With friends like these . . .
Here’s Steve Hanke in the National Review:
President Trump has no more knowledge of monetary policy than he does of nuclear physics. Nevertheless, he has been ahead of the curve in pushing for easier monetary policy over the last few years, and the Fed has been behind the curve in implementing it. The Fed’s recent revision of its monetary-policy strategy is an indirect admission of its shortcomings. It pains the professionals to admit that an amateur has been right more often than they have. If it’s any consolation, Trump’s naïve view has coincided with the far more thoroughly considered views of the small group of “market monetarist” economists. My view of Shelton’s statements is not that she has changed her views in response to pressure from the White House, but that she has come to a greater appreciation of market monetarist-type reasoning.
So Trump should nominate David Beckworth.
I do appreciate that Steve Hanke saying nice things about market monetarists, but I hope readers don’t associate us with the monetary policy views of Donald Trump. Market monetarists believe that interest rates should be set at a level expected to lead to stable NGDP growth. Trump’s view is that the Fed should raise interest rates when Democrats are in power (even if unemployment is high) and cut them when Donald Trump is in power (even if unemployment is very low.) Those are two radically different views of monetary policy. Trump is not a market monetarist.
I have no idea what Judy Shelton believes, so I won’t comment.
Far too much weight is put on whether someone was “right” on one occasion. Perhaps this analogy would help. There are two clocks in the room, the Trump clock and the Powell clock. The Trump clock is broken, stuck at 11.37am. The Powell clock is working but runs two minutes slow. A person enters the room at exactly 11:37am and announces that the Trump clock is more accurate. There’s a sense in which that’s true, but it’s also a sense with utterly no implications going forward.
PS. As usual, my good post today is at Econlog.
HT: Sam Bell
Tags:
9. September 2020 at 09:10
Perhaps Donald Trump will be awarded not only the Nobel Prize in Economics for his advocacy of proper monetary policy, but the Nobel Peace Prize.
https://www.foxnews.com/politics/trump-nominated-for-nobel-peace-prize-by-norwegian-official
The Norwegian official cites the Israel-UAE deal.
Linus Pauling is the only other person I can think of that won two Nobel prizes, and he did not win them in the same year.
9. September 2020 at 10:10
Anyone who ends the Israeli/UAE War certainly deserves the Peace Prize.
9. September 2020 at 10:24
ssumner says:
Israel/UAE relations have been decent for a long time. Their relations improved further from 2010. In 2015, Israel even opened a diplomatic mission in Abu Dhabi. So President Obama should get the Nobel prize for this accompli…Oh wait, I see what you did there.
9. September 2020 at 10:47
Raj, Yeah, I was being sarcastic.
9. September 2020 at 11:33
The watch analogy is wrong, he has had this attitude for years, not just at a certain minute. If you really want to take the time-of-the-day analogy, then he has been right for most of the day by now, well over half of it, maybe even 3/4 or 4/5, interrupted only by a politically motivated episode, during his election campaign.
He always looks at the stock markets, he thinks this is the home of the gods, just as the sun was once thought to be a deity, that’s how he determines his time, his background ideas are wrong, but at least he looks at a pretty sufficient clock. Most politicians don’t even look at a clock.
The Fed analogy is quite nice, but cynically speaking, by that analogy and in reality, they are never on time.
Plenty have received the price for much less. I would definitely give Israeli and Arab politicians the price. Including Trump would be politically incorrect but considering that Obama got the Nobel Prize for nothing, Trump is probably the next ideal candidate.
Not to mention that the breakthrough is bigger than it seems. So far there has been a pretty unified front of the Arab world in its hatred against Israel. This pattern has now been officially broken for the first time. This is a huge deal.
Obama can also be given “credit” for this, but exactly contrary to what Rajat implies. Obama drove quite some Gulf states and Israel mad with his ignorant Iran deal, so much in fact, that they decided to act together with all their strength against the Obama policy.
9. September 2020 at 15:26
There is a good book by Annie Duke (“Thinking in Bets”) that spends a lot of time tearing down our tendency to judge decisions based on the outcomes. And she lays out a great case for focusing on the decision maker’s process.
9. September 2020 at 17:07
Sumner: “I have no idea what Judy Shelton believes, so I won’t comment” – why? Just Google it. Or is Sumner afraid to praise a gold bug?
Bonus trivia: going off gold did not stop the Great Depression–Argentina cut the gold in their peso around 1929 and it did not stop their spiral downward–rather, it was radio and FDR’s fireside chats, which coincided with the 1933/4 FDR decision to devalue the gold dollar. Coincidence? Not. Call it the Midas Paradox…
9. September 2020 at 18:50
No, as soon as Trump advocated a looser money policy, the demand for money turned south.
Link in 2017 – Brad Delong’s “Rethink 2%”
http://bit.ly/2s67De9
Any shift by investors into member commercial bank certificates of deposits, bank-held CDs (“finding the highest rate for the longest term”) is contractionary. Any shift represents a transfer from existing deposits.
As Dr. Philip George points out:
(1) “When interest rates go up, flows into savings and time deposits increase.”
Thus, N-gDp level targeting was denigrated in 2018.
9. September 2020 at 18:55
Scott Sumner re: “For comparison, during the recovery from the 2008-09 recession it took an entire decade for the unemployment rate to fall 6.5 points”
Ben Bernanke not only destroyed the asset sides of the nonbanks’ balance sheets (turning RMBS and CMBS asset prices “upside down” or “underwater”, i.e., Bernanke was responsible for producing massive negative equity), he also purged all of their short-term liabilities used for funding these impaired assets on the other side of the NBFI’s balance sheets (by paying a higher rate on interbank demand deposits than those whole-sale rates available on money market funding vehicles).
I.e., by 2011 the remuneration on IBDDs exceeded all short-term funding for clear up to two entire years out. I.e., with a policy rate that inverted the short-end segment of the retail and wholesale funding rates, shadow banking funding was either completely wiped out or the original funding spreads were made unprofitable.
It’s little wonder the housing market didn’t lead the economy out of the GFC.
https://www.corelogic.com/blog/2019/03/housing-recessions-and-recoveries.aspx
9. September 2020 at 18:55
Christian, You said:
“The watch analogy is wrong, he has had this attitude for years”
Yeah, the “years” he happens to have been president!
I’d just abolish the Peace Prize, and also the Academy Awards. They are both a farce.
Bill, I agree.
Ray, Her views seem to change over time, so how do I know what her actual views are?
9. September 2020 at 19:18
re: “with friends like these”
That applies to POWELL. He did everything but lower the remuneration rate to zero – which is the only thing he should have done.
9. September 2020 at 21:01
https://www.businessinsider.com/trump-called-mike-flynn-about-us-dollar-at-3-am-2017-2 hey remember this story that got largely swept under the rug because trump was probably doing something else more visibly stupid that week?
10. September 2020 at 05:06
“Market monetarists believe that interest rates should be set at a level expected to lead to stable NGDP growth.”
Scott, do you believe interest rates should be “set”? My understanding of your belief is that NGDP should be targeted, so that the level of interest rates is one of the outcomes of the policy, rather than one of the inputs. Do I have this wrong?
Not trolling, honest question seeking understanding.
P.S. Matt Yglesias on the Convesations With Tyler released yesterday said how mainstream media is increasingly referencing Nominal GDP targeting. Keep up the fight – eyes on the prize!
10. September 2020 at 07:29
Scott—you have to admit it is pretty funny—-the president you hate the most is given backhanded credit—-and it really is a compliment—although Hanks does not want to say it too directly. And Trump has been as consistent as you—–even with a zero iq, it seems like its more than mere coincidence. Right for the wrong reason happens all the time—-yet—-maybe as a guy who was in business during tight money times—has some clue.
I don’t want to go to heavy on this—I just find it amusing—-
10. September 2020 at 08:54
Todd, I meant set by the market, not the Fed.
Michael, You said:
“And Trump has been as consistent as you—–even with a zero iq, it seems like its more than mere coincidence.”
No he’s been wildly inconsistent. Do you not know how to read?
11. September 2020 at 07:52
your standard argument against what I say is “I don’t know how to read” I will begin to feel like Brando in Viva Zapata pretty soon. It seems I was saying what Hanke said–as a joke if that was not obvious–yet still what Hanke said.
11. September 2020 at 08:09
Making the same mistake as Hanke doesn’t make you right, and Hanke did not have the benefit of my correction. You did, and still got it wrong.