It’s not just monetary policy, it’s Scott Sumner day

I haven’t seen anyone else say it yet, so I will.  The Fed’s policy move today might not have happened — probably would not have happened — if not for the heroic blogging efforts of Scott Sumner.  Numerous other bloggers, including the market monetarists and some Keynesians and neo Keynesians have been important too, plus Michael Woodford and some others, but Scott is really the guy who got the ball rolling and persuaded us all that there is something here and wouldn’t let us forget about it.

I disagree with Scott on a number of points (I think he overrates the importance of sticky nominal wages for instance, and I would like to force him to admit that the private sector can manufacture nominal gdp), and I see the net gains from this policy as smaller than he does.  Still, Scott  deserves our highest level of applause in this matter.

Here is Scott’s very latest blog post on the Bernanke press conference.


I really think you are wrong here. The Fed has been doing large scale asset purchases for four years now. This is a stronger version of that. I really think you're crazy to assign any special role to Scott Sumner. Read the speeches of the people on the FOMC. They never cite the guy. There are a lot of doves on the committee and they have spelled out their reasons in many many speeches, never with any references to Sumner. You're really off base here.

I do understand your points but I think you are focused too much on direct channels of influence. A lot of Scott's influence has been through others, and through keeping alive the ngdp idea, and the idea of working through expectations and ongoing commitments, alive in the economics profession, including in the writings of Krugman. Scott was the single largest force in making the ngdp idea focal in the economics profession, when actually it had somewhat died away since the days of Bennett McCallum.

But where is the ngdp idea in today's announcement? I see today's announcement as Ben Bernanke saying or re-affirming:

1) His ambition is to hit the NAIRU.

2) Monetary policy works through asset markets and wealth effects. The Greenspan put was utterly integral to the 'great moderation'. Bernanke sees no reason to reverse this. (In an age of diminished expectations, macroeconomic management will proceed, as it has for 20 years, by creating one boom after another. But these booms are more Greenspan than Keynes. Housing, not business investment. And no sustainable wage inflation should be expected.)

3) In modern day America, with a secular decline in business investment, housing IS the business cycle.

Notwithstanding the fact that nominal income targeting has a tradition going back at least to Hall and Taylor in late 70s, one can praise Scott unreservedly for hammering the usefulness of the concept and its relevance as a policy goal into all of us. The co-opting of the idea by De Long, Romer and Woodford without proper citation to Scott has been a little unfair.

However, the open-ended-ness of asset purchases cannot be categorized as a uniquely Sumnerian or uniquely anyone response at all. If it is anything, it is Bernanke, through and through (and maybe Woodford, for having intimidated the hawks). And the recognition that mortgage debt, that too *new* mortgage debt, will have to be purchased is firmly in the Tobin-Kiyotaki tradition of describing OMOs as purchases of risk capital rather than government debt.

Also, the veritable orgy of optimism is a bit amusing. I fully expect the asset prices/ GDP ratio to rise even further than it has been in recent times.

Cowen, you are a bet hedgen m-fer. Don't worry, you're covered.

Wu, don't forget: Bernanke is an academic. Like TC says, he may well be reading SS's blog. Birds of a feather sort of thing. I would not expect Hank Paulson nor Tim G to read econ blogs but Ben B, yes. Heck he may even read TC! Ben if you're reading this: gold standard is value neutral--give it a try sometime. Prices can be made flexible again, sticky wages are a vestige of the past (factory workers, unions).

Great job, Scott! I've been following this on the sidelines since the first time TC linked to him, and it seems pretty clear that Scott's persistence on this issue has influenced where we are today.

Now we can judge the effects of the new policy by watching unemployment vs. inflation levels over the next year...

And I would bet 3-1 that Ben has read enough of Scott to get his basic message. Yet another reason why politeness pays off.

But again, where is Ben B making use of Scott's central message? He has the grand ambition of finding out and hitting the NAIRU. Not all interpretations of the dual mandate are collapsible into an ngdp message!

A long time ago and in a world far away I wrote a few things that Tyler linked to. One of the things that surprised me is how many hits from the Federal Reserve I got (they have there own domain). Maybe Tyler knows things that you do not.

Oh I'm not contesting the bet. I'm just claiming that Ben Bernanke is not using Scott's central message, even if he's read him.

This is how Sumner sees the move relating to his ideas and recommendations.

I disagree 100%.
If anything he is mood affiliating with Scott and doing the opposite of what Scott said.
Scott said that the Fed doesn't need to do QE it just needs to state an NGDP target and everyone else would fall in line. Instead they are pumping in more money that will just increase the already absurdly liquid system.

As Scott says on his recent post he's only getting 1/3 of what he asked. That said I think - & would be happy to be corrected otherwise if I'm wrong -- the biggest Sumnerian thing we are getting is the Fed dictating the results. Instead of some arbitrary amount of dollars the Fed is now, finally, at long last, committed to a result. Scott highlighted, emphasized, underlined and circled in red that point.

Bank liquidity may not be the same as money. Every loan has to be repaid, so every dollar created increases the debt. I have no idea what I'm talking about, but there is something there.

We can call it Tyler Cowen day as well, as a staunch promoter of his blog. A victory and model for peaceful contrarians everywhere.

Tyler has definitely had his contributions

Yeah, Tyler, I replied to you on Scott's reply post to you on sticky wages, under your comment there. I said you were wrong on that point. Then I said you were a hero, for indirectly saving the world by bringing Scott to its attention. As a mortal, I humbly thank you for this.

The blogosphere has a curious notion of politeness. But hey there's nothing "polite" about the current unemployment rate. I do think Sumner has performed a valuable service (along with others) but how history views today will be complicated. In monetary policy both actions and timing are important. I can see his contribution on the actions, but I never saw Sumner support the time it takes to build a durable consensus around the actions. Of course, policy formation requires many people playing diverse roles.

TC, I'd like to know what measurements of real GDP / unemployment in what time frame will vindicate SS? Add caveats as usual

We don't ordinarily divide unemployment into GDP.

Brilliant! You made me have one of those "wait...what?!" reactions. LOL.

I dunno. I'll hold off on the group fist bump just yet.

Is it really that easy? Just expand the Fed's balance sheet indefinitely, and good times ensue. I never went to grad school, so mebbe I just don't get it, but there's this little bell ringing in the back of my head, very much like the bell that goes off whenever keynesians wave their fiscal magic wand.

All I know for sure is that when I try to teach my kids about the virtue of saving and the concept of 'interest',I gotta dust off a history book for examples.

Scott hasn't denied that we might be having supply side shocks, just that we know how to deal with demand side shocks. Once we get NGDP targeting, we can shift focus back to supply side issues.

I'm willing to keep an open mind here. To me, this is much preferable to fiscal stimulus. As a net creditor, I'm willing to take a few more lumps here if it jolts the economy. And some inflation probably is a balm to homeowners' balance sheets.

But Scott's blog is entitled The Money Illusion- the efficacy of fooling around with the money supply seems to be predicated on the idea that we can trick people. Color me skeptical.

This is uncharted territory, but all the deep thinkers seem to be in agreement and unusually confident that this is a godd move. The broad consensual confidence and back-slapping worries me as much as anything.

Having sais that, I know there's some Chicago school just beneath the surface of Scott's thinking.

And I do love the tone guys like Scott and Tyler bring- such a refreshing contrast with the bombast of the more typical, strident advocates of different schools. Nice to see that thoughtful nice guys can have such an influence on policy.

Not uncharted territory. This is the third time. The effects of the first two were transient and mixed.

The difference is that the announcement is open ended: "Beatings will continue until morale imporves." :)

You don't have to go to grad school, but you do need to read a bit about macroeconomics. A national fiat currency region is not the same as an individual household, and you do yourself a disservice to blindly apply your intuitions from either one, to the other. E.g. a household can postpone consumption, say by choosing not to buy a new car this year, such that they can then afford to buy a new car next year. A nation can't really do that. In most cases, a nation can't, in the same sense, choose to underproduce this year, and subsequently get the benefit of overproducing next year.

You also view yourself as taking "a few more lumps" with stimulus/inflation, because you are a net creditor. Again, your intuition is misleading you. As a creditor, you are currently earning historically low rates of return, because of the anemic economy. What you ought to care about, is your REAL rate of return. The point is, that additional inflation is expected to RAISE your real rate of return on lending captial, despite any additional increase in inflation!

Finally, you are misled by the title "the money illusion". Sumner is not suggesting that we attempt to trick people in the future. He is observing that people ALREADY act in some specific "non-rational" ways (e.g. wage stickiness), and that monetary policy ought to take this into account.

Oh, I've read the macroeconomics. Krugman, for example, comes out and says that national debt, e.g., never has to be repaid, suggesting that is some kind of free lunch. He is wrong. It may be close to the truth to think about national debt as a nation's credit card, and a bit of balance sheet leverage might be a good thing, just like an individual might come to a similar conclusion, but there is risk in this decision- nothing is free here.

I'm not saying macroeconomics has to be as intuitive as a household analogy per se, but too much theorizing, it seems to me, leads e.g. Keynesians to say things that are not only unintuitive, but directly clash with well-established micro intuitions. And I'm not just picking on Keynesians here- they are just the most visible group and the most cavalier about blowing off microeconomics.

And just because models with micro-foundations don't work so well (we're talking about exceedingly complex systems here) doesn't mean we have to embrace models that embed and then ignore routine violations of microeconomics.

Of course, the only rate of return that matters is the REAL rate of return. For the past four years, the REAL rate of return on 1-year Treasuries (a proxy for savings) has been negative. When was the last time that happened in this country? (Hint: never.)

On this point look what happened to TIPs yesterday:

I can lock up a REAL return of negative 1.58% by buying five-year TIPs today. Unprecedented.

And even if inflation does increase the REAL rate of return for new investments (unproved), I definitely don't need grad school to know what it means for (non-inflation linked) fixed income assets CURRENTLY in my portfolio. Thank God I'm young enough to bear a lot of risk in my portfolio, rather than having my ass hanging out in the wind, depending on fixed or annuity income- pensioners beware!

You tell me what Scott is 'observing', but to me, this is what Scott is theorizing. Tyler, e.g., seems to be embroiled in an ongoing dispute over sticky wages with Scott. Considering that the CPI is 4% above the previous peak in July 2008 and 9% above the December 2008 trough, I'm a bit skeptical about the power of the sticky wage story myself.

Brian: you realize (just like everybody does) that macro theory suggests things with "directly clash with well-established micro intuitions". But for some reason, you then conclude that all macro theory must be wrong.

But macro is simply different from micro. You persist in the mistake that the intuitions "ought" to be the same. Meanwhile, the macro theorists have TONS of empirical evidence that they know what they're talking about, and that expectations from micro intuitions are simply false at the macro level. This isn't controversial.

You can disagree with the macro theories. But you need to do it at their level, looking at their evidence. Complaining that macro theories violate micro intuitions is completely irrelevant. It's as silly as complaining about the biological theory of evolution, because it violates your intuition from the physics of subatomic particles.

Yes, the higher level system is built on the lower level one. But that doesn't mean that your intuitions of how things behave at the lower level is at all relevant to the behavior of the higher-level systems.

Don, I think you're misrepresenting what I'm saying, but I'ma steer clear of that rabbit hole for now.

You can't explain evolution by reference to the behavior of subatomic particles. I get that. There are different levels of understanding that apply to different phenomena. But nothing in the theory of evolution contradicts what we know about the behavior of subatomic particles.

It's a flawed analogy anyway, though, inasmuch as it elevates both micro and macroeconomics to the status of SCIENCE, which is, I think, part of the problem. This elevation is a stretch for micro and silly hubris for macro, IMO, and it leads to the widespread 'certainty' seen e.g., wrt the effects of the Fed's action yesterday (tho even here, I'm sure there are plenty of PhDs in economics prepared to argue the point.)

What exactly do you think is uncontroversial about macro? If the government borrows a trillion dollars and pumps it into the economy, GDP will go up next year compared to the status quo. This much is uncontroversial. For Keynesians, this is the end of the story.

The micro / macro dichotomy is not helpful and in my opinion not even all that relevant. Yes, it can be very hard to aggregate individual behavior and get all interactions and macro dynamics right. But more importantly testing theories in economics is hard because a) a lot of the variables you need are poorly measured (or not at all) b) the variation in these variables is rarely exogenous c) there's not that much policy experimentation (good for people, not good for economists). So we do the best we can, but that's going to leave plenty of room for squabbling over the results (especially on blogs). No model is ever going to be a slam dunk...if it matched behavior perfectly it wouldn't be a model. So how good is good enough?

When we are doing our job there's a lot of mutual reinforcement between micro and macro. For example, when I forecast aggregate consumption I spend a lot of time reading research with and doing analysis of micro data to make sure the big picture makes sense intuitively and empirically. But if I had to do a forecast for every household, I'd never get my work done (and it wouldn't be very good).

In any case, there's a lot more humility about what is truly knowable in economics than might come across in some discussions. And yet few have the luxury being certain before acting.

I think you're misreading here a little. Scott is against Fed discretion, so today's announcement isn't actually consistent with his idea of how monetary policy should happen. Scott thinks the Fed should declare a nominal target and stick to it. He thinks that nominal target should be NGDP basically because he thinks long-term contracts are better served by being based on expectations of future nominal income growth on the part of the debtor, because this determines their ability to pay and thus their sustainable debt load. Anchoring nominal income growth basically means that in aggregate, debtors will always be able to service their debts. But he's said that a fixed CPI growth path would also be a big improvement.

Whether or not you think that CPI or NGDP is a better nominal target, it is clear that both plummeted relative to expectations in 2008. The market monetarist view is that this is what caused the long and deep recession. Since market monetarists also believe that the fed has complete control over CPI and NGDP, this means that the fed is responsible for the recession. They believe that the monetary disequilibrium will fix itself over time, but that expansionary policy by the fed would shorten it.

The point I'm trying to get at is simply that they aren't arguing to "Just expand the Fed’s balance sheet indefinitely, and good times ensue." They are arguing that the fed needs to choose a coherent policy and stick to it, and that the optimal policy right now is somewhere in between the current trend in money growth and the trend money growth that took place during the Great Moderation.

Very helpful, thanks.

Is it fair to say that Scott's view is not too different from Friedman's "Fed Auto-pilot" prescription?

I still don't see this as any kind of magic bullet, and my narrative on the recession is homelier: a reckoning after a 50-year party was inevitable, and the medicine we've been swallowing the past few years was always the remedy. Now if we can just open wide and swallow a couple spoonfuls of Simpson-Bowles, we may establish the foundations for a generation of real growth.

Yes, just more theoretically advanced, by understanding that the system should aim to control the goal variable directly, by fully utilizing/cooperating with market expectations.

Bernanke is with you on the non-magic bullet. And of course you're both wrong. The action actually taken was not a magic bullet, but the politically unconstrained ideal action (Nominal GDP Level Path Targeting), would almost certainly have gotten rid of most of the unemployment. History so far just immensely supports that hypothesis.

When you teach children about saving, remember "quod licit Jovi, non licit bovi" or "falicy of composition."

I try not too tangled up in fancy theory, but Keynesian hostility to saving has always struck me as a fundamental problem with that theory.

Well, will this /finally/ be the experiment that shows that QE doesn't work in this situation?
Or will we go on to 4th, 5th, etc before people realize that stimuluses do not stimulate, they only paper over problems.

No, I think more excuses can always be found, unfortunately.

The results are already in and you are wrong, since equities have been responding positively to positive expected NGDP shocks since 2008 (including the one today), unless you don't believe in EMH in which case may God have mercy on your soul.

(I should say that this is not my preferred policy either, but when my gut disagrees with the markets I tend to assume I am wrong)

Wait, if you increase liquidity, equities go up in price! WHO KNEW! /Sarcasm

If experimental economics has taught us anything its that liquidity pumping ends in tears.

Precisely. It has ever thus been so.

By "equities have been responding positively" you mean that the ratio of "the value of an average stock" to "the value of a dollar" increases as more dollars get printed? I'm not sure that's as much of a surprise to your opponents as you seem to be suggesting...

Er... "positive expected NGDP shocks" if its expected then its not a shock.

If EMH worked, nobody would trade. If EMH worked, Warren Buffet would not exist. If EMH worked, buying Citibank at its all time high in late 2007 and mid 2007--just before its collapse--would have been a good investment. Ergo, the EMH does not work, and today's knee jerk rally is possibly flawed (I say possibly since I do think Keynesian money illusion works, at least in the short term, and perhaps would stimulate demand enough to restore normal demand, albeit at long term cost to the US economy).

'will we go on to 4th, 5th, etc before people realize that stimuluses do not stimulate'

It's open ended, meaning it IS QE 3, 4, 5...

The next question will be about when the amount of dud assets purchased monthly is increased.

I didn't credit Scott specifically, though he certainly deserves a big share, but I said much the same here: "It needs to be said that today's FOMC statement is a major intellectual win for econ bloggers and academics." (

"I didn’t credit Scott specifically"

So fix it. It is your blog, fix it.

Clever nameless tweet (it will be true regardless of what happens), but it and this post gloss over the big *win* for the dual mandate. I like this David Wessel tweet from the press conference: "Bernanke: 'This is a Main Street policy...we're trying to get jobs going." Who gets to eventually claim an intellectual win will hinge on who gets jobs.

This is mood affiliation on part of the fed.
I disagree. Scott's entire argument is that the fed does not need to do QE if it just claims an NGDP target.
The fact that it IS doing QE is just Mood affiliation, instead of taking Scott's (and Hayek's) arguments seriously.

Hi, non-economist here. Maybe, some of you can help me understand the argument for additional QE, NGDP-targeting, or looser monetary policy. My big-picture question is what market irrationality is this policy trying to correct/counteract and how does it do so? I have a bunch of related questions below, but it's this big-picture question that I'm trying to understand.

My understanding is that monetary policy can affect real output in the short run, but not the long run. The financial crisis occurred almost four years ago. Since that time, we have had extraordinarily low interest rates that have not succeeded in lowering unemployment. Furthermore, most economists seem to be forecasting high unemployment and low growth for many more years (the "new normal"). At what point, do we concede that we are in the long run, i.e., that perhaps the causes of unemployment and low growth are structural rather than a result of insufficiently loose monetary policy?

I fully concede that during the Fall 2008, market participants were paralyzed by fear and that the Bush/Paulsen/Bernanke/Obama/Geithner financial bailout (blame/credit whomever you choose) reassured everyone and gave everyone a much needed timeout. However, it seems like we are several years removed from that panic period. The S&P has more than doubled since its Feb 2009 low. Sure, investors and executives (investors in company projects) may be more risk-averse than before or they may just see more downside risks ahead than before. Neither a change in risk preferences nor a belief that the future holds greater downside risks is irrational. So, is the point of monetary policy to entice rational actors to act counter to their risk preferences and expectations? If so, wouldn't that lower aggregate expected utility or some other utility measure that takes risk preferences into account? I guess my overall question here is how do we know that QE3 won't actually interfere with market participants' *rational* response to some structural change in the economy, given that we have already gone through a long period of low interest rates that has given everyone a chance to stop panicking and start thinking rationally.

I know that sticky wages are one market irrationality that can be corrected by monetary policy: create a little inflation to lower real wages while keeping nominal wages constant. However, we have gone through 40+ months of unemployment over 8%. Wouldn't 3.5 years of unemployment be enough to convince someone to accept lower nominal wages, especially given the much lower rates of union membership (wages not locked by union contracts) compared to earlier times?

At Sober Look, they pointed out a pattern of increasingly longer payroll recoveries over the last four decades []. Perhaps, with fewer manufacturing jobs, there has been a structural change. For example, manufacturing employees are viewed pretty much as interchangeable (by both management and unions): layoff the least senior workers during a recession, hire new workers when things pick up. That makes for quick recoveries following a recession. It's different with service-economy white-collar differentiated employees: recession enforces discipline/scrutiny where only workers whose output/productivity exceeds their cost are kept. The rest are let go. Layoffs are not necessarily by seniority or random --- there is selection bias. This may partially explain why productivity increased during the recession. Thus, when the economy picks up, the laid-off workers are not all necessarily brought back or hired by other firms. There may have been a skills mismatch even before the recession; the recession just forced firms to deal with the mismatch.

Further evidence, also from Sober Look: increase in job openings but no corresponding increase in employment []. On the surface, that would seem to suggest *excess* demand for labor, rather than insufficient demand. That seems to run counter to the idea that we need to correct "sticky" wages: if there is excess demand for labor, wouldn't that imply that, if there is a market imperfection, it's that real wages are being prevented from rising (somehow?) rather than falling? I'm not saying that there is something preventing wages from rising, just that falling real wages would seem to exacerbate excess labor demand.

Admittedly, we may have inelastic labor supply that explains the excess demand for labor, e.g., skills mismatch. Another possibility, which I know may be rejected out of hand by many, is that people are unwilling, rather than unable, to fill these job openings. Some would cite, for example, generous extended unemployment benefits (just throwing it out there; not saying this is the cause). Also, it seems to me that 2-earner couples provide each other additional unemployment insurance (insurance pool=2) that extends even beyond the government insurance. Both political parties are incentivized to reject the idea of "voluntary" unemployment, i.e., not filling a job opening that one could fill because one would (rationally) rather hold out for a better job. Dems may view the concept of voluntary unemployment to weaken their case for additional expansion of entitlements. Republicans, as the non-incumbent party, are incentivized to blame Obama for high unemployment, which may be harder to do if some of the unemployment is voluntary. So, if both political parties are incentivized to reject a particular explanation of the data, then that explanation would need to pass a higher burden of proof to gain acceptance than other explanations.

I know that this is a very long post, and you are all free to respond to whichever bits and pieces that you want to. Again, though, my overarching question is what market imperfection is supposed to be addressed by additional QE, given that we have already had extremely low interest rates for many years? Thanks.

Regarding payroll recovery, state and local governments have shed over a million jobs over the past couple years. Absent this, payroll recovery (which always lags) stacks up ok with previous recessions.

Good medicine.

"My understanding is that monetary policy can affect real output in the short run, but not the long run."

- For this to be true, mathematically, liquidity pumping must slow long term growth.

No, that's actually not true mathematically, that means that liquidity pumping has no effect on long-term growth. The quality of the MR commenters has fallen off rapidly as the Austrians have invaded.

Sigh. If it increases short term growth, but not long term growth, then growth between the end of the short term period and end of the long term period must be slower than it would have been without the stimulus.
This is basic arithmetic.
Also, I am not an Austrian.

That isn't so. Growth between the end of the short term and the start of the long term need not be lower unless you think that growth over the entire period must integrate to a constant (presumably zero if I understand what you're saying). Long run neutrality implies no such constraint. There is no reason why monetary policy cannot increase real growth in the short run as it works against the influence of nominal rigidities and have zero effect once those rigidities are resolved.

"Long run neutrality implies no such constraint. "

Incorrect, long run neutrality is the constraint that the stimulated version of the world will have the *same* real long run growth as the non-stimulated.

Long Run Growth= Short run growth + Growth between end of short and end of Long

Therefore if "Short Run Growth" is increased but "Long Run Growth" is not, then "Growth between end of short and end of Long" must be decreased.

Its as easy as that.

BC that was excellent. Probably one of the best posts I've read. The typical posters here are econ freaks and they tend to use shorthand expressions hence the confusion (they understand what they are saying but we non-econ majors do not). Your post was a refreshing change of pace. Don't forget to enroll in the MRU online university that TC is promoting. See you there! As for your post, it pretty much summarizes current thinking. I personally think that this cycle, as Rogoff and Carmen point out in "This Time is Different", will take 23 years to work out (see their book--it's the historic average for recovery from financial panic crashes), and Keynesianism will only delay recovery, as it has in Japan. 19th century 'boom and bust' had much faster recoveries--when government was less than 10% of GDP and technology was rapidly expanding. "Shock absorber" 20th century mixed economies (reminds me of a lazy US sedan as opposed to a sexy foreign sports car) promote safety nets and delayed recoveries. The only good thing that will come after 23 years of pain--and by that time Japan should possibly be in default--will be the death of the cult of Keynesianism IMO. BTW I do think money illusion and Keynesianism works--it's designed to fool simple, stupid people (the average IQ is 100, so 50% are below that number)--but as a net saver I don't like it.

BC, Greg Ip wrote a good (accessible) summary of yesterday's announcement: I would add that the main argument for further easing was that the unemployment rate is too high and the economy is not growing fast enough to bring it down. There's not a case being made about's been a debate about frictions, underlying structural trends, and expectations.

An aside : Sumner's post says 70% of the Profession votes Democratic. In that case how come there's such a long lists of Economists for Romney on TC's earlier posts , but I haven't seen the list of Economists for Obama ?
Numbers may not matter I guess if Bernake is on the latter list , it probably balances a large number of the former.

Same reason a white buffalo is a big deal but a regular buffalo gets turned into steak.

How is this different than Japanese policy? I don't believe the system is linear, but based on the amount of debt overhanging the system, this policy will only help offset deleveraging. Japanese NGDP is at the same level it was at in the early 1990s, by my estimate this policy will result in no inflation until the end of the 2020s or the early 2030s. Granted, something could destabilize the system, but this policy doesn't really do much by itself. It's still going to take an unforseen shock to disrupt the "equilibrium."

The difference is Japan had a trade surplus that funded the stupidity. The US is benefiting from the collapse of everyone else, and probably will benefit when Japan implodes. Eating your seed corn looks brilliant when everyone else has already eaten theirs.

Perhaps Mitt Romney deserves honorable mention...

Scott (and his early blog patron, Tyler) deserve credit for making unconventional Fed actions defensible and plausible, matriculating it from infant idea to adult solution. GOP/Libertarian pundits hated it and liberal pundits preferred political-favorite-directed fiscal stimulus. The persistent network of market monetarists fleshed out the theory, solidified its support and offered crucial intellectual/political cover to the Fed to implement even 1/3 of the NGDP targeting program.

I hope QE3 works, but that's besides the point when congratulating someone for delivering on what they consider an important cure for the country.

One day, a blogger will cite this post as part of a long blog post about self-serving blog posts that lack evidence and rigor.

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