Sumner argues that Wray has completely misconstrued what he said.
"However Wray doesn't give a time frame. Is he talking short term or long term? In Sumner's example the monetary base is doubled permanently, so you could argue that even if it didn't have a huge effect in the short term, in the long term the effect could be that claimed by Sumner."
"But the main problem is that Sumner claims the effect of doubling the monetary base permanently would not be due to the overnight funds rate being zero, but due to the size of the monetary base - i.e. the so-called "hot potato effect' of base money."
"Wray completely ignored this aspect, because he has no knowledge of Sumner's theories."
"So it's a case of people talking past each other."
"My rebuttal is that whoever wrote that nonsense is a liar, a moron, and a jerk, all wrapped up in one. Life’s too short to respond to someone who claims I asserted that lowering interest rates to zero would cause NGDP to double. (It’s got several names attached, so I don’t know who wrote it.)
Rates just fell to zero in 2008 and I don’t see NGDP doubling.
Then he said this to me:
"Mike, That quote says doubling the money supply causes NGDP to double, which is not a very controversial claim. The claim that cutting rates to zero causes NGDP to double is absurd."
Of course, I'm kind of ticked at Wray too-he didn't give me attribution in his post though he clearly was inspired by my post yesterday that was also lined to at Mike Norman's Economics. Wray rather blasely announces he's got way too much going on in his life to be bothered with blogging-which is in his mind kind of on the level of a 10th grade Dungeons and Dragon's club. He claims to have not been aware of Sumner and Money Illusion until now.
If this is true then he has even less justification for not linking to me as this proves he got both the links to Sumner as well as the inspiration for the title from me. The title is no contest-I mean c'mon: Sumner, MMT Achilles Heel, Explains, hello?
I think y probably explains this all best:
"Wray claims that if the CB doubled the monetary base the only effect would be to reduce the overnight funds rate from 5% to zero. He proceeds to argue that this wouldn't have much of an effect."
"However Wray doesn't give a time frame. Is he talking short term or long term? In Sumner's example the monetary base is doubled permanently, so you could argue that even if it didn't have a huge effect in the short term, in the long term the effect could be that claimed by Sumner."
"But the main problem is that Sumner claims the effect of doubling the monetary base permanently would not be due to the overnight funds rate being zero, but due to the size of the monetary base - i.e. the so-called "hot potato effect' of base money."
"Wray completely ignored this aspect, because he has no knowledge of Sumner's theories."
"So it's a case of people talking past each other."
That's about right. The big complaint I have of both MMers and MMTers is that they're both much too happy just to live in their own little ideological bubbles where they get lots of daily affirmation-rather than realy trying to challenge their core beliefs by ruthless comparison with the other side.
Mostly, MMers say they don't care what MMTers say anyway as they don't understand economics and MMTers say they don't care what MMers say because: they don't understand economics. This is not to say that I think it's all about opinions and so we should just 'tolerate each other's opinions'-no, I do care about actually getting ir right-not like the extollers of bipartisanship who thinks we should always just split it down the middle. However, I think just staying in your provincial ghetto won't get you very far.
.
It seems that the rate dropping from 5% to 0% is not what Sumner said but more like what Wray inferred would happen if you were to double the monetary base. It's probably like y says in that both have their own 'discourse' and talks past the other. However, even if you were to agree that Wray is completely wrong in his characterization of Sumner here, this wouldn't make Sumner right-that doubling the MB would necessarily double NGDP and nearly double prices.
Hey Mike
ReplyDeleteDont take Randys lack of attribution personally, he didnt attribute MNE either, which is where he likely first saw the term Achilles Heel of MMT. You can still put it on the asset side of your sheet as another person higher up the econ nerdosphere chain at least paid attention to something you wrote. This wasnt a Rand Paul plagiarism and I know you arent claiming it was, so just puff up a little cuz you deserve it. Your voice is no longer confined to the wilderness, like mine is, they may not be sure who its coming from but people are listening to the voice.
And the only thing that separates us from our other inhabitants of this spinning orb is our voices. Everything else we think is unique about us we can find examples of in the animal kingdom, likely in other mammals, but nowhere else (save dolphins?) is there voices.
You are using it well!
TK Greg. Wray has come through now and has attributed it. I figured it was probably an oversight.
ReplyDeleteWhen I think of the times Sumner has tried to disparage my blog 'Why do you blog about economics when you're not an economist' I realize that the show must go on!
My take on the econ part of all this though is again, Sumner is being slimy. His claim that he never claimed that lowering rates to zero would double NGDP seems dubious to me because he has always maintained that prices relate to monetary base... directly...period .... and that interest rates affect the monetary base. In fact to him thats how he has sometimes in the past expressed that interest rates affect loans, they make more reserves available for banks to lend.... starting the hot potato affect.
ReplyDeleteWhen people have noted to him in the past that our monetary base has tripled over the last 5-6 yrs he has fallen back on "Well, the fed is paying IOR so they wont lend them out".... sooooo we really havent had zero rate policy. Rates didnt fall to zero in 2008 now did they.
So Scott is correct that cutting interest rates to zero doesnt necessarily cause a doubling of NGDP BUT Scott has always claimed a link between monetary base and NGDP and that the way monetary policy works is by changing the base and assuring the people who watch this stuff that its a credible believable move that wont be reversed soon. MMT has always claimed that monetary policy cant even target a base level (quantity) as its run now. Its simply interest rate changes and let the base quantity adjust and that if you did target base quantity you would have to let interest rates adjust. One or the other. You can have control over one and there still be a market, control over both = no market.
Wray is just using simple math about monetary base and interest rates. If it did double while interest rates were 5% they would head to zero. They have to if you believe in markets (which Im beginning to think Mr Sumner does not) Actually they would get there long before a doubling, but this again is pure hypothetical because they really cant simply target a quantity of "base" as it stands now.
Sumner doesn't even understand that doubling the base drops rates to zero and nothing else happens. As I said, debating him is a waste of time. But you got your attribution so it must have been worth it.
ReplyDeleteIndeed that did make it worth it. However, I disagree that it's a waste of time because many people read him. So calling him out does have value. A lot of people read Money Illusion.
Delete"Talking past each other"? Do you see something useful that Wray is missing? It seems like your only beef with Wray is that you weren't referenced...
ReplyDeleteDan is everyone like you in Detroit or are you the exception? Let's hope so or it's no wonder no one wants to do business there anymore.
DeleteI wonder if you read my post at all. If so you'd realize that my saw about talking past each other has nothing in the world to do with Wray forgetting to reference me-by the way he now has done so.
http://neweconomicperspectives.org/2013/11/scott-sumner-find-mmts-achilles-heel.html#comment-516800
Actually y not I had used the talking past each other phrase first-I simply agree with him. Here's the quote again
"Wray claims that if the CB doubled the monetary base the only effect would be to reduce the overnight funds rate from 5% to zero. He proceeds to argue that this wouldn't have much of an effect."
"However Wray doesn't give a time frame. Is he talking short term or long term? In Sumner's example the monetary base is doubled permanently, so you could argue that even if it didn't have a huge effect in the short term, in the long term the effect could be that claimed by Sumner."
"But the main problem is that Sumner claims the effect of doubling the monetary base permanently would not be due to the overnight funds rate being zero, but due to the size of the monetary base - i.e. the so-called "hot potato effect' of base money."
"Wray completely ignored this aspect, because he has no knowledge of Sumner's theories."
"So it's a case of people talking past each other."
This is why I wonder if you read the post at all or just cherry picked on half sentence out of context.
Mike: Randy sent this to me for you.
ReplyDeleteEvilsax: Hold your horses. I'm glad the NEP moderator linked to your piece. True, someone sent it to me and it led me to Sumner's piece. I wrote a response to that, and got my title from his piece. I did not mean to ignore you, but I did not use anything you said. True, if you had not written your piece, and if no one had sent me a link to Sumner, I would have been blissfully ignorant of his piece. So, thank you. Well, maybe. Sometimes ignorance is better.
TK Tom. I knew he didn't do it deliberately. I'm glad he wrote the piece. A
ReplyDelete