That seems to be the crux of what he's saying:
"I must say I'm puzzled and frustrated by the many clueless responses, like this one by Dallas Fed President Richard Fisher, to those well-placed (mostly Keynesian) economists who have been insisting for some time that, with the unemployment rate still above 7%, and the latest (annual) inflation rate at just 1%, what the U.S. economy needs right now is a higher inflation target. Instead of 2%, they say, make it 4%, or even 6%. Those higher targets, they explain, can be be counted on to raise interest rates, rescuing us from the zero lower interest rate bound we've been stuck near, and thereby getting the unemployment rate back down to the Fed's current goal of 6.5%, if not lower."
I would play devil's advocate and ask even if we did get the 70s again in trying to fix the economy wouldn't it be preferable to the status quo? In Selgin's ironic questioning he asked do these people at the Fed not care about the unemployed? My answer might be yes-or at least they care about something more-keeping inflation low no matter what the unemployment rate.
Yet the 70s were a much better time than the last 4 years. We had job growth larger than population growth and much stronger GDP. Interestingly Sumner claims that had we done his NGDPLT we would have had stagflation-which would be the best outcome according to him-though he defines stagflation differently than many-high inflation and low RGDP.
http://www.themoneyillusion.com/?p=14924
So at least Sumner seems to recognize that the 70s were preferable to the current status quo anyway. Again, though, like Glasner says, it's not at all likely we would have such pronounced inflation this time around.
Randall Wray makes the point that we still don't know exactly how harmful inflation really is much less have we shown that the costs of inflation targeting are much lower than the costs of inflation.
http://diaryofarepublicanhater.blogspot.com/2013/11/randy-wrey-on-inflation-expectations-as.html?showComment=1385691199294#c3715800254393980626
People like Selgin act as if we know that the costs of inflation fighting are a drop in the bucket compared to the costs of inflation itself-but where do they get this confdience? If they have the emprical evidence the rest of us lack they should share it with us.
UPDATE: Selgin said this in a discussion I had with him in the comments over at Uneasy Money:
"Mike, it isn’t a question of “inflation fighting.” It is one of the appropriateness of _aiming_ for an inflation rate of 4 or even 6 percent. The proposal is as unwise as it is unnecessary. (1) If the goal is merely to get to 2% inflation (as some suggest is the case), then only by twisted logic can one claim that aiming for 4% or 6% will somehow get us there when aiming for 2% itself will not; (2) unless adverse supply changes are responsible for it, even 2% inflation is _ipso-facto_ proof that the economy is not suffering from a real or nominal money shortage, and hence that the source of disappointing employment and output numbers lies elsewhere; (3) higher inflation itself ought not to be regarded as a legitimate monetary policy objective; nor is it properly regarded as a means for achieving higher real output or employment; (4) in the absence of substantial inflation a higher growth rate of NGDP might in contrast properly be regarded as a means for achieving a higher rate of output and employment, perhaps with some increase in inflation as a side effect, but then the argument should be for announcing a suitable NGDP growth target, not for announcing a higher inflation target (for one thing, the latter risks raising inflation expectations, which itself will _hamper_ recovery)."
"I must say I'm puzzled and frustrated by the many clueless responses, like this one by Dallas Fed President Richard Fisher, to those well-placed (mostly Keynesian) economists who have been insisting for some time that, with the unemployment rate still above 7%, and the latest (annual) inflation rate at just 1%, what the U.S. economy needs right now is a higher inflation target. Instead of 2%, they say, make it 4%, or even 6%. Those higher targets, they explain, can be be counted on to raise interest rates, rescuing us from the zero lower interest rate bound we've been stuck near, and thereby getting the unemployment rate back down to the Fed's current goal of 6.5%, if not lower."
"Should we take their advice? Heck, yeah! After all, this isn't the first time that we've been in a situation like the present one. There was at least one other occasion when the U.S. economy, having been humming along nicely with the inflation rate of 2% and an unemployment rate between 5% and 6%, slid into a recession. Eventually the unemployment rate was 7%, the inflation rate was only 1%, and the federal funds rate was within a percentage point of the zero lower bound. Fortunately for the American public, some well-placed (mostly Keynesian) economists came to the rescue, by arguing that the way to get unemployment back down was to aim for a higher inflation rate: a rate of about 4% a year, they figured, should suffice to get the unemployment rate down to 4%--a much lower rate than anyone dares to hope for today."
"I'm puzzled and frustrated because, that time around, the Fed took the experts' advice and it worked like a charm. The federal funds rate quickly achieved lift-off (within a year it had risen almost 100 basis points, from 1.17% to 2.15%). Before you could say "investment multiplier" the inflation and unemployment numbers were improving steadily. Within a few years inflation had reached 4%, and unemployment had declined to 4%--just as those (mostly Keynesian) experts had predicted."
"So why are these crazy inflation hawks trying to prevent us from resorting again to a policy that worked such wonders in the past? Do they just love seeing all those millions of workers without jobs? Or is it simply that they don't care about jobs at all, just so long as inflation is low? Whatever the reason, they certainly come across like a bunch of callous dunderheads."
"Oh: I forgot to say what past recession I've been referring to. It was the recession of 1960-61. The desired numbers were achieved by 1967. I can't remember exactly what happened after that, though I'm sure it all went exactly as those clever theorists intended."
David Glasner does a good job of showing that it's quite a reach for Selgin to attribute the 'stagflation' of the 70s to the FED cutting interest rates in 1961.
"Cleverly suggesting that the decision to use monetary expansion, and an implied higher tolerance for inflation, to reduce unemployment from the 7% rate to which it had risen in 1961 was the ultimate cause of the high inflation of the late 1960s and early 1970s, and, presumably, the stagflation of the mid- and late-1970s, George is inviting his readers to conclude that raising the inflation target today would have similarly disastrous results."
"Well, that strikes me as quite an overreach. Certainly one should not ignore the history to which George is drawing our attention, but I think it is possible (and plausible) to imagine a far more benign course of events than the one that played itself out in the 1960s and 1970s. The key difference is that the ceilings on deposit interest rates that caused a tightening of monetary policy in 1966 to produce a mini-financial crisis, forcing the 1966 Fed to abandon its sensible monetary tightening to counter inflationary pressure, are no longer in place."
"Nor should we forget that some of the inflation of the 1970s was the result of supply-side shocks for which some monetary expansion (and some incremental price inflation) was an optimal policy response. The disastrous long-term consequences of Nixon’s wage and price controls should not be attributed to the expansionary monetary policy of the early 1960s."
"As Mark Twain put it so well:
http://uneasymoney.com/2013/11/29/george-selgin-relives-the-sixties/We should be careful to get out of an experience only the wisdom that is in it and stop there lest we be like the cat that sits down on a hot stove lid. She will never sit down on a hot stove lid again and that is well but also she will never sit down on a cold one anymore.
I would play devil's advocate and ask even if we did get the 70s again in trying to fix the economy wouldn't it be preferable to the status quo? In Selgin's ironic questioning he asked do these people at the Fed not care about the unemployed? My answer might be yes-or at least they care about something more-keeping inflation low no matter what the unemployment rate.
Yet the 70s were a much better time than the last 4 years. We had job growth larger than population growth and much stronger GDP. Interestingly Sumner claims that had we done his NGDPLT we would have had stagflation-which would be the best outcome according to him-though he defines stagflation differently than many-high inflation and low RGDP.
http://www.themoneyillusion.com/?p=14924
So at least Sumner seems to recognize that the 70s were preferable to the current status quo anyway. Again, though, like Glasner says, it's not at all likely we would have such pronounced inflation this time around.
Randall Wray makes the point that we still don't know exactly how harmful inflation really is much less have we shown that the costs of inflation targeting are much lower than the costs of inflation.
http://diaryofarepublicanhater.blogspot.com/2013/11/randy-wrey-on-inflation-expectations-as.html?showComment=1385691199294#c3715800254393980626
People like Selgin act as if we know that the costs of inflation fighting are a drop in the bucket compared to the costs of inflation itself-but where do they get this confdience? If they have the emprical evidence the rest of us lack they should share it with us.
UPDATE: Selgin said this in a discussion I had with him in the comments over at Uneasy Money:
"Mike, it isn’t a question of “inflation fighting.” It is one of the appropriateness of _aiming_ for an inflation rate of 4 or even 6 percent. The proposal is as unwise as it is unnecessary. (1) If the goal is merely to get to 2% inflation (as some suggest is the case), then only by twisted logic can one claim that aiming for 4% or 6% will somehow get us there when aiming for 2% itself will not; (2) unless adverse supply changes are responsible for it, even 2% inflation is _ipso-facto_ proof that the economy is not suffering from a real or nominal money shortage, and hence that the source of disappointing employment and output numbers lies elsewhere; (3) higher inflation itself ought not to be regarded as a legitimate monetary policy objective; nor is it properly regarded as a means for achieving higher real output or employment; (4) in the absence of substantial inflation a higher growth rate of NGDP might in contrast properly be regarded as a means for achieving a higher rate of output and employment, perhaps with some increase in inflation as a side effect, but then the argument should be for announcing a suitable NGDP growth target, not for announcing a higher inflation target (for one thing, the latter risks raising inflation expectations, which itself will _hamper_ recovery)."
"Whatever the flaws of my comparison with the 60s may be–and all such comparisons are necessarily imperfect–in one respect I’m pretty certain that it isn’t flawed at all. That is in regarding those who argue for a higher inflation target today as subscribing to the same basic fallacy as their early-60s Keynesian progenitors, to whit: that of confusing the inflation rate with the rate of growth of aggregate demand, and thereby falsely treating what are really two contemporaneous consequences of cyclical changes in AD as if one were a consequence of the other."
No comments:
Post a Comment