Bob Murphy is concerned about an innocent man getting 'lynched'-Stephen Williamson. Very admirable I'm sure. He wrote this comment on SW's latest post:
"Dr. Williamson, if you'll bear with me, I am truly trying to make sure the blogosphere mob doesn't lynch an innocent man. So can you please clarify your position by telling me if I'm understanding you?"
http://newmonetarism.blogspot.com/2013/12/daily-chuckle.html
Call me cynical but why is Murphy so concerned about SW being somehow 'lynched' and why does he suspect that he's innocent? Here in an earlier comment at a previous SW post he kind of spills the beans:
"Hi Dr. Williamson, I am naturally sympathetic to anyone whom Krugman attacks, but in the verbal discussions of your position, something doesn't sound right. "
http://newmonetarism.blogspot.com/2013/12/intuition-part-ii.html?showComment=1386204270910#c5812143730129428046
You've heard of your enemy of your enemy is your friend but for Murphy the enemy of Paul Krugman is his friend. Don't get me wrong, it's tough to really figure out what SW is getting at here. He complains in his answer to Murphy that lots of words have been ft in his mouth:
"My original post actually didn't focus on QE, I merely wanted to suggest reasons why, if the Fed maintained policy at the zero lower bound for a long time, we need not observe deflation, and why we could see falling inflation. In the model, it's a long-run proposition. Then, some people wanted to focus on the QE result in my working paper which is that, as a long run proposition, at the zero lower bound QE will lower inflation (while also raising consumption and making us better off, through a mechanism which involves relaxing collateral constraints. That idea ran away with itself, and people started putting words in my mouth."
I have to say in reading this I still don't know what he's getting at. When he says 'if the Fed maintained policy at the zero lower bound for a long time we need not observe deflation, and we could see falling inflaiton' is he saying if the Fed maintained near zero rates we need not see deflation? This makes is sound like the Fed's low rates cause the deflation-rather than are actually a response to the deflation. Is he saying that he wants to show both why there was no deflation but why there is also falling inflation and that Fed's attempts to fight deflation have actually lowered interest rates?
I do get that he was trying to answer Krugman's quandary as to why there hasn't been deflation with such a depressed economy. It occurs to me that whatever you think of Krugman and SW's many criticisms of-he has actually treated Krugman's criticism much more respectfully than say Nick Rowe's during this confusion-there is at least one skill that Krugman has in spades that SW sorely lacks: concision, the ability to boil down and complex and vast discussion of deep intellectual issues into short, well written and understandable sentences. Krugman can say in a few words what SW has trouble saying in many labored words.
What seems clear to me is that I'm not sure quite what SW's theoretical argument is. I initially read it as in many ways at least theoretically much more pro Krugman in its implications than pro Sumner. It seemed to me that he was accepting a major cornerstone of Krugman's position-the liquidity trap though he was explaining it in his own rather counterintuitive and hard to find 'New Monetarist' reasons. He also-it seemed- was arguing that what's needed is fiscal spending to get us over the hump-after all, he seemed to be suggesting that was is needed is more public debt.
However, David Glasner has a very interesting post that suggests that SW actually doesn't think the 'liquidity trap is real' but rather is only a pseudo LT:
"Here’s how I understand what Williamson is trying to do. I am not confident in my understanding, because Williamson’s first post was very difficult to follow. He started off with a series of propositions derived from Milton Friedman’s argument about the optimality of deflation at the real rate of interest, which implies a zero nominal interest rate, making it costless to hold money. Liquidity would be free, and the liquidity premium would be zero."
"Dr. Williamson, if you'll bear with me, I am truly trying to make sure the blogosphere mob doesn't lynch an innocent man. So can you please clarify your position by telling me if I'm understanding you?"
http://newmonetarism.blogspot.com/2013/12/daily-chuckle.html
Call me cynical but why is Murphy so concerned about SW being somehow 'lynched' and why does he suspect that he's innocent? Here in an earlier comment at a previous SW post he kind of spills the beans:
"Hi Dr. Williamson, I am naturally sympathetic to anyone whom Krugman attacks, but in the verbal discussions of your position, something doesn't sound right. "
http://newmonetarism.blogspot.com/2013/12/intuition-part-ii.html?showComment=1386204270910#c5812143730129428046
You've heard of your enemy of your enemy is your friend but for Murphy the enemy of Paul Krugman is his friend. Don't get me wrong, it's tough to really figure out what SW is getting at here. He complains in his answer to Murphy that lots of words have been ft in his mouth:
"My original post actually didn't focus on QE, I merely wanted to suggest reasons why, if the Fed maintained policy at the zero lower bound for a long time, we need not observe deflation, and why we could see falling inflation. In the model, it's a long-run proposition. Then, some people wanted to focus on the QE result in my working paper which is that, as a long run proposition, at the zero lower bound QE will lower inflation (while also raising consumption and making us better off, through a mechanism which involves relaxing collateral constraints. That idea ran away with itself, and people started putting words in my mouth."
I have to say in reading this I still don't know what he's getting at. When he says 'if the Fed maintained policy at the zero lower bound for a long time we need not observe deflation, and we could see falling inflaiton' is he saying if the Fed maintained near zero rates we need not see deflation? This makes is sound like the Fed's low rates cause the deflation-rather than are actually a response to the deflation. Is he saying that he wants to show both why there was no deflation but why there is also falling inflation and that Fed's attempts to fight deflation have actually lowered interest rates?
I do get that he was trying to answer Krugman's quandary as to why there hasn't been deflation with such a depressed economy. It occurs to me that whatever you think of Krugman and SW's many criticisms of-he has actually treated Krugman's criticism much more respectfully than say Nick Rowe's during this confusion-there is at least one skill that Krugman has in spades that SW sorely lacks: concision, the ability to boil down and complex and vast discussion of deep intellectual issues into short, well written and understandable sentences. Krugman can say in a few words what SW has trouble saying in many labored words.
What seems clear to me is that I'm not sure quite what SW's theoretical argument is. I initially read it as in many ways at least theoretically much more pro Krugman in its implications than pro Sumner. It seemed to me that he was accepting a major cornerstone of Krugman's position-the liquidity trap though he was explaining it in his own rather counterintuitive and hard to find 'New Monetarist' reasons. He also-it seemed- was arguing that what's needed is fiscal spending to get us over the hump-after all, he seemed to be suggesting that was is needed is more public debt.
However, David Glasner has a very interesting post that suggests that SW actually doesn't think the 'liquidity trap is real' but rather is only a pseudo LT:
"Here’s how I understand what Williamson is trying to do. I am not confident in my understanding, because Williamson’s first post was very difficult to follow. He started off with a series of propositions derived from Milton Friedman’s argument about the optimality of deflation at the real rate of interest, which implies a zero nominal interest rate, making it costless to hold money. Liquidity would be free, and the liquidity premium would be zero."
"From this Friedmanian analysis of the optimality of expected deflation at a rate equal to the real rate of interest, Williamson transitions to a very different argument in which the zero lower bound does not eliminate the liquidity premium. Williamson posits a liquidity premium on bonds, the motivation for which being that bonds are useful by being readily acceptable as collateral. Williamson posits this liquidity premium as a fact, but without providing evidence, just an argument that the financial crisis destroyed or rendered unusable lots of assets that previously were, or could have been, used as collateral, thereby making Treasury bonds of short duration highly liquid and imparting to them a liquidity premium. If both bonds and money are held, and both offer the same zero nominal pecuniary return, then an equal liquidity premium must accrue to both bonds and money."
"But something weird seems to have happened. We are supposed to be at the zero lower bound, and bonds and money are earning a liquidity premium, which means that the real pecuniary yield on bonds and money is negative, which contradicts Friedman’s proposition that a zero nominal interest rate implies that holding money is costless and that there is no liquidity premium. As best as I can figure this out, Williamson seems to be assuming that the real yield on real (illiquid) capital is positive, so that the zero lower bound is really an illusion, a mirage created by the atypical demand for government bonds for use as collateral.
I'm not sure if Mr. Glasner is right or not but its' a least a novel and very interesting way of looking at it and I'm looking forward to SW's response-I assume there will be one. In any case this would imply that I was wrong in initially seeing SW as closer to Krugman and further from Sumner. It may be a little more complicated. Certainly here SW makes that case:
"What's the difference between a New Keynesian, an Old Monetarist, and a New Monetarist? A New Keynesian thinks no assets matter, an Old Monetarist thinks that some of the assets matter, and a New Monetarist thinks all of the assets matter."
If nothing else, this is making me think that maybe he really is more serious about the Monetarism in New Monetarism than I have assumed. Maybe NM is kind of a rebuke and answer to New Keynesians upon whom he often heaps scorn.
Nevertheless I can't really fault Sumner and Nick Rowe for complaining about SW usurping the New Monetarist label.
"So can we (market monetarists) now have the “new monetarist” label that we deserved all along?
"Update: Nick Rowe had a similar reaction."
P.S. The problem with people putting words in SW's mouth is twofold. On the one hand, this always happens as a story is told and retold again and again. However, in addition to this, SW suffers from some level of obscurity-very much not like Krugman. Again, looking forward to his response to Glasner.
Hey Mike, something has changed with your tip jar. It no longer allows me to buy with google. Is there another way? Would like to give you a Christmas tip for helping me avoid direct encounters with Sumner
ReplyDeleteYes Google was warning me of a change with that but I didn't follow it. I'll check later and see what I have to do to get it back up.
ReplyDelete