Ask me anything!
Tomorrow at 1pm EST, I am scheduled to do a Reddit, “ask me anything”. I don’t know much about this concept, but I guess I will find out tomorrow. The following is the information provided to potential Reddit participants:
I am Scott Sumner: monetary economist, blogger at Money Illusion, and author of The Midas Paradox, a book advancing a bold new explanation of what caused the Great Depression. AMA
I am the director of the Mercatus Center’s monetary policy program and a professor at Bentley University. I write about monetary policy, the gold standard, the Fed, and nominal GDP targeting—one of the reasons The Atlantic wrote that I was “The Blogger Who Saved the Economy.” My life’s work is captured in the new book published by the Independent Institute The Midas Paradox: Financial Markets, Government Policy, and the Great Depression, which Tyler Cowen called “one of the best on the economics of the Great Depression ever written.” In short, I explain why the current narrative of the Great Depression of the 1930s is wrong, why there are startling similarities to the crisis of the 2000s, and why we are doomed to repeat previous mistakes if we fail to understand the role of central banks and other non-monetary causes. I blog at The Money Illusion and EconLog.
I’m here to answer any questions on economic crises, my NGDP targeting work, the Fed, gold standard, and other economic questions you may have.
I hope it’s obvious I didn’t write that part about saving the economy. 🙂
Tags:
22. February 2016 at 10:46
You’ll get a lot of comments, some informed and some ill informed. Comments are ‘up-voted’ by readers and the most popular ones end up at the top. What time zone is the 1pm based on? I’d like to check in on the fun economic action.
22. February 2016 at 11:24
OT – The “expectations fairy” is a fudge factor that implicitly acknowledges the economy is non-linear. Note that the US Great Depression economy improved before Roosevelt’s policies could be implemented (such as leaving the Managed Gold Standard in Jan 1934).
Ergo, you either have to invoke the metaphysical “expectations fairy” to square this circle, or, more logically and in accord with Okham’s Razor, conclude that economies are non-linear and “stuff happens that can’t really be predicted”. Sumner prefers the former, I prefer the latter, but it’s all a matter of taste. There’s no real, testable hypothesis. Hence it’s pretty much unscientific.
Question for Sumner: do you believe in the Expectations Fairy?
RL
http://www.economist.com/node/21693216/print
In a paper published in 1990 Peter Temin, of the Massachusetts Institute of Technology, and Barrie Wigmore, of Goldman Sachs, argued that Mr Sargent’s regime-change hypothesis might just as easily apply in reverse to an economy stuck in a slump. They analysed the American economy in the 1930s. Franklin Roosevelt’s programme of expansion—which included a departure from the gold standard, devaluation of the dollar, and a boost to government spending—was instrumental in bringing America out of depression, they allowed. But the turnaround in America’s fortunes occurred remarkably quickly, before those policies had time to work. As Christina Romer, an economist at the University of California, Berkeley, noted in 2013, the change in expectations in America happened almost immediately on Roosevelt’s arrival. Equity prices jumped by 70% between March 1933 and June of that year. An analysis of market expectations of inflation concluded that traders anticipated deflation of 7% at the beginning of 1933, but inflation of 6% by the end of the year.
22. February 2016 at 11:32
https://www.reddit.com/r/IAmA/comments/t1ygb/iama_nobel_prizewinning_economist_and_new_york
…what to expect…
22. February 2016 at 11:39
Thanks Jonathon and jknarr, It’s 1pm EST.
And so Ray thinks FDR’s policies began in 1934. Nothing about the famous “first 100 days”?
Yes, I believe in fairies.
22. February 2016 at 11:41
Sorry, Scott, I am available only from ~2:25 EST.
22. February 2016 at 12:23
Doves and hawks: an imagined discussion.
http://blogs.ft.com/gavyndavies/2016/02/21/splits-in-the-keynesian-camp-a-galilean-dialogue/
22. February 2016 at 12:58
Money financed helicopter drops – I understand why it’s a bad idea perfectly. Erm, but… my cousin, who is slow to incorporate ideas into his general knowledge, doesn’t get it. Also, my cousin (who again, not too bright) won’t be available to ask it of Scott in the AMA. So if someone could ask the question why “People’s QE” is a bad idea, I’d really appreciate it.
I mean my cousin! My cousin would really appreciate it!
22. February 2016 at 13:10
From a few casual readings, my guess is that many who post there are economics students, with some graduate students, or recent grads. Some are good, some not so good. “Integrald” (or something like that) is one of the very good ones.
22. February 2016 at 13:12
On the other hand, that’s the economics reddit. You might get anyone.
22. February 2016 at 14:10
David Zetland whose blog is aguanomics.com did a Reddit AMA back in 2014 and he felt it went well:
http://www.aguanomics.com/2014/11/some-thoughts-on-my-reddit-ama.html
Though I suspect that discussing the economics of water is far less divisive than discussing monetary and macro economics.
22. February 2016 at 14:35
Everyone, Thanks for that info.
22. February 2016 at 15:38
Kudos on saving the economy!
22. February 2016 at 16:38
I follow reddit, but I don’t think I have any questions that I haven’t already asked you.
You might want to post the link to it when you’re done.
22. February 2016 at 16:41
He will save the economy only if the stimulus using excess reserves goes into production, not simply the bidding up of assets. Scott, I know you box me around, but I must say, that nice guy at the Fed, Stephen Williamson, scares the hell out of me way more than you. He went to Switzerland where deflation doesn’t seem to be a concern, as he said on his blog.
But doesn’t Switzerland just make loans and watches and snow? They don’t care how strong their currency is. But what about all the regular folks, like Americans?
I asked him if the Fed caused deflation on purpose. He didn’t answer that question directly. Beware of the New Monetarists. They are tight with Janet Yellen, IMO.
22. February 2016 at 17:17
How about, “How did you become such a big Fed weenie-gobbler?”
22. February 2016 at 20:33
@Sumner – so, you think FDR’s “First 100 Days” in 1933 (https://en.wikipedia.org/wiki/First_100_days_of_Franklin_D._Roosevelt's_presidency) saved the USA from the Great Depression, or going off the Managed Gold Standard in 1934?
I thought your book thesis was stuff like the NRA, CCC, etc, the subject matter of FDR’s “1st 100 Days” was what prolonged the Great Depression (GD)(an idea I find I agree with, though I doubt you have stats to back it up), while going off the Managed Gold Standard is what stopped the GD in 1934?
In defense of your claims, see: http://www.encyclopedia.com/topic/Gold_Reserve_Act_of_1934.aspx (where FDR de facto signaled an end to the Managed Gold Standard in March 10, 1933 by essentially prohibiting private gold/silver withdrawals from banks).
However, note that UK, Germany, Argentina, Hungary and Japan all went off the Managed Gold Standard well before Jan 1934, when the USA went off it, and it did NOT help their economies much (see: https://en.wikipedia.org/wiki/Gold_standard#/media/File:Graph_charting_income_per_capita_throughout_the_Great_Depression.svg) (Also note the countries after 1934, like Belgium, where going off gold had no real effect).
Only when the USA went off the Gold Standard did it help the USA, and, thereafter, the world.
So your thesis is this: the USA, by going off gold (de facto) in March 1933, and (de jure) in Jan 1934, gave a boost of confidence to the world, especially since trade was such a tiny part of World GDP at the time, and this shot of confidence lifted, via the Expectations Fairy, Aggr Demand worldwide. Is that it? And from this singular example we are to believe targeting NGDP works, especially when you say the Fed should “keep printing money” if NGDP does not respond to Fed stimulus?
You don’t need Reddit, you need a psychiatrist.
22. February 2016 at 20:42
For once Ray Lopez gets it right.
22. February 2016 at 21:10
Ray, Crusher, you’re all ignoramuses who would have been banned at Against Jebel al-Lawz for your willful disregard for the facts. The U.S. willfully went off gold in April 1933, which was what mattered.
23. February 2016 at 01:10
Negative interest rates can solve financial crises forever, at least if you don’t allow them to go positive again, and let the currency rise in value instead of allowing interest on loans (negative interest rates coincide with deflation, so that isn’t a problem).
Compound interest is infinite and this can become a serious problem. When loans are made, they carry interest, but the money to pay the interest from doesn’t exist, so that it often has to be loaned into existence. Lenders may spend the interest and borrowers may default so that it doesn’t always happen, but on aggregate this is correct. This makes the financial system unstable. A financial crisis means that interest on debts cannot be repaid on a large scale.
The basic idea of capitalism is to finance growth by credit. To pay for the interest on existing debts, growth is needed, and to create growth, more debt is needed. If no one is willing to go further into debt, the capitalist system can run into serious trouble, and an economic depression could ensue. For that reason, economists like Keynes advised governments to go further into debt when no one else is willing to.
Central banks try to manage this system of debt and interest. Interest on loans is the primary reason why central banks are needed. Central bankers constantly deliberate how much new money must be created and at what interest rate to keep the economy on track, so that the system will not implode because of deflation caused by debt defaults or explode because of inflation caused by too many new loans.
The problem with any managed system is moral hazard. Because there is interest on loans, the financial system requires management. But interest is also a reward for risk, so managing the system and allowing interest, produces moral hazard. Financial institutions can engage in the quest for yield, and thereby destabilising the financial system, and count on central banks to solve any problems that come from it.
23. February 2016 at 03:57
I won’t be able to participate, the but question I have is why people worry about the “lower bound” when it seems like it would be easy to buy some our almost limited government debt and retire that as a way to inject money into the economy. What was the problem with QE?
23. February 2016 at 04:17
Ray, That’s all wrong, The US devalued in April 1933, and returned to the gold stand in 1934. It never ceases to amaze me how you can be wrong about everything.
And so Crusher agrees with Ray, morons of a feather . . .
Mark, Good question. There is no problem with QE, central banks are not trying to inflate, that’s the problem. People don’t seem to have noticed that the Fed just raised rates to REDUCE inflation. They keep writing articles wringing their hands at the Fed’s inability to inflate. THEY AREN’T TRYING TO INFLATE. It’s almost comical.
23. February 2016 at 05:59
@Sumner – it’s understood that a devaluation of the gold dollar is the same as ‘going off the Gold Standard” – nobody is claiming that FDR did a Nixon back then. (Wikipedia: “Congress passed the Gold Reserve Act on 30 January 1934; the measure nationalized all gold by ordering Federal Reserve banks to turn over their supply to the U.S. Treasury. In return the banks received gold certificates to be used as reserves against deposits and Federal Reserve notes. The act also authorized the president to devalue the gold dollar. Under this authority the president, on 31 January 1934, changed the value of the dollar from $20.67 to the troy ounce to $35 to the troy ounce, a devaluation of over 40%”)
Further, see this note by Alan Greenspan on UK leaving the gold standard in 1931. Doing so destroyed world confidence and created banking panics. Hence leaving gold arguably was –if you believe in money non-neutrality, which I don’t–the cause of the Great Depression. The “confidence fairy” cuts both ways. (Gold and Economic Freedom by Alan Greenspan 1966 “Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures.”)
23. February 2016 at 06:49
Reddit’s general “Ask me Anything” subforum has a very, very general audience. While you will receive some questions asked by specializes (some of the economic specialists are organizing to not duplicate questions from their group), you’ll receive far more questions from a completely lay audience.
In short: most of your audience will not understand conventional economic wisdom that the Fed sets aggregate demand. If you can get to the idea of monetary offset, you’ll have done an excellent job.
(To put it in a more succinct way: the median favourite presidential candidate on Reddit is Bernie Sanders.)
23. February 2016 at 08:23
I am ready. (AM1:20 JST)
:?::mrgreen::!:
23. February 2016 at 09:03
ChacoKevy
22. February 2016 at 12:58
Money financed helicopter drops question.
Chaco: I have seen SS answer this question a couple times. I will paraphrase what I remember his answer to be:
Bascially says it doesn’t matter how it is done….as long as the quantity of dollars is correct. He says the Cantillon stuff
https://en.wikipedia.org/wiki/Richard_Cantillon
is not to be worried about. The implication is that if you think the current setup of running QE through primary dealers and information gathering via secret phonecalls between bank CEOs and the Fed is something that allows for unfair advantages by certain groups at the expense of other groups then you are a conzpiracy nut.
So since it doesn’t make a difference how it is done then we should continue doing it the good ole boy way or else you are just paranoid AND a worrywort….but relax in spite of mass incompetence and eviudence that the central bank is actively trying to cause deflation….in reality the Fed has your(and all little poeple’s) best interest at heart and Lloyd Blankfein, JP Morgan and Warren Buffet get no unfair knowledge or competitive advantages under the current system
23. February 2016 at 12:49
Scott,
I’d love to get your thoughts on this:
http://economicsone.com/2016/02/22/a-firm-conclusion-about-the-role-of-fed-leading-up-to-the-crisis/
Don’t make me query your blog for all your old references to Taylor — I want some fresh thoughts 🙂
23. February 2016 at 15:12
Since you said we could ask questions over here, I’m having trouble grasping the mechanics of the gold standard. This could be a dumb question, but when there is an increased demand for gold, and the nominal price of gold is fixed, I understand that in order for the purchasing power of gold to increase, there has to be deflation. But what exactly is the mechanism leading to falling prices? Does the banking system necessarily have to contract the amount of currency — I’m not seeing the connection there.
23. February 2016 at 17:39
Gabe really nails Scott. Scott is truly an apologist for power. The really pathetic thing is, he’s far too dumb for any self-respecting insider to want as a minion/lackey, so he’s just reduced to the role of a loser (to say nothing of his idiot fan-boys). Plus he likes to give Yellen hairy lollipops:
http://www.urbandictionary.com/define.php?term=hairy+lollipop
23. February 2016 at 18:10
I’ve got another one: Why is it “obvious” that the Fed could increase inflation if it wanted to?
23. February 2016 at 18:11
E. Harding, no one cares about your dick-wad anti-Tyler Cowen site.
23. February 2016 at 20:09
No; the dick-wad anti-Tyler Cowen site is the Marginal Counterrevolution, where willful ignoramuses like you can comment freely. Against Jebel al-Lawz is my older and less current-eventsy blog.
23. February 2016 at 20:40
Well, both of your blogs suck.
23. February 2016 at 20:57
I’ll look at these in a few days when I get home.
23. February 2016 at 23:47
Crusher:
When you finish inspecting your colon you might want to read up on the cantillon effect.
Then you might realize that Gabe and you are accusing Scott of cheering on the Fed to inflate and deflate at the same time.
24. February 2016 at 04:12
Wow, first E.Hardly and now Shmebulock, the catlover….Scott I know you have a libertarian bias…but obviously this is an attempt to just disturb the conversation..you really need to do some editting…I thought I left this stuff behind in high school…
24. February 2016 at 10:38
I am not cheering on either course of action. In general I like Scott’s logic on a lot of this stuff.
24. February 2016 at 10:40
I am just a bit more skeptical about the motives of the Federal Reserve and the ability for insiders to benefit from the current system than others.
24. February 2016 at 11:34
Everyone, After seven years I banned my first commenter today.
It was a step I wish I could have avoided, but one doesn’t get to choose one’s commenters. Many more deserve banning, so don’t push me.
Typed on my new iPhone, will get to comments when I return home tomorrow.
24. February 2016 at 11:45
“Everyone, After seven years I banned my first commenter today.”
-Though I think Crusher and Ray are both horrible people to have around, and I thoroughly support ignoring Gary Anderson, I completely disapprove of this action.
“Many more deserve banning”
-“Many”? Ray might, I agree, and I’m not a fan of Gary’s comments, but that’s just two people. If you include Freedom, Dan, and me, that gets up to five.
24. February 2016 at 13:43
Scott really should ban commenters rather than calling them “morons.” (Really, the problem arises specifically with *aggressive, long-winded* morons.)
24. February 2016 at 14:47
@ChacoKevy
People’s QE, PQE, would mean giving away money for free. Worthless money. Money has to be sold for an asset so that money has value. And so the fed buys financial assets with the new money.
24. February 2016 at 15:05
Sumner: “Everyone, After seven years I banned my first commenter today.” – oops, I’m still here!? No, it must be Crusher if this post goes through.
I always assumed the reason I was not banned already, like I am by Krugman’s staff, the people at Econlog, Mises Institute, and the lard (posing as an economist) as Brad DeLong, and several smaller sites the names escape me, was that Sumner was technologically illiterate, and he couldn’t figure out how to ban me. Maybe I was wrong for once and Sumner really likes me?
24. February 2016 at 15:11
“that Sumner was technologically illiterate”
-There is some evidence of this (e.g., no evident knowledge of https or Tor, refusal to get my comments out of the spam filter), but Sumner is a very smart guy, and has clearly been capable of learning about technology when the push comes to a shove (e.g., removing pagination, starting to blog).
Sumner does not like you, and neither do I, as you are technologically illiterate as well.
24. February 2016 at 18:21
I wasn’t able to ask this on reddit as I was busy, these would have been my questions:
Prof Sumner,
1. You’ve spoken favorably of the free state project, I have two inter-related questions about this. First, the idea that 20,000 activists of any stripe moving to an area can meaningfully impact the politics of that state seems fatal to the idea that libertarianism can persist anywhere at all. Considering that the number of non-libertarians and anti-libertarians vastly outnumbers the number of libertarians, (both within the united states and even moreso in the OECD and *even moreso* outside the OECD) How many non libertarians moving to a state do you imagine are capable of doing precisely the opposite of what the free staters intend to do.
As an example, It’s been said anecdotally said that many people from Massachusetts flee their home state for New Hampshire only to vote for the exact same things that they didn’t want to pay for originally. It seems to me like legal, moral, and fiscal institutions are club goods which can only have their value maintained by paying members if they are excludable.
2. People tend to strongly associate deflation with economic recessions. Suppose a central bank decides to engage in NGDP targeting but only opts for a 2% NGDP target as opposed to something above it’s current inflation target. Does the association between deflation and recession *force* higher NGDP targets then would otherwise be necessary if stable NGDP growth is all that is required to avoid demand-side recessions?
3. A more theoretical question. I assume from reading your blog posts (Though I’ve only read them regularly for a few months) that you view MM as less interventionist than the current regime because NGDP targeting would ideally involve targeting some market-based index as opposed to committee decisions or home-grown models. Yet to others it is still seen by others as more interventionist in the sense that targeting a futures market could actually involve greater levels of “money creation” then a discretionary central bank would be willing to perform. (if the situation called for it) My final question is as follows, is it possible to have a legal regime where the market to conducts monetary policy on itself without the existence of a central bank?
24. February 2016 at 18:43
From an e-mail I received:
“Hopefully the victory of Ted Cruz in Iowa last week will shed some welcome light on another of the seriously bad men in the running for the Republican nomination, who until now has been eclipsed by the sheer mesmerising awfulness of Donald Trump. Cruz ticks all the boxes: climate- change denier, death-penalty enthusiast, opponent of even the most minimal gun control. After the recent nuclear deal with Iran, he described President Obama as ‘one of the world’s leading financiers of radical Islamic terrorism’. He managed to include a reference to the Nazis in his unrelenting opposition to the Affordable Care Act.
Needless to say, Cruz is in close touch with God, who features regularly in his campaign speeches: ‘I believe that this will be a religious liberty election.’ ‘My prayer is… that the body of Christ rise up to pull America back from the abyss.’ ‘Through prayer the Lord has changed my life.’ And so on. If it comes down to a choice between Ted Cruz and Donald Trump, which please God (this God stuff is catching) it won’t, give me Trump any day.”
–30–
So my question for Scott Sumner: Really? You say Trump is the worst of the lot? Are you sure?
And if Trump is a demagogue, what do you call Cruz when he defines Obama as a leading financier of Islamic terrorism?
And isn’t Cruz’ wearing of religion on his sleeve, and defining his candidacy as a divine enterprise…well, nuts and demagoguery?
24. February 2016 at 19:58
Benjamin,
Do you prefer GWB or Franco?
24. February 2016 at 21:31
“And if Trump is a demagogue, what do you call Cruz when he defines Obama as a leading financier of Islamic terrorism?”
-A truth-speaker? I’ve been saying this since at least 2013, when the Washington Post told us of anonymous U.S. grain deliveries to AQ-run bakeries in East Aleppo.
“And isn’t Cruz’ wearing of religion on his sleeve, and defining his candidacy as a divine enterprise…well, nuts and demagoguery?”
-It’s called “pandering to the Santorum base”. It might win him a few states, but it won’t get him the nomination.
24. February 2016 at 21:57
Gabe:
Sorry if I mischaracterized your position.
What puzzles me is why you defend the notion that the Fed is trying to help cronies via the Cantillon Effect while supporting the claim that the Fed is trying to cause deflation. The two notions are contradictory.
25. February 2016 at 00:53
Am I banned? (test)
25. February 2016 at 00:54
And if Trump is a demagogue, what do you call Cruz when he defines Obama as a leading financier of Islamic terrorism?
You mean the same Obama who was calling opponents of the Iran deal terrorists? Cruz made a cute reference the Iran deal, which did in fact give tens of billions of dollars to the world’s foremost terrorist-sponsoring state (in return for which they will probably build nuclear weapons anyway).
Cruz: Iran Deal Would Make Obama Administration ‘The World’s Leading Financier Of Radical Islamic Terrorism’
Trump, otoh, questioned both their citizenships, called Cruz a “p***sy,” and his policy on the Mideast is, literally, from his own mouth multiple times,”take their oil.” He claimed he always loudly opposed the Iraq war but in fact in public interviews in 2002 he supported it. It’s the kind of obviously false claim anyone on his staff could have vetted before it was made, but Donald just doesn’t care, he’ll say anything, and why not? His supporters don’t care either.
Supporting Trump is an emotional decision. His support says nothing good about the GOP, but while I have serious disagreements with Cruz, he’s not a halfwit con man and has some admirably minarchist principles.
25. February 2016 at 03:39
“You mean the same Obama who was calling opponents of the Iran deal terrorists?”
-What else are they? Just the fact it’s the status quo and the U.S. is doing it doesn’t mean it’s not terrorism.
“Cruz made a cute reference the Iran deal, which did in fact give tens of billions of dollars to the world’s foremost terrorist-sponsoring state (in return for which they will probably build nuclear weapons anyway).”
-TallDave, you are completely off-the-wall on Middle East policy. You reject taking Iraq and Libya’s oil, think there’s no safe spaces on Syria’s coast, and now claim Iran is the world’s foremost terrorist-sponsoring state and that they have a greater than 50% chance of building nuclear weapons. Not even the neocons themselves probably believe that.
Iran isn’t the world’s foremost terrorist-sponsoring state. Those are the United States, Pakistan, Saudi Arabia, Turkey, Qatar, and the like. Probably Saudi Arabia, because it has the most money for this stuff. Hezbollah is a political party and militia, not, for the most part, a terrorist group.
Barring more than 30% of countries going nuclear, there’s no chance Iran is building a nuclear weapon of any kind in the foreseeable future. Iran never had any serious intent to build a nuclear weapon (except possibly for the period between the end of the Iran-Iraq War and the end of the Bush administration, but I don’t know how accurate those rumors are). Admit it. You know nothing about the region. Iran has been predicted to acquire nuclear weapons every two weeks for two and a half decades.
“He claimed he always loudly opposed the Iraq war but in fact in public interviews in 2002 he supported it.”
-“Yeah, I guess so” is pretty tepid for an endorsement. And, in any case, his record on the war has been worse than Sanders’s, but much, much better than Hillary’s. And I’m sure that for Trump in 2002, as for Bernie in 1999, his support for military intervention was a purely political decision.
“but Donald just doesn’t care, he’ll say anything, and why not? His supporters don’t care either.”
-Exactly. It’s best to interpret his statements as a form of signaling, not as any representation of what actually happened.
And if we didn’t care, would our host consider saying anything just ’cause? There’s some chance he would. Incentives matter.
“Supporting Trump is an emotional decision.”
-And opposing him is?
“His support says nothing good about the GOP, but while I have serious disagreements with Cruz, he’s not a halfwit con man and has some admirably minarchist principles.”
-Cruz is definitely a halfwit con man. Trump may be constantly prevaricating, but he’s definitely not a half-wit. Cruz may have minarchist principles, but I don’t trust him to get them coherently implemented.
BTW, I wrote a 1500-word post on the Donald at the Marginal Counterrevolution titled Trump and Gravitas. Obviously, I recommend it for this situation.
25. February 2016 at 04:26
“Do you prefer GWB or Franco?”
-Franco. He was better for the economy, kept Spain out of foreign war, and defended it against all forms of anarchy and Communism. Bush was an embarrassment (though by no means the worst possible President), Obama was worse. Franco’s worst deed was probably leaving Equatorial Guinea.
25. February 2016 at 04:28
“The insiders have a stunning plan to stop Trump even if he wins the primaries.
The plan involves stalling Trump short of a majority on the first ballot, since many of the delegates pledged to him would no longer be legally bound to support him on subsequent ballots. There are many, many Trojan Horse delegates inserted by the GOP establishment who could bolt from Trump after that first ballot.”
http://stonezone.com/
25. February 2016 at 05:18
I often ponder the Franco vs. GWB question, and whether Franco in the end, and in the full sweep of history, did the right thing in Equatorial Guinea.
BTW guinea hens are really pretty birds.
25. February 2016 at 06:13
@BC – there are of course three countries with Guinea in their name, two in Africa and one in South America if memory serves. What did Franco do in Guinea? Ah, it’s a pun on “Franco-Guinean Union”, as it’s not Franco the strongman but the French.
PS–For Whom The Bell Tolls is an awesome book on Franco and one of Obama’s favorites, I agree.
PPS- I built my turkey coop today, and despite three meter high net fences the turkeys flew to the top of the area and perched on a tree, but did not leave. I’ll put a net ceiling there tomorrow. They are lovely birds, almost so lovely I would not eat them (but not quite, especially if I get a flock of them so I can’t tell one from the other).
25. February 2016 at 06:35
I have a question in regards to central-bank funded sovereign wealth fund vs helicopter money.
In the first case, the bank digitizes money and buys all kinds of assets, which are then essentially owned by the government.
In the second case, I can imagine the bank digitizing money to buy government debt, which is then given away to the people (say by a huge deficit-funded tax credit), who might very well buy assets. For the sake of argument, let’s suppose the people use all the tax-credit money to buy investable assets.
In the end, isn’t he macro effect is similar? More money and more assets in the hands of the people (either directly, or through their government).
Which is more economically efficient? Letting people decide which assets/investments/services to buy or letting the managers of the sovereign wealth fund decide?
25. February 2016 at 07:44
Does this from Miles Kimball make any sense at all;
http://blog.supplysideliberal.com/post/139954040787/higher-inflation-is-not-the-answer#disqus_thread
‘The bottom line is that we should avoid inflation in the unit of account. The interesting thing to realize is that those who are calling for higher inflation (Such as Paul Krugman, Larry Ball, Brad DeLong and the Economist) are not really calling for higher inflation in the unit of account. They are calling for higher inflation relative to paper currency. It is only if the paper dollar, or paper euro or paper yen is the unit of account that inflation relative to the unit of account and inflation relative to paper currency are the same thing. Once a central bank takes a nation off the paper standard, it is possible to have the good inflation relative to paper currency without any of the bad inflation. That is, it is possible to have “inflation” relative to paper currency without any inflation relative to an electronic unit of account. In other words, once the electronic dollar, or electronic euro or electronic yen is the unit of account, the value of that unit of account can be kept the same, while the value of a paper dollar, paper euro or paper yen is made to decline whenever necessary in order to allow negative interest rates. ‘
25. February 2016 at 07:53
E. Harding– you’re a wonderful example of the nonsensical thought processes of Trump supporters, but as I’ve said before I won’t waste my time on your ramblings.
25. February 2016 at 08:07
carl:
“Sorry if I mischaracterized your position.”
no problem…I have done worse to others in hindsight.
“What puzzles me is why you defend the notion that the Fed is trying to help cronies via the Cantillon Effect while supporting the claim that the Fed is trying to cause deflation. The two notions are contradictory.”
I don’t know exactly what the Fed is trying to do (they don’t tell the little people). But Scott makes a great point when he shows us they would have to be either:
1) morons or
2)incompetent to be raising rates
while 3) simultaneously trying to cause inflation.
while it seems some here(sorry if this is me putting words in your mouths) are firmly in the camp that the Fed governors are some mix of incompetent or morons.
I DO NOT think those PHDs are either…I think they are all smarter than me and all more competent…it is almost proven by comparing my career to theirs.
Instead I say #3 must NOT be true.
From that simple logic I can only guess what they are actually doing. From studying the history of the richest people I see they make a practice of benefiting financially and politically from crisis and sometime even manufacturing crisis to to create conditions they can take advantage of. It seems to me this is happening again…can’t tell exactly who but it is easy to point out examples from the past that are pretty suspicious.
Cantillion is a very general way of showing how certain groups benefit from new money more than others….when you look at the details of the primary dealers and read about the phone calls between Goldman and JPMorgan CEOs and the Fed it is not hard to see other more direct ways that financially sophisticated insiders can benefit from having new money created in very specific ways.
25. February 2016 at 08:24
Gosh, I’m sure glad we have the Fed to keep popping these darned asset bubbles. I dunno what I’d do with all that steady income growth anyhow…
https://finance.yahoo.com/news/feds-bullard-chances-not-high-123657858.html
25. February 2016 at 08:51
Imagine this in the US, capped at $1,000. Here, banks frankly don’t want consumer deposits; while the Feds frankly don’t want those deposits taken out as cash.
http://www.philosophyofmoney.net/legal-helicopter-drops-in-the-eurozone/
25. February 2016 at 09:42
@Patrick Sullivan,
The definition of inflation is a general rise in prices. You could call that inflation in the unit of account, but I don’t know why you’d want to, since the term “inflation” is already widely understood. We’re not going to get into the Austrian game of using different definitions of words to make intelligent argument impossible, are we?
In any case, Scott’s position as I understand it is that prices and wages are sticky. In particular, individual nominal wage changes are almost never negative. In a dynamic economy, sometimes individual and even aggregate real wages need to be adjusted downward to prevent unemployment, but that can’t happen unless there is some inflation to translate sticky nominal wages into declining real wages.
But this is only part of the argument. Scott also thinks that, since firms pay wages and all other factors of production from their nominal sales, declines in nominal GDP translate directly into declines in employment, because if you can’t lower wages, firing people is the only alternative. So Scott’s prefers targeting expected NGDP rather than targeting the expected price level. And because he thinks level targets have stronger effects on people’s expectations than growth rate targets, he prefers targeting the expected path of NGDP rather than the growth rate of NGDP.
If it’s not obvious, I think he’s right on all of this.
25. February 2016 at 10:00
OK, I just read the Miles Kimball piece Patrick Sullivan linked to above, and what he’s talking about is an as-yet imaginary electronic currency that is used as both a means of payment and the unit of account. Paper currency still exists, but the central bank varies it’s exchange rate against the electronic currency.
If you had such a scheme, the first thing that would happen is that whoever put it in place would be immediately voted out of office. A guy sells something for paper dollars and the next day the central bank tells him that his paper dollars are not worth what he thought they were worth? How popular is that going to be? Sure, you can argue that central banks have been doing exactly that in real terms on the sly by creating inflation, but coming right out and doing it in the open is just asking for the public to shut you down, and they will.
Secondly, Kimball talks a lot about the virtues of zero inflation. I used to think this way too. Inflation reduces the information carried by individual nominal prices because not all prices change at once, and because more calculations become necessary when you try doing price comparisons across time.
But Scott’s point that, empirically, individual nominal wages almost never decline showed me the error of my ways. In theory, money illusion shouldn’t happen. In reality, it does.
25. February 2016 at 11:38
Jeffrey, I don’t think the Fed should focus on housing, I’d like to see them target NGDP. A tighter monetary policy, say leading to a bit less NGDP growth, would have also meant a slightly smaller housing boom. But I doubt it would have made much difference. That’s not to say a slightly tighter monetary policy might not have been better, I just don’t see it as a major issue, as NGDP growth was not that fast for a recovery period.
25. February 2016 at 12:58
Adam, A reversal of the hot potato effect. People have to sell goods to acquire gold.
Ray, You said:
“I always assumed the reason I was not banned already, like I am by Krugman’s staff, the people at Econlog, Mises Institute, and the lard (posing as an economist) as Brad DeLong, and several smaller sites the names escape me, was that Sumner was technologically illiterate, and he couldn’t figure out how to ban me. Maybe I was wrong for once and Sumner really likes me?”
For once? And it never occurred to you that I could simple ask my tech support to ban you, if I wanted to?
Bgil, The Free State project is to serve as a demonstration project. There is no fixed number of libertarians, rather the number will increase if the ideas are seen to have been successful.
2. People should not associate deflation with recessions, they should associate falling NGDP with recessions. The pros and cons of a 2% NGDP growth rate are discussed elsewhere, I favor a bit higher rate, as I’d like to avoid the zero lower bounds of both nominal interest rates and wage increases. Neither is a rigid lower bound, but they do cause problems.
3. Many of the critics you describe are conservatives, who don’t even understand that their proposals would often involve much more money creation. Thus a stable price level target (favorite idea of conservatives) might lead to a Fed balance sheet of 60% of GDP, vs. 6% of GDP for a 5% NGDP level target.
Many of the free banking proposals are vague, and hard to evaluate. If the Bank of Canada was abolished tomorrow, the “free market solution” would probably involve Canadians voluntarily adopting the US dollar.
Ben, Demagoguery has a very specific meaning, and it isn’t “bad.”
LK, If by “macro effects” you mean NGDP growth, I agree, if you mean long run RGDP growth, then the plan that does not lead to lots of distortionary taxes is clearly better.
Patrick, Is that like the Chilean plan, with two media of account?
26. February 2016 at 08:07
Scott,
Thanks for the response — as always, you are a scholar and a gentleman!!!