Results for “nominal GDP targeting”
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Why nominal gdp targeting is an especially good idea right now

I’ve been hearing plenty of calls for a higher inflation target, perhaps four percent.  I do understand the case for this, and furthermore it is not obvious that the higher rate of inflation would bring significant social costs.

The thing is this: whether rationally or not, the American public hates higher rates of price inflation.  Perhaps they mis-sample or mis-estimate prices, or perhaps the higher prices really do erode their real wages in a way they can’t get back through a new labor market bargain.

So a higher price inflation target would mean that everybody would hate the central bank.  It would not shock me if the first thing they did was to dismantle…the higher price inflation target.

Under nominal gdp targeting, the rate of price inflation would not have to significantly rise until worse times were upon us.  That is precisely when such upward price pressures would be most useful.

How tight is monetary policy now?, and some remarks on ngdp and market monetarism

I say “not that tight,” while leaving room open for the possibility that it should be looser.

What metrics might we look at?  Federal funds futures no longer expect imminent further rate hikes from the Fed.  Expected rates of price inflation have been very close to two percent.  No matter what you think about the structural component of labor supply, cyclical unemployment has recovered a great deal over the last few years.  And that is through the period of “taper talk” of almost two years ago.  Consumer spending is doing OK, not spectacular but not cut off at the knees.  And while in very recent times price expectations are headed downwards away from two percent, this seems to stem from negative real shocks, to which the Fed has responded passively (perhaps unwisely).  That’s different than the Fed tightening.  There was a quarter point rate hike from December, which is a small tightening for sure, but I don’t see much more than that.

So in sum, those data do not suggest severe monetary tightness, though again I am open to the argument that monetary policy should be looser.

By the way, I agree with Scott Sumner that we should not equate low interest rates with loose money.  Tight and loose money are multi-dimensional, cluster concepts, especially post-2008, and require reference to a variety of variables.  And if you are wondering, from this list of Lars Christensen monetary policy indicators I accept only #2, at least in a 2016 global setting where other real economies are volatile.

Given that I don’t see monetary policy as so tight right now, I suggested that if we have a recession it was likely to be a risk premium recession.  The big uptick in gold prices is consistent with this view, though hardly proof of it.

So what is the context here?  I am worried that if the United States has a recession this year (still unlikely, in my view, but maybe 20%?), that recession will be blamed on “tight money.”

To get more specific yet, I am very much a fan of the ngdp rule approach to monetary policy, but I am uncomfortable with one strand in market monetarist thought.  I worry when low ngdp growth is blamed for low growth rates of real gdp.

Ngdp is an accounting summation, so I still want to know the real cause of the slower growth in real gdp.  Let’s unpack at the most basic level whether the active cause was Fed tightening on the nominal side, or instead a negative real shock, followed perhaps by excess Fed passivity.  That is one reason why I think of it as information-destroying to cite ngdp as a cause of developments in rgdp.

More fundamentally, if a central bank is doing anything close to price inflation targeting, mentioning low ngdp and low real gdp growth rates is simply citing the same fact twice, or almost so, rather than explaining one variable with the other.  Angus once called the ngdp invocation a tautology; I’m not sure that is the right terminology, but still I wish to look for independent, non-ngdp measures of monetary policy when deciding how to allocate the blame for a recession, to real or nominal factors.

For further context, I was disquieted by some recent Lars Christensen posts on monetary policy and the American economy.  I read him as “revving up” to blame a possible recession on tight U.S. monetary policy.  I don’t think he provides much evidence that money is tight enough to cause a recession, other than citing the deterioration of some real variables.

I would encourage market monetarists to define — now — how tight or loose monetary policy really is.  Then stick with that assessment, based on whatever variables you consulted.

A year from now, I won’t count it if you say a) “well, ngdp growth is down, money was tight, therefore real gdp growth rates fell.  Tight money must have been the problem because low rates of ngdp growth are tight money.”

I would count it if you say something like b): “the dollar shock [or some other factor] was worse than the Fed had thought.  That started to push us into recession.  The Fed should have loosened, but they didn’t, and so the slide into recession continued, when the Fed could have moderated it somewhat by pursuing an ngdp target.”  (By the way, read Gavyn Davies on the strong dollar issue.  Alternatively, here is a Marcus Nunes take which I think is citing ngdp in exactly the way I am worried about.)

I also would count it if you said “I see the Fed tightening a lot right now, a recession is likely coming,” although I might dispute your evidence for that tightening.

Here is a recent Scott Sumner post, mostly about me.  It’s basically taking the other side of what I have been arguing, and I would suggest simply disaggregating the ngdp terminology into a more causal language of nominal and real shocks.  Surely there are other independent, ex ante signs for judging the tightness of monetary policy, rather than waiting for ngdp figures to come in, which again is citing a transform of the real gdp growth rate as a way of explaining real gdp.

I find these issues come up many, many times in market monetarist writings.  I think they have basically the right policy prescription, and could provide the world with billions or maybe even trillions of dollars of value, if only policymakers would listen.  But I also think they are foisting a language of causality on the business cycle problem which the rest of economic discourse does not easily absorb, and which smushes together real and nominal shocks into a lower-information accounting variable, namely ngdp, and then elevating that variable into a not entirely deserved causal role.  We ought to talk in terms of ex ante, independent measures of monetary policy looseness, not ex post measures which closely resemble indirect transforms of real gdp itself.

That, in a nutshell is why, although I usually agree with the market monetarists on policy, and their desire to lower the status of “hard money” doctrine within liberalism, and while I have long applauded and supported their efforts, I don’t call myself a market monetarist per se.

Addendum: Nick Rowe comments.  And Marcus Nunes comments.

*The Economist* endorses ngdp targeting

…it makes sense to look beyond inflation—and to consider targeting nominal GDP (NGDP) instead…

A target for nominal GDP (or the sum of all money earned in an economy each year, before accounting for inflation) is less radical than it sounds. It was a plausible alternative when inflation targets became common in the 1990s. A target for NGDP growth (ie, growth in cash income) copes better with cheap imports, which boost growth, but depress prices, pulling today’s central banks in two directions at once. Nominal income is also more important to debtors’ economic health than either inflation or growth, because debts are fixed in cash terms. Critics fret that NGDP is hard to measure, subject to revision, and mind-bogglingly unfamiliar to the public. Yet if NGDP sounds off-putting, growth in income does not. And although inflation can be measured easily enough, central banks now rely nearly as much on estimates of labour-market “slack”, an impossibly hazy number. Most important, an NGDP target would free central banks from the confusion caused by the broken inflation gauge. To set policy today central banks must work out how they think inflation will respond to falling unemployment, and markets must guess at their thinking. An NGDP target would not require the distinction between forecasts for growth (and hence employment) and forecasts for inflation.

There is more here, congratulations to Scott Sumner and others…

The private sector can manufacture its own nominal gdp

Loyal MR readers will know I’ve long had sympathy with ideas such as ngdp targeting, even though I think they require more rule-oriented behavior than our political system is able to supply.  It’s still worth pushing in that direction.

There is however one tendency in some of the writings on ngdp which I would frame differently, so I will lay this out in a little more detail. I”m not sure anyone has written anything which I consider literally wrong, but I get nervous at what seem — to me — to be the implications.

Here is one example from Bill Woolsey:

The typical Market Monetarist perspective is that nominal GDP has shifted to a 14 percent lower growth path.    For real output and employment to remain on its previous growth path, the price level and nominal wages need to also shift to 14 percent lower growth paths.   They haven’t.   Instead, they are only about 2 percent lower.

My worry is that some Market Monetarists speak of ngdp as if it is some block of stuff, handed down from on high (of course in the past our central banks have not been targeting ngdp).  It’s as if ngdp determines the size of the room, and a carpenter is then asked to build a house within that room.  If the room is too small, a large house cannot be built.  Or, if you are not given enough clay, you cannot build a very large sculpture.  Along these lines, if the growth path of ngdp is not robust enough, the economy cannot do well.

I get nervous at how ngdp lumps together real and nominal in one variable, and I get nervous at how the passive voice is applied to ngdp.

My framing is different.  My framing is that the private sector can manufacture its own ngdp.  It can do so by trade and it can do so by credit and of course velocity is endogenous to the available gains from trade.  Most of the major central banks are, today, not obsessed with snuffing out recovery and increases in real output.

To say “ngdp is low,” or “ngdp is on a low growth path,” or “ngdp is below trend,” and so on — be very careful!  Those claims do not necessarily have causal force.  Arguably they are simply repeating, in a new and somewhat different language, the point that the private sector has not seen fit to engage in more trade, credit creation, velocity acceleration, and so on.  Formally speaking, the claims are not wrong, but I don’t find them useful as an explanation for why economic growth or recovery, at some point in time, is slow.  It is one way of repeating or re-expressing the slowness of economic growth, albeit with some transforms applied to the vocabulary of variables.

This matters when we consider sticky nominal wages.  Sometimes it is suggested that the “inside workers” have frozen up or taken up so much ngdp with their sticky wage demands that the outsiders cannot find the ngdp to fuel their activities.  It’s as if there is not enough ngdp to go around, just as there was not enough clay to make a sufficiently large sculpture.  I would like to see this modeled (I will report back on any credible citation you offer me), but note in the meantime it is not how the most popular or most influential sticky wage models work.  Once you see the private sector as being able to manufacture its own ngdp, this argument does not seem to have enough force to prevent the outside laborers from exploiting available gains from trade.

The outside laborers are sometimes locked out, but that is when businesses simply do not wish to expand output.  Once businesses are wishing to expand output, the sticky wages of the insiders should not prove an insuperable obstacle to hiring the outsiders at lower wages.  The private sector can support this by manufacturing its own ngdp and if demand is low, well, the wages for the new workers will be lower too, as indeed is the case at Caterpillar and many other companies.

I also see that we have undergone some reflation — current ngdp is about ten percent above the pre-crash peak — so there ought to be enough clay, even if we accept that metaphor.  And the number of laborers in the work force is down.  Here are some related comments from Scott Sumner.

I do believe in the nominal stickiness of many wages, but only in the short run and only for some classes of workers.  Especially when the quality of jobs can and does change so readily, I don’t see the nominal stickiness of wages as lasting for more than a few years, at the most, at least not for the United States.  For legal and regulatory reasons, Western Europe is often a different story.

In any case, these are my worries about some of the current framings of ngdp.

My Conversation with Benjamin Friedman

Here is the audio, transcript, and visual. Here is part of the CWT summary:

Benjamin Friedman has been a leading macroeconomist since the 1970s, whose accomplishments include writing 150 papers, producing more than dozen books, and teaching Tyler Cowen graduate macroeconomics at Harvard in 1985. In his latest book, Religion and the Rise of CapitalismBen argues that contrary to the popular belief that Western economic ideas are a secular product of the Enlightenment, instead they are the result of hotly debated theological questions within the English-speaking Protestant world of thinkers like Adam Smith and David Hume.

Ben joined Tyler to discuss the connection between religious belief and support for markets, what drives varying cultural commitments to capitalism, why the rate of growth is key to sustaining liberal values, why Paul Volcker is underrated, how coming from Kentucky influences his thinking, why annuities don’t work better, America’s debt and fiscal sustainability, his critiques of nominal GDP targeting, why he wouldn’t change the governance of the Fed, how he maintains his motivation to keep learning, his next big project on artificial intelligence, and more.

Here is one excerpt about religion:

COWEN: If we think of the most influential advocates for capitalism in the mid–20th century, there’s Hayek, I would say Keynes at most phases of his career — maybe not all, Milton Friedman. They seem to be largely secular rather than religious. If we look at theologians — while there’s a great diversity of views, on average, they seem to be left-leaning. So why is it the religious thinkers lean towards socialism, and the economists are quite secular?

FRIEDMAN: I think there’s a part of the story that you’re missing, and that has to do with the coming together at mid–20th century in America, of religious conservatism and economic conservatism. I think the catalyst that brought them together was the existential fear of world communism. Here we are — call it 70 years later, and it’s difficult to put ourselves back in the shoes of Americans in the 1950s, but that was a real fear.

Communism, at least as advocated at that time, had a unique feature of being simultaneously the existential enemy of lots of things that we hold dear. It was the enemy of Western-style political democracy, but it was also the enemy of Western-style market capitalism, and importantly for purposes of this line of argument, it was the enemy of Western-style religion.

I think the religious conservatives and the economic conservatives realized that they had an enemy in common, and they took the threat seriously, and this led them to come together.

And about macro:

COWEN: Pandemic aside, if, on average, G is greater than R, can’t we just grow our way out of the debt? As you mentioned, now borrowing rates are negative in real terms, right? Economic growth, on average, is positive, so just keep on plowing straight ahead. Let the clock tick.

FRIEDMAN: There are two parts of the sustainability question, and you hit one of them correctly. If your economy is growing in real terms faster than the debt, then you can grow your way out of any debt. But there’s another side of it, and that’s how rapidly are you taking on new debt?

Let’s take your question seriously and say we’re going to put the pandemic aside. In the year before the pandemic — we’re talking about the government’s fiscal year 2019, so ended September 30, 2019 — none of us had talked about pandemics yet. In that year, the US government spent $4.5 trillion, and it only took in, in revenues, $3.5 trillion.

That $1 trillion deficit, even at a time of a fully employed economy and, of course, before the pandemic hit, that was nearly 5 percent of our national income — even though our economy was growing nicely, more rapidly than the rate of interest that the government was paying on the debt, we were on the other side of the equation, adding new debt so rapidly that the debt-to-income ratio was going up instead of down.

So simply pointing to the so-called R-minus-G factor, I think, is a very incomplete way to look at the question of sustainability.

Recommended, and here is Ben’s new and very interesting book Religion and the Rise of Capitalism.

Has the time come and passed for negative interest rates?

That is the topic of my latest Bloomberg column, here is one excerpt:

Step back and consider the cultural context. Germany is still scarred by the memories of two world wars, fascism, communism, deflation and hyperinflation: in general, huge instability. Since the end of World War II, however, personal savings and the banking system have been an oasis of predictability and a driver of growth. Many Germans treasure their frugality, perhaps excessively or irrationally, and it has become an important part of the narrative Germans tell themselves about the economic order they have built.

Now enter the ECB, in essence telling Germans (and others) that savings are a bad thing, to be taxed and penalized. The very word “negative,” as in “negative interest rate,” makes the policy hard to sell politically. The German word “Strafzinsen” refers to a penalty rate, but the root “Straf” also refers to punishment, and it was used effectively by Franz Kafka in his famous torture-laden short story “In the Penal Colony” (the German title is “In der Strafkolonie”). One German newspaper referred to the “final expropriation” of the German saver, noting that the ECB’s decision to deviate from its inflation target carries “grave consequences.”

More generally, a significant segment of the German population is upset or outraged by the policy. There is even a claim that the revenue from the negative interest payments will be used to finance other EU countries.

Most economists and central bankers view negative interest rates as an acceptable tool of macroeconomic management. Maybe so. But in an era when trust, including trust among nations, is much lower than previously thought, it probably isn’t a good idea to place a punishing new tax on the German national virtue of saving. Central bankers must also be sensitive to public relations.

I find it striking how many people are responding to this column by insisting that Merkel should do more fiscal stimulus.  She should (though I don’t find “stimulus” to be the most instructive word here), as I suggest in the piece, because the Germans have been letting their infrastructure run down for a good while now — internet speeds anybody?  But at the end of the day, I don’t think that spending will eliminate the basic macroeconomic problem facing the EU, nor is most of that spending likely to land on the doorstep of the countries which most need it (though Huawei may benefit a good deal).  There is also this:

So if a policy of negative interest rates is just a Band-Aid, it is one that should be ripped off. And if monetary policy is insufficiently expansionary, that is going to require an increase in the ECB’s inflation target, or a move to nominal GDP targeting, not a jerry-rigged tax on deposits.

There is also an argument that Germans are saving too much. But by some measures, they have a level of national wealth relatively low for their per capita income, in part because Germans are less likely to own their own homes. According to the OECD, Germany’s near neighbors Sweden, Denmark, the Netherlands, and Switzerland all save more in percentage terms than Germany does.

German savers: underrated.

Has the space of possible political outcomes opened up?

That is the topic of my latest Bloomberg column, here is one bit:

Every now and then, one party will control all branches of government, and then the rhetoric and the expectations will be in place for some pretty big changes. Not long ago, I thought that even a 5-to-4 conservative Republican majority on the Supreme Court would essentially leave Roe v. Wade in place, for fear of taking this Republican-friendly issue off the national agenda. Now I’m not so sure. All of a sudden, Americans are getting used to the idea that extreme political change is possible, for better or worse, and that means many of them will demand it. In the Trump Era, if I may call it that, it is harder to tell your base that big changes just don’t happen that easily.


There are also plenty of good ideas that don’t have a partisan tinge one way or the other. Five years ago, I thought the Federal Reserve was far away from adopting “nominal GDP targeting,” an idea supported by many economists on both the right and the left. Today it seems entirely possible that the Fed will move much further in that direction, if only because it wouldn’t be seen as such a big, radical change compared to so many other developments. Trump is probably going to tweet criticism at the Fed no matter what it does, so it might as well just go ahead and do some things it wants to do.

Do read the whole thing.

Lawrence Kudlow is in contention to head the CEA

Here is the WSJ piece, or try this, excerpt:

Mr. Kudlow is a strong supporter of supply-side economics, a prevailing economic philosophy of the Reagan administration that says reducing marginal tax rates will spur growth, create jobs and boost tax revenue for the government. Last week, he said the U.S. should issue debt with a maturity of up to 100 years to lock in low borrowing costs, supporting a view echoed by other Trump economic advisers.

Kudlow (formerly a senior fellow at GMU and Mercatus) is also pro-trade, and on monetary policy he has expressed sympathy for market monetarism and nominal gdp targeting.  And Scott Sumner comments on Kudlow’s earlier recommendations for the Fed.

Update: Many informal sources are suggesting this will indeed happen, though there is not yet a formal announcement.  I would consider this still unconfirmed.

Modern Principles, 3rd ed!

Modern Principles 3rd
The third edition of the best written, most interesting principles of economics textbook, Modern Principles (economics, microeconomics and macroeconomics), hits the shelves any day now. The 3rd edition features a brand new chapter on asymmetric information, more material on economic growth including geography and growth, a new section on nominal GDP targeting and updated data and graphs throughout. Plus we have a very exciting and brand new feature used throughout the book…but I am going to hold off discussing that for a few more weeks. More to come soon!

What should the European Central Bank actually do?

As parts of the eurozone seem to be creeping into deflation, a number of you have written  and asked me what I think the ECB should be doing.  Here are my views on three options:

1. Quantitative easing.  People mean different things by this, but I am not sure that a complicated answer would be much better than a simpler one.  I view it as better than nothing, but there is a risk it amounts to little more than a short- vs. long-term asset swap, which is hardly a solution.

2. Nominal gdp targeting.  In general I like this idea, but which ngdp gets targeted?  Eurozone ngdp, presumably.  But when you have multiple countries, individual countries can end up with insufficient nominal gdp even if the eurozone meets a well-specified target overall.  (Given independent bank regulators, debt structures, fiscal authorities and the like, I view this as more serious than say the 50 U.S. states, which have a higher level of integration, most of all at the policy level.)  How much of a guarantee is there that Portugal would reap expansionary benefits, given the private credit contraction in that country?  The potential clustering of ngdp growth in some parts of the eurozone is another way of stating why the currency union wasn’t a good idea in the first place.  This is still much better than doing nothing, but as a monetary policy rule ngdp seems better designed for the single-country case.

There is another issue with ngdp targeting for the ECB, and that is markets simply might not believe it.  If that were the case, what then should the ECB actually do to see through the promise?  That brings us to #3:

3. A new and different inflation target. My current wish would be a new ECB mandate specifying a minimum core inflation rate of three percent for each of the largest countries in the eurozone, say France, Germany, Italy, and Spain.  If any of these four countries seemed to be coming in under three percent inflation, the ECB would have to do more.  And if need be, you could extend this rule through to more countries, with Malta and Cyprus probably at the end of that list.

Sumnerians should note this also might be the best way to actually meet an operational ngdp target for a fair number of eurozone countries.  Note that I accept many of Scott’s critiques of inflation rate targeting, at least on a theoretical level.  The (only?) advantage of this policy is that citizens would know what it means.  They would know they hate it, in the same way that say Americans hate higher gas prices.  They would know this is a higher inflation policy and the ECB would know it could not spin it any other way.  A fair amount of inflation and thus monetary stimulus would in fact result.

Of course that is also why this is unlikely to happen.  We’ll probably get some form of ineffective QE as a cop-out but better-than-nothing attempt.

“Needing a policy that you hate” — maybe there should be a phrase in Nahuatl for that?

Addendum: Scott Sumner comments.

Assorted links

The Paul vs. Paul debate

That’s Ron Paul vs. Paul Krugman, the video and transcript is here, here are a few comments under the fold…

1. RP: I don’t understand RP’s claim “I want a natural rate of interest.”  Even gold standards allow for monetary influences (distortions? …depends on your point of view) on interest rates.  RP has not fully absorbed Myrdal (1930) and Sraffa (1932).

2. K’s response to RP: Numerous good points, but Christie Romer (!) has shown that economic volatility was not higher before WWII.  (Somehow that’s one Romer paper which isn’t discussed so much anymore.)  That’s a major hole in K’s argument.  Relative to the evidence, he is overreaching when a more modest point would suffice.

3. RP: The transcript may be garbled here.  In any case, the Fisher effect is imperfect and so inflation does to some extent tax savings, also through interaction effects with the tax system.  That said, I don’t see that two to four percent inflation has unacceptable costs, especially when AD is otherwise weak.  On Diocletian, via Matt, here is a good recent paper.

4. K’s response: Modern liberals have a bad and selective case of 1950s nostalgia.  Krugman is significantly overrating the role of policy here.  More overreaching.  He should stick to analyzing the “no bailout in 2008-2009” scenario, and how much worse it would have been, including for RP’s preferred ends.  On earlier time periods, he should reread his own writings from around the time of The Age of Diminished Expectations.  There is very little in The Conscience of a Liberal which actually trumps or overturns the earlier book and its focus on productivity rather than politics.

5. RP: I don’t understand his discussion of the liquidation of debt.  Perhaps the transcript is garbled again.  He is correct that the massive spending cuts which followed WWII brought no depression but rather the economy boomed.  Keynesians have a hard time explaining that episode without recourse to Ptolemaic epicycles, etc., or without admitting the importance of real shocks.

6. K’s response: On Friedman, correct and on target.  That said, K’s blogged claim today — that Friedman misrepresented his own views — lacks a quotation or citation altogether; furthermore it is contradicted by this excerpt from Free to Choose, which was Milton at his most popular but still he represented the truth correctly (ignore the heading, which is not from Friedman).  K won’t address the WWII point, although he could if he revisited his earlier writings on changing rates of productivity growth.

7. RP’s response: The decline in the value of the dollar since 1913, or whenever, has not been a major economic cost.  No one has had such a long planning horizon, for one thing.  We don’t see much indexation, for another.

8. RP on the Fed: If we had “real monetary competition,” dollars still would reign supreme.  Who now is opening up U.S. bank accounts in other currencies?  Or using gold indexing?  It is allowed.

9. K’s response: Mostly I agree, though it is odd to think of shadow banking as “currency competition.”  It is more akin to “not explicitly regulated banking, with stochastic under-capitalization, and with bailouts in the background and largely driven by regulatory arbitrage.”  That makes it less of a counter to RP than PK is suggesting.

10. RP: Equating inflation with “fraud” is an excessive moralization of the issue.  The point remains that gentle inflation is usually a good thing, and that the money supply under free banking, or a gold standard, would be excessively pro-cyclical.  The best shot is to hope that a natural monopoly private clearinghouse would institute nominal gdp targeting in terms of levels and perhaps “targeting the forecast” too.

11. The exchange about Bernanke: I don’t know whether Krugman literally has “printing money” in mind, so this is hard to interpret.  They are stuck in the vernacular, when a more precise economic language would allow for more targeted commentary.

12. PK: Demographics, plus government gridlock and lower productivity growth, make a higher debt-gdp ratio more problematic than Krugman admits.

13. RP: Polemics from RP.

14. K’s response. Very short.  But if he likes the market so much, why does he so often seem to be pushing for much higher taxation and higher government revenue?  I understand why he wants single payer, but he also seems to favor direct government provision of health care itself.

15. RP: The discussion of debt doesn’t make sense, though it is correct to argue that eight percent measured unemployment underestimates the depth of our labor market problems.  I fear, though, that he may be holding an exaggerated version of this point.  U6 matters, but it should not be taken as the correct measure of unemployment.

16. RP: Seigniorage isn’t a major source of government revenue, and in general it is worth thinking about why corporate profits are so high and why the stock market, at least in recent times, has done OK.  Is it really all about policy uncertainty?  Lots of polemic here.  Still, RP raises the point that Fed purchases of T-Bills may be helping to keep rates artificially low.  This remains unproven, but it is also unrebutted.

17. RP (again): There is no credible alternative to the dollar as reserve currency today.  On Spain, it is nonetheless a good point that spending cuts in a dysfunctional economy don’t help very much if at all.

More RP: Doesn’t PK get to speak again? Did Austerians suddenly cut the funding for his part of the transcript?  (Had I watched the video, I wouldn’t have had time to write this post.)  In any case, pegging the dollar to gold in an era of commodity price inflation would be a disaster and lead to massive deflationary pressures or more likely a complete abandonment of the gold peg rather quickly.

In sum: There were too many times when RP simply piled polemic points on top of each other and stopped making a sequential argument.  He overrates the costs of inflation, including in the long term, and for a believer in the market finds it remarkably non-robust in response to bad monetary policy.  Still, given that Krugman is a Nobel Laureate in economics, and Paul a gynecologist, the score could have been more lopsided than in fact it was.

Assorted links

1. Why is this an equilibrium (video of cheetahs)?

2. The real Hayekian answer should be, and sometimes was, nominal gdp targeting, to minimize price distortions.  There is much more on Hayek and nominal gdp here (pdf).

3. Via Chris F. Masse, Pepsi Social Vending System Spam Markets in Everything.  Egads, can’t you just buy a soda?  What’s wrong with monetary exchange?

4. Extending Tim Harford’s idea, are economic facts disappearing (Hernando de Soto)?

5. Brazil is massively violating PPP, I can attest to this.

Scott Sumner is taking a break from blogging

He writes:

…I am complete burned out, and have been for months.  I’ve blogged an average of eight hours a day, seven days a week, for over two years.  I’ve only kept going in recent months out of a sense of obligation to keep pushing these issues.  But now that lots of other people are saying the exact same thing, it’s time for me to take a break.  So I’ll stop blogging for a few months, unless there is some huge news story like QE3, in which case I’ll add a couple posts.  Or if someone does a hit job on my marshmallow post, I may need to briefly respond.  Otherwise I’m done for now, and will return sometime this summer.

A few points:

1. Read or reread all of his archives.

2. Do not tempt him with mistake-ridden posts on topics such as “South Korean cinematic representations of nominal GDP targeting in the Great Depression.”

3. He will be back (and I’ll let you know when).  In the meantime we will all miss him.  Hail Scott Sumner!

p.s. Boo Hoo.

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