There if a Russian fable of a superstitious peasant man who visited a woman. When she was walking into her house she blew on her hands to warm them up. Yet once in side, she blew on her soup to cool it down. He ran away screaming, 'Aiiiiieeeeee! Hot and cold from one mouth!!'
Somehow with SW I've achieved that-I'm a fan of both he and Krugman. However, now I see that Sumner is praising him. Wait a minute! Maybe I should reconsider? Sumner does seem to be the only one who gets what he was saying the other day about raising interest rates to get higher inflation:
"Steve Williamson has a very good post on the Phillips curve and the Fisher effect. Because I have been encouraging macroeconomists to stop paying attention to inflation and start focusing on NGDP, I’m all for any and all attempts to mock inflation-oriented models like the Phillips curve."
"Towards the end he suggests that if we want to avoid Japanese-style nominal stagnation we will have to raise interest rates. Yes, but how? The ECB tried that strategy in 2011 and the eurozone went right back into a double-dip recession. Then they had to cut rates to prevent the eurozone from collapsing. So I think we can all agree that the ECB’s way of getting to higher interest rates is far from optimal. And yet there is some truth to Williamson’s claim that a higher inflation equilibrium will involve higher steady-state interest rates than would a lower inflation equilibrium. But how do we get there?"
http://www.themoneyillusion.com/?p=25417
So Sumner and SW can bond on hating the Phillips Curve-and Krugman.
Sorry to kill the ending but Sumner's answer wasn't exactly surprising: maintain NGDPLT. Shocker right?
"As far as the how to raise interest rates question, that’s pretty easy. You simply target the price of NGDP futures along the desired growth path, and let markets determine the monetary base and interest rates. I believe interest rates would rise in a fairly short time with a 5% NGDP (level) target, perhaps a year or so. But it’s not really important how long it takes, because just as inflation doesn’t matter, nominal interest rates also don’t matter. Only NGDP growth matters."
Interestingly, SW had a terse comment at Sumner where he said the way to do it-raise the interest rate-is to raise IOR. Sumner always argues that IOR has been a real drag, a significant tightening of monetary policy. He answered SW:
"Steve, I claim that action would lower TIPS spreads. The best way to raise inflation rates is to raise the NGDP target path, and do level targeting. The expectations of faster NGDP growth (if sufficiently large) will tend to raise TIPS spreads and probably long term rates."
P.S. Why do I like SW? He believes the liquidity trap is real and that what we need right now is to increase public debt. Yet this guy hates Krugman. He was at it again today.
http://newmonetarism.blogspot.com/2013/12/whats-economics-blogosphere-good-for.html#comment-form
http://diaryofarepublicanhater.blogspot.com/2013/12/stephen-williamson-vs-paul-krugman-on.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29
Somehow with SW I've achieved that-I'm a fan of both he and Krugman. However, now I see that Sumner is praising him. Wait a minute! Maybe I should reconsider? Sumner does seem to be the only one who gets what he was saying the other day about raising interest rates to get higher inflation:
"Steve Williamson has a very good post on the Phillips curve and the Fisher effect. Because I have been encouraging macroeconomists to stop paying attention to inflation and start focusing on NGDP, I’m all for any and all attempts to mock inflation-oriented models like the Phillips curve."
"Towards the end he suggests that if we want to avoid Japanese-style nominal stagnation we will have to raise interest rates. Yes, but how? The ECB tried that strategy in 2011 and the eurozone went right back into a double-dip recession. Then they had to cut rates to prevent the eurozone from collapsing. So I think we can all agree that the ECB’s way of getting to higher interest rates is far from optimal. And yet there is some truth to Williamson’s claim that a higher inflation equilibrium will involve higher steady-state interest rates than would a lower inflation equilibrium. But how do we get there?"
http://www.themoneyillusion.com/?p=25417
So Sumner and SW can bond on hating the Phillips Curve-and Krugman.
Sorry to kill the ending but Sumner's answer wasn't exactly surprising: maintain NGDPLT. Shocker right?
"As far as the how to raise interest rates question, that’s pretty easy. You simply target the price of NGDP futures along the desired growth path, and let markets determine the monetary base and interest rates. I believe interest rates would rise in a fairly short time with a 5% NGDP (level) target, perhaps a year or so. But it’s not really important how long it takes, because just as inflation doesn’t matter, nominal interest rates also don’t matter. Only NGDP growth matters."
Interestingly, SW had a terse comment at Sumner where he said the way to do it-raise the interest rate-is to raise IOR. Sumner always argues that IOR has been a real drag, a significant tightening of monetary policy. He answered SW:
"Steve, I claim that action would lower TIPS spreads. The best way to raise inflation rates is to raise the NGDP target path, and do level targeting. The expectations of faster NGDP growth (if sufficiently large) will tend to raise TIPS spreads and probably long term rates."
P.S. Why do I like SW? He believes the liquidity trap is real and that what we need right now is to increase public debt. Yet this guy hates Krugman. He was at it again today.
http://newmonetarism.blogspot.com/2013/12/whats-economics-blogosphere-good-for.html#comment-form
http://diaryofarepublicanhater.blogspot.com/2013/12/stephen-williamson-vs-paul-krugman-on.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29
Scott has become a sharknado of contradictions. The reality of the past few years did not fit his preconceptions. His last post was sad. ("lessons learned") The comments section was sadder. It's hard to read him anymore.
ReplyDeleteIn 2007 a lot of smart conservatives realized that what they believed to be economic truths, were in fact flawed suppositions. Unable to accept-- that at least in a liquidity trap-- that Keynesians were right, they looked for a new view that would supply the missing ingredient, that would make their Ideas workable.
Scott supplied them with a plausible key. A cult formed around him. I don't know if you noticed, but a lot of his followers have what amounts to a mystical belief that once NGDPLT is achieved, that market forces will finally free us from History-- a libertarian utopia will manifest itself.
QE3 and how it was heralded by the NGDPLT crowd was the beginning of the end of the dream for all but thoses with the deepest faith. Thier denial is sad to witness.
Having said all that...I still think NGDPLT might be a better tool than inflation targeting...especially for avoiding falling into a liquidity trap. (it wouldn't hurt to try it it-- would it ?) All along I worried that overselling it might lead to the idea being discredited. I hope that does not happen, but it sure seems like the wind is gone from the sails.
Yes I am aware of their mysticism. I have tried to give them a fair hearing but their closemindeness has repelled me. I'm not sure about NGDP as opposed to inflation. I hate an inflation target so maybe that'd be better. At the end of the day the Fed can neither control the inflation rate or the NGDP rate I don't believe.
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