Despite my grousing in the previous post though about Sumners fiscal ideas, you have to say that nature abhors a vaccum and this is what you have to give him credit for: he has a plan.
For the said grousing http://diaryofarepublicanhater.blogspot.com/2011/11/sumners-worried-minimum-wage-is-too.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29
You can debate it but at least he has one. And what is the other choice? The status quo, that is to say, inertia. This is probably why Krugman has come around, and put aside the liquidity trap objections. Sumners may be someone who it's best we just stick to monetary policy discussions with and not get into the fiscal side too deeply.
In a time of gridlock and lowered expectations both here in the U.S. Congress and in the E.U. he at least is proposing something meaningful. He makes some pretty big claims no doubt. The idea that what we are suffering from right now is not the financial crisis but a crash in nominal prices is extremely provocative-so in his terms the financial crisis could have been contained if not for the monetary failure in supporting nominal prices. It will strke many has highly counter intuitive. Still maybe this unlikely meeting of the minds between the economic blogs-the liberal New Keynesians, the conservative Market Monetarists points a way out of the current impasse.
In the era of Krugman's Depression economics you got to take it where you can get it.
"RH" Check out this wonderful article on Cassel and the Great Depression:
ReplyDeletehttp://www.dartmouth.edu/~dirwin/Cassel.pdf
Towards the end there is a relevant quote:
“considering what governments have done and still do to deter private investment by high and arbitrary taxation, by all sorts of restrictions, national and international, and by bad monetary policy, it is, to say the least of it, curious that such mistakes should be exploited as a ground for widening the functions of governments as entrepreneurs”
TK a lot Joao! It looks great, I'm gonna dive right in.
ReplyDeleteMike
ReplyDeleteThe article is a mine of relevant quotes that fit "the present time" like a glove. I couldn´t resist and did 2 posts using it. This is the first:
http://thefaintofheart.wordpress.com/2011/11/12/editing-history/
Ok Joao! I am reading the article right now-I'm on page 24 right now. Certainly very intriguing piece.
ReplyDeleteIt seems to me that Friedman though was never sympathetic to this view or was critical at least in part of FDR when he devalued the currency and got off the gold standard.
Friedman also claimed, though this is a somewhat different-though not wholly unrelated issue-that the the old pre Federal Reservve era was better. But I guess some of you guys-don't know if this applies to you of course-are into the whole Free Banking thing.
What really stands out in the piece for me is that it was probably a mistake after WW1 to have gotten back on the gold standard at all.
In retrospect the gold standard to my mind is built for a crisis. The idea that your currency is based on a literal, physical commodity means that you are at the mercy of mining industries, etc. At any moment we can have a situation like 1928 in the aritcle where countries like the U.S. and France suddenly start hoarding gold, or the early 1970s in the revised Btetton Woods gold standard system with gold pegged to the dollar where countries like Britain start demanding more gold than they can recieve which led Nixon to end the gold standard once and for all.
I'll have to disagree with those who think that a fiat money system is more unstable. That is only true for those who think inflation is the ultimate bogey man. Having said that, this is a very good piece. I will admit I was not aware how widely the "Gold Standard explanation" had one the day among Depressioin historians but it makes a lot of sense to me.
In case it's not sufficently clear, the "article" I reference is the pdf on Cassell you sent in your first comment.
ReplyDeleteI will check out your article after. Appreicate you sending it.
Still I want to make one point clear about what you said in your first comment:
ReplyDelete"considering what governments have done and still do to deter private investment by high and arbitrary taxation, by all sorts of restrictions, national and international, and by bad monetary policy, it is, to say the least of it, curious that such mistakes should be exploited as a ground for widening the functions of governments as entrepreneurs”
Here's the context of what Cassell says about the subject of "government failure"
Many of the deflationists argued that to intervene with discretionary monetary policy to arrest the fall in prices constituted an unwarranted interference in the economy by the government. Cassel noted that “some people reject the idea of a deliberate regulation of the value of gold as involving an unwarranted state interference in our economic life. On this ground they combat all schemes for what they call a ‘managed currency.’ Such apostles of economic freedom would, however, do better to expend their energy on combating tariffs and other forms of unnecessary government control of trade. To provide a country with a reliable monetary system is, under all circumstances, an essential function of the state. In some form or other, our currency has to be managed, and whether well or badly managed is the only question we have to decide"
Really he is not arguing that an overly acitist government caused the Depression but that it was infsufficently activist on the monetary side. France and the U.S. first hoarded gold then failed to inflate their currencies.
Mike There never was an implication that an overly activist government CAUSEd the Depression. What he did was Doubt very strongly that the Gov could be much help in getting the economy up!
ReplyDeleteThe main point though is that while he was a skeptic of activist government on the fiscal side he was a proponent on the montetary side.
ReplyDeleteFrom Cassell's point of view the Depression was caused by monetary government's failure to do more-to maintain prices.
You could say that both the monetarist and Keynseian view believe in some level of activist government. The Austrian school is the conistent one in believing both monetary and fiscal policy must be passive.
Monetarists in the persons of Cassell and then Friedman thought that the failur of monetary policy to be sufficently active is what caused the Depression.
Keynes himself argued more for an active fiscal policy and was somewhat pessimistic about monetary policy Hayek opposed both. For hims the answer was always to do nothing, let the market sort it out on the monetary and fiscal side.
In that sense today's Republican party is Hayekan(Austrian) in that they as opposed to monetary stimulus as fiscal.