It seems a little hard to believe, but here it is:
"I enjoyed Matt Yglesias’ suggestion that depressions are merely a technical problem that will go away once the obsolescence of cash eliminates the zero lower bound on interest rates, and Ryan Avent’s rejoinder. Although I’ve toyed with Yglesias’ view myself, I think that Avent has the better of the argument when he characterizes our current policy impotence as reflecting behavioral rather than technical constraints. We don’t lack for technical means to counter people’s self-defeating impulse to hoard cash and safe financial assets. On the contrary, we have a whole cornucopia of options!"
http://www.interfluidity.com/v2/date/2012/04
So says Steve Waldman in his rather bracing idea that in some sense we have chosen depression-what you might call the "median influencer" is risk adverse. Remember, the median American voter is not poor or unemployed but rather:
"The ailing developed economies are plutocratic democracies. “The people” do have power, but influence is weighted in a manner correlated with wealth. The median influencer in these economies is not a billionaire, but an older citizen of some affluence who has mostly endowed her own future consumption. She would like to be richer, of course. But she is content with her present wealth, and is panicked by the prospect of becoming poorer. For such a person, the depression status quo is unfortunate but tolerable. The risks associated with expansionary policy, on the other hand, are absolutely terrifying."
It's an admirably counter intuitive theory and one that no doubt will get much push back. Yet as a commentator at Infludity said:
"the majority has great vesting in some version of the status quo, and will cling to it even as it crumbles."
http://www.interfluidity.com/v2/3283.html#comments
So Steve thinks Ryan Avent is right over Yglesias. I don't know. Yglesias' idea that we should just get rid of cash, and our problem is solved on one hand sounds much to facile-which doesn't necessarily make it wrong but you can't but be skeptical-but on the other hand is very interesting. In a way Steve may be right to follow Avent-I like this idea that in some way Americans as Japan did in the 90s have chosen substandard growth and unemployment to protect their savings accounts and fixed income.
I agree with him and Avernt about the political power of savers and the opposition to inflation. Yet on the other hand Yglesias doesn't so much disagree or ignore Steve's point as try to come up with a solution.
"We are in a depression, but not because we don’t know how to remedy the problem. We are in a depression because it is our revealed preference, as a polity, not to remedy the problem. We are choosing continued depression because we prefer it to the alternatives"
The point may be that Yglesias if fully aware of this but the beauty of ending cash is that it will give us an end run around this political problem. In many ways the attractiveness of Sumner's NGDP targeting, to any solution that the Fed can achieve is that it allows to do this political end run.
In many ways what is being advocated is "monetary activism" in the sense that the conservatives-before they gained dominance on the SJC-used to fulminate against "judicial activism." Now that they have the power they are less concerned. So we had the 2000 election decided by SJC on a wholly partisan 5-4 basis and the current makeup of the court may help them defeat the individual mandate.
Yet, I'll leave it for others to tell you this is wrong, that the vote of the people or their legislatures must always be sacrosanct. My reaction to that is "not so fast." I mean by this definition Brown vs. Board of Education was judicial activism as was Roe vs. Wade. Yes to a large extent I probably do care more about economic and social outcomes than some sort of doctrinaire notion that "judicial activism" is wrong.
Ditto my feeling about monetary activism. If they do have the goods to get it done, let's not tie their hands. Yet they haven't done it, or not everything they could have. It seems that Sumner is probably right that they absolutely will not allow deflation but they won't do anything either that could throw inflation above 2%-which may be what is needed.
Ygelsias' proposal of ending cash is meant to do the same thing-it is yet one more case of very creative and clever "monetary activism" to do a head fake against the rationally ignorant polity. Basically, according to Matt, it eliminates the famous zero bound problem. It does it by taking away the ability of savors to simply take their money out of the bank and park it under their mattress.
Remember-inflation to an extent really does punish savers as well as creditors as it eats away at their deposits and money market funds. At this point there is simply no benefit to saving at all as far as the interest rate you can get on your savings account is little better than zero if at all. Factor in inflation, even now of about 2.5% and that comes directly from the real savings rate. A saver today basically already pays the bank well over 2% to hold on to their money. Raising the inflation rate makes the negative real rate worse.
If we do away with cash then the only way to avoid having their money dissolve like water is to spend it now.
http://www.slate.com/articles/technology/technology/2011/12/how_eliminating_paper_money_could_end_recessions_.html
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