In recent days I tried to get Marcus to tell me why he thinks that while he-and many I think would agree with him-that money remains tight, that 'taper talk' is a big mistake, Sumner made a recent comment that he thinks money is actually going to be easier than most think. His logic is that if you discount interest rates money has been easier.
Basically the market has performed about as well since interest rates have started to unaccountably rise-Treasuries, mortgages, etc.-yet equities have remained at the same level.
My attempt to engage Marcus on this have yet to be successful-I just thought it was an interesting difference between two major Market Monetarists-not that they necessarily will be expected to agree on everything. Actually, however, I was just going through his archives and see that he actually did differ with Sumner on another recent claim. Sumner has claimed that NGDI is a better macro indicator than NGDP.
"Scott suggests the stock market “soared on the news” that NGDI annualized was a robust 5.1% annualized on average over the last two quarters, while NGDP annualized growth was only 2.2%. And ‘pleads’: “Don´t anyone tell the Fed about NGDI”.
Marcus argued that instead the market rallied on news about China's central bank and on what should actually be bad news: first quarter GDP has just been revised downwards. The market here would like this as it would seem to make taper talk less likely. Of course, since then we've gotten some more news that suggests tapering is more likely-in Fed minutes from the most recent FMOC meeting half of Fed officials think QE3 should be ended totally by the end of this year.
One mitigating factor to remember is that the entire FMOC doesn't get a vote-the Fed Presidents get to vote only a rotating basis.
Marcus goes on to provide lots of graphs and numbers that seem to show that NGDI and NGDP in the long term tend to move in line with each other. The two are actually moving in the same direction again. For example, since the 2nd quarter of 2009, the NGDP year over year mean is 2.7% to 2.8%; the median respectively is 3.8% to 3.9%.
Another really good recent discussion about NGDP has been the one between MMer commentator Mark Sadowski and JazzBumpa.
Sadowski is advancing an argument for monetary offset of fiscal policy in terms of the variance of standard deviation of NGDP compared with the average rate of change. Supposed the numbers between 1954-1978 show that NGDP growth is 'remarkably stable."
However, JB puts out some charts that suggests that there isn't the wid convergence of these two metrics. It's not clear why stable NGDP shows conclusively that fiscal policy is unimportant anyway. You could just as soon say that monetary policy makes no difference. I wouldn't make that argument either.
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