstler Morgan Warstler
    30. August 2010 at 15:58

    Scott, I’d prefer you actually explain WHY my method isn’t correct.

    And also finally answer this:

    If there is a single world currency (or multiple currencies can be used basically everywhere), is there any such thing as Macroeconomics?

  15. Gravatar of Morgan Warstler Morgan Warstler
    30. August 2010 at 15:58

    Scott, I’d prefer you actually explain WHY my method isn’t correct.

    And also finally answer this:

    If there is a single world currency (or multiple currencies can be used basically everywhere), is there any such thing as Macroeconomics?

  16. Gravatar of scott sumner scott sumner
    30. August 2010 at 16:09

    Morgan, I am running out of things to say. I’ve never said all your ideas are wrong. Yes, let’s stop propping up real estate. What more do you want me to say? But I have my own agenda which is getting more NGDP.

    I answered he currency question in my next post. But yes, there is still macro. What determines the value of that currency? That’s macro.

  17. Gravatar of Morgan Warstler Morgan Warstler
    30. August 2010 at 16:49

    Scott, what is the sound of 6M homes being liquidated in $1 auctions to guys who can put down 40%?

    Whoosh! Interest rates going up.

    If you are in favor of mark-to-market, why is anything else necessary? 6M homes would more than DOUBLE what is expected to sell this year.

  18. Gravatar of scott sumner scott sumner
    1. September 2010 at 05:35

    Morgan, Homes don’t matter, NGDP does. Repeat after me . . .

    I don’t care about homes, or toasters either.

  19. Gravatar of W. Peden W. Peden
    2. September 2010 at 07:54

    Greg Ransom,

    We can blame Churchill for that one. Of course, going back to the Gold Standard itself wasn’t a bad idea, based on what people knew at the time, but it was a big mistake to go on to the Gold Standard at the pre-war parity.

    Incidentally, the UK Treasury apparently studied the experience of several countries during the 1930s, in response to the recent crisis. They found that the British recovery was the best and was notably better than the American recovery (such as it was). One civil servant explained the relevant difference (Roosevelt’s New Deal is still idolised in Britain) in the old adage that “there is a difference between work and activity”.

    I remember reading one history book that claimed that it was rearmament that brought Britain out of depression, but that doesn’t correlate well with the fact that Britain was well on the road to recovery in 1932-1933 and was back on track by 1934. The British crises in the 1920s and 1930s were monetary crises; they needed a monetary solution. David Cameron said much the same thing about the current crisis: a credit crunch requires a credit solution.

    The basic problem of deflation and low inflation has been conquered in Britain. The danger now seems to be that the absence of a vigorous world recovery, combined with structural problems in the UK economy (e.g. there are a lot of regionally-concentrated public sector jobs that are unsustainable given the government’s strategy of keeping interest rates low by getting the deficit under control) will stifle the UK recovery and lead to a period of stagnant growth.

    There seems to have been a similar problem in 1982: the UK economy came out of recession after the unfairly maligned 1981 budget, but a deep recession in the US and a badly performing world economy kept GDP growth at about 2% in 1982. The economy only recovered into serious growth in 1983, held back a bit in 1984 due to the Miners’ Strike, doing well in 1985 with a weak pound making exporting to the US (where the dollar was in a period of rising strength) and with net unemployment not falling until 1986.

    The Treasury/BoE strategy seems to be to keep inflation up, get the deficit low in order to safeguard interest rates, and to stimulate a private-sector led recovery by cutting corporation tax and taxes on employment.

  20. Gravatar of scott sumner scott sumner
    3. September 2010 at 06:19

    W. Peden, Those are good points.

  21. Gravatar of Mr. E Mr. E
    6. September 2010 at 05:38

    I don’t mind the repetition.

    The reason republicans have been much more successful in getting their ideas across to the public than democrats is because they repeat them over and over. Liberals will only say things once or twice, but you have Kudlow on CNBC saying the same things over and over for a decade at at time.

    Your ideas are worthy of repetition – keep it up. I disagree with much of what you say, because I think that Chartalism is a simpler tool to get the same results. However, implementing your ideas would be a vast improvement over the status quo. Additionally, the critiques of Krugman and Delong are good and “honest” public intellectual debate.

    There is a reason why Krugman keeps mentioning you – and it isn’t because you are a clown. He does you much more benefit by mentioning you than by ignoring you, and he undoubtedly knows this. He likes sparring with you because you are smart, fair, and have a series of good points.

  22. Gravatar of ssumner ssumner
    6. September 2010 at 10:22

    Mr. E. I was about to joke that I didn’t know the Republicans had any ideas, but seriously, I see your point.

    I think the Republicans have strong ideas on abortion terrorism, etc, but their economic message is kind of garbled–small government in theory, but even domestic programs expanded under Bush. So there is a problem there. Those outside of government like Kudlow are freer to hammer home a consistent message–low taxes in his case.

    I appreciate the support.

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