This touches on something I wrote about yesterday where Mises seemed to be suggesting that fiscal policy is preferable to monetary policy.
http://diaryofarepublicanhater.blogspot.com/2014/01/ludwing-von-mises-for-fiscal-policy.html
Now I just came across a back and forth Sumner, his Market Monetarists, and the Austrians-Bob Murphy, et. al-had over Cantillion effects a little over a year ago.
It again kind of got me thinking that on this issue-maybe-the Austrians are closer to the Keynesians. Don't get me wrong: I don't think that Austrians and Keynesians are on the same side. The Monetarists and Austrians are on the same side against the Keynesians though for tactical, strategic purposes they can't admit this.
What I'm saying is that politically the Monetarists and Austrians are on the same side and both have the same objective in view: kill Keynesianism by any means necessary. Do you find my choice of words over the top? Sumner has actually spoken of 'driving a stake through the heart of Keynesians' and that 'Keynesianism isn't sleeping its dead.'
http://diaryofarepublicanhater.blogspot.com/2013/11/there-sumner-goes-again-announcing-that.html
http://diaryofarepublicanhater.blogspot.com/2013/11/how-many-nails-does-it-take-to-bury.html
However, on this theoretical point on the face of it Austrianism sounds closer to Keynesianism than Monetarism. Sumner and the Monetarists-Market or otherwise-insist that it makes no difference where a monetary injection is implemented.
Here are some links to the debate.
http://uneasymoney.com/2012/12/06/those-dreaded-cantillon-effects/
http://consultingbyrpm.com/blog/2012/12/resolution-of-the-sumnerrichman-showdown.html
The Austrians-going back to Mises-think it matters. Surely if there's a monetary injection it matters at least at the individual level. That must be true, I mean if the Fed evenly disburses newly printed money of $1 billion dollars or for some inexplicable reason gives it all too me, it sure makes a difference to me but what about the macroeconomy? Sumner and friends say no. Of course, I'd put the money in the bank and from that point, it would all go exactly the same according to Monetarism.
However, Sumner did offer an interesting qualifier. It doesn't matter where a 'helicopter drop' happens, unless it's also a fiscal action as well.
"Consider the following four monetary policy injections, where fiscal policy is held constant in each case."
"1. Newly injected base money is used to buy T-bonds from banks."
"2. Newly injected base money is used to buy T-bonds from non-bank securities dealers."
"3. Newly injected base money is used to buy T-bonds from individuals at a special auction excluding bond dealers."
"4. Newly inject base money is used to pay the salaries of government workers, and as a result less money is borrowed by the Treasury. The Treasury then creates and donates a T-bond to the Fed."
I
"In all four cases the increase in the amount of base money is identical. In all four cases within about one week the increase in currency held by the public and bank reserves is virtually identical. In all four cases the impact on debt held by the public is identical. Thus the impact on interest rates is virtually identical in each case. In all four cases the impact on the purchasing power of various groups in society is virtually identical."
"Bonds are purchased at market prices. It simply doesn’t matter how the money is injected, if we assume a pure monetary policy with no change in fiscal policy. Of course a “helicopter drop” is also a fiscal expansion, and hence would produce slightly different results."
http://www.themoneyillusion.com/?p=17944
Helicopters are problematic in themselves-I mean is there ever a helicopter drop that isn't also a fiscal action? To not be a fiscal action would mean that the federal government isn't needed to either borrow or tax. Nick Rowe further elucidates this ambiguity by saying flat out that the debate over Cantillion effects is really a debate over whether fiscal policy matters. Basically if it does then it matters where the injection point in a monetary action is if it doesn't then it doesn't matter.
http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/12/cantillon-effects-and-non-super-neutrality.html?cid=6a00d83451688169e2017c3449c5dc970b#comment-6a00d83451688169e2017c3449c5dc970b
So maybe the difference is that the Monetarists defined fiscal vs. monetary actions differently than Keynesians and Austrians?
UPDATE: Richman's Austrian article that started the whole conversation.
http://www.theamericanconservative.com/articles/how-the-rich-rule/
http://diaryofarepublicanhater.blogspot.com/2014/01/ludwing-von-mises-for-fiscal-policy.html
Now I just came across a back and forth Sumner, his Market Monetarists, and the Austrians-Bob Murphy, et. al-had over Cantillion effects a little over a year ago.
It again kind of got me thinking that on this issue-maybe-the Austrians are closer to the Keynesians. Don't get me wrong: I don't think that Austrians and Keynesians are on the same side. The Monetarists and Austrians are on the same side against the Keynesians though for tactical, strategic purposes they can't admit this.
What I'm saying is that politically the Monetarists and Austrians are on the same side and both have the same objective in view: kill Keynesianism by any means necessary. Do you find my choice of words over the top? Sumner has actually spoken of 'driving a stake through the heart of Keynesians' and that 'Keynesianism isn't sleeping its dead.'
http://diaryofarepublicanhater.blogspot.com/2013/11/there-sumner-goes-again-announcing-that.html
http://diaryofarepublicanhater.blogspot.com/2013/11/how-many-nails-does-it-take-to-bury.html
However, on this theoretical point on the face of it Austrianism sounds closer to Keynesianism than Monetarism. Sumner and the Monetarists-Market or otherwise-insist that it makes no difference where a monetary injection is implemented.
Here are some links to the debate.
http://uneasymoney.com/2012/12/06/those-dreaded-cantillon-effects/
http://consultingbyrpm.com/blog/2012/12/resolution-of-the-sumnerrichman-showdown.html
The Austrians-going back to Mises-think it matters. Surely if there's a monetary injection it matters at least at the individual level. That must be true, I mean if the Fed evenly disburses newly printed money of $1 billion dollars or for some inexplicable reason gives it all too me, it sure makes a difference to me but what about the macroeconomy? Sumner and friends say no. Of course, I'd put the money in the bank and from that point, it would all go exactly the same according to Monetarism.
However, Sumner did offer an interesting qualifier. It doesn't matter where a 'helicopter drop' happens, unless it's also a fiscal action as well.
"Consider the following four monetary policy injections, where fiscal policy is held constant in each case."
"1. Newly injected base money is used to buy T-bonds from banks."
"2. Newly injected base money is used to buy T-bonds from non-bank securities dealers."
"3. Newly injected base money is used to buy T-bonds from individuals at a special auction excluding bond dealers."
"4. Newly inject base money is used to pay the salaries of government workers, and as a result less money is borrowed by the Treasury. The Treasury then creates and donates a T-bond to the Fed."
I
"In all four cases the increase in the amount of base money is identical. In all four cases within about one week the increase in currency held by the public and bank reserves is virtually identical. In all four cases the impact on debt held by the public is identical. Thus the impact on interest rates is virtually identical in each case. In all four cases the impact on the purchasing power of various groups in society is virtually identical."
"Bonds are purchased at market prices. It simply doesn’t matter how the money is injected, if we assume a pure monetary policy with no change in fiscal policy. Of course a “helicopter drop” is also a fiscal expansion, and hence would produce slightly different results."
http://www.themoneyillusion.com/?p=17944
Helicopters are problematic in themselves-I mean is there ever a helicopter drop that isn't also a fiscal action? To not be a fiscal action would mean that the federal government isn't needed to either borrow or tax. Nick Rowe further elucidates this ambiguity by saying flat out that the debate over Cantillion effects is really a debate over whether fiscal policy matters. Basically if it does then it matters where the injection point in a monetary action is if it doesn't then it doesn't matter.
http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/12/cantillon-effects-and-non-super-neutrality.html?cid=6a00d83451688169e2017c3449c5dc970b#comment-6a00d83451688169e2017c3449c5dc970b
So maybe the difference is that the Monetarists defined fiscal vs. monetary actions differently than Keynesians and Austrians?
UPDATE: Richman's Austrian article that started the whole conversation.
http://www.theamericanconservative.com/articles/how-the-rich-rule/
I find fights between MMists and Austrians to be hugely entertaining... as do I fights between MMists and traditional monetarists. And I too discovered that vast pool of debate material on Cantillion effects some time back. I didn't have time to go through it in detail, but I'm glad you found the part about the MMists and fiscal policy in this regard. I was gearing up to make an awkward reference to it prior to seeing you cover it. There's also a Sumner quote I wish I could recall... it surprised me. Something to do with "The injection point doesn't matter! ... it doesn't matter which bank it's injected in"... to which someone responded, "I'm not talking which bank, I'm talking the banking sector or another sector." ... something like that. Anyway, I was surprised because the "it doesn't matter where" phrase the MMists were using was more qualified (implicitly) than I'd first imagined... some miscommunication there between the two sides of the debate (and BTW, I'm not confident which side was which in my paraphrased argument above!).
ReplyDeleteAlso, I'm going to say that it's quite possible to be a liberal MMist: you could be all for more gov involvement in things and still think that monetary policy using NGDPLT trumps fiscal policy every time for the purpose of avoiding unnecessary recessions or depressions (caused by shocks).
I don't know if it's possible to be a liberal Austrian, but certainly a populist one. I think the Austrians' keen on limiting bank lending for example, show a curious exception to the "no jack booted gubment thugs should be telling us what to do!" rule in that particular case. I suppose it's possible to be a liberal Austrian... do you think so?
Well I'm glad you're doing all this reading Mike! I really know nothing about Austrianism, but I'm almost always opposed to it anyway because I irrationally fear what I don't understand. :D
Actually, I have ideas (perhaps unfair ones) about Austrian econ that colors my view of it negatively: I always think of it in terms of being conveniently self justifying: it can't be falsified, etc. Whenever I hear that kind of thing, my BS detectors start pegging! Perhaps you can learn the real story. I saw Geoff/MF actually making that argument the other day on Sumner's site.
BTW, this is one of my favorite pages on Austrian econ. You can tell me how fair it is:
http://rationalwiki.org/wiki/Fun:Austrian_school
I don't have a high regard for Austrianism though MF might really be handicapping it.
DeleteI do find Mises-what I've read so far interesting. Sumner basically is saying-later I can get quotes, I'm about to go to work now-the injection point doesn't matter in a monetary action but it does iin a fiscal operation. If the Fed spends $1 billion dollars in bonds it doesn't matter whose bonds it buys or which banks.
However, it would matter if the Fed put money in the apple market or the auto market. However, this he says would be a fiscal action.
http://www.themoneyillusion.com/?p=18009
On the idea of 'liberal MMers' Tom I must admit I'm much more skeptical than you are.
DeleteIn fact this is really the crux of my argument with Sumner-and Sadowski-I think that MM is much less malleable than Scott wants you to think. Basically if you accept monetary offset, you're not really a liberal. To paraphrase Scott, what AD is just a smokescreen the real point is to shrink the size of govt.
http://diaryofarepublicanhater.blogspot.com/2014/01/sumner-monetarism-and-politics.html
Basically MM is not for liberals but for Neoliberals.
Delete... well then what would you call someone who's liberal in every respect, but still thinks that monetary stimulus should be the only stimulus used (i.e. there's nothing wrong w/ gov spending, just don't imagine that it has value as a stimulus). I think it's possible to fill that spot. In fact I've often thought it'd be fun to take on that persona... in an exaggerated way... maybe call myself the "dirty hippy MMer" ... and then post comments praising those aspects of MM on Scott's site, while advocating a very left wing agenda otherwise... just to see the reaction of Morgan Warstler... :D (Morgan cracks me up because he's always trying to get Scott to sell himself more effectively to the right wing... what could be worse for that than Scott accepting a speaking engagement at the "Progressive Liberals for MM" symposium! Lol).
DeleteThen in yet another category you might have someone who thinks that NGDPLT is the way to go, but they don't care how you get there: monetary, fiscal, whatever works!... we'll learn what's best as we go. I've seen David Glasner make a comment to that effect once.
.... to be fair, I think David is much more inclined to think that monetary measures get you to NGDPLT best, but he's not opposed to adding a fiscal element, "just in case."
Delete... and please don't write an article on how Tom Brown plans to mess with Morgan!... it's bad enough that I left that in the comments here. I might actually want to do that some day, but if you publicize it too much it might kill my chances! :D
DeleteMike, here's one for ya: what would your new Austrian buddies* say about an argument like the one that Benjamin Cole makes here:
ReplyDeletehttp://www.themoneyillusion.com/?p=26030#comment-315086
They'd be opposed on principal, right? Inflation is always bad to an Austrian isn't it? I like many of Benjamin Cole's comments BTW. I'd like to see him do battle with Vincent.
*I'm officially razzing you there about your new buddies. :D
And regarding MM vs it's competition: I don't know what to call Miles Kimball. Does MM consider him to be part of the competition? I don't know... but nevertheless, David Beckworth (clearly an MMist) did a nice side by side of him vs Sumner recently, that I thought went out of it's way to be fair to Miles:
ReplyDeletehttp://macromarketmusings.blogspot.com/2014/01/miles-and-scotts-excellent-adventure.html
Miles simply calls himself a supply sider. I think most supply siders are monetarists since monetarists are about the supply of money and its control.
DeleteMiles is big on the e money and neg interest rates thing as I recall, and he definitely calls himself a liberal (and unlike Sadowski actually acts and talks like one)
I do question one assumption you make about liberal and govt. As a liberal Im not necessarily wanting more govt, what I want is less concentration of power. I think concentration of power/wealth leads to bad things. We humans don't behave well when we have control over other humans. Up til now, some form of govt is the only way we have discovered to combat this natural tendency in market economies for wealth and power to concentrate. I wish churches could do the job but most religious leaders are as corruptible as everyone else.
My view is that it is necessary to protect us form ourselves and we can only do that via a public institution type model, its impossible to privatize public welfare.
I agree with Greg though I do think to do more for public welfare we do need the US Govt a little bigger than it is now.
DeleteMiles is a Monetarist-he agrees that monetary policy is superior to fiscal-though he's not a Market Monetarist and as Greg says he has someting of a rival proposal to NGDPLT
DeleteHe thinks simply getting rid of paper money-all digitial cash-will have some very beneficial effects. I'm far from certain but tend to think he exaggerates all this. I'm quessing we're going in the direction of a cashless society but don't know that the benefits will be this great. He makes it sound like it will end the business cycle.
His other big innovation is giving everyone lines of credit with the Fed. Again, I'm not sure what this would amount to but I tend to think it's a little oversold. I
DeleteSorry guys, I knew when I implied that liberal = more gov might be controversial... that was just shorthand for liberal to the point of not being afraid of more gov when necessary.
DeleteMiles: I think you guys have the same understanding I do. Sure, it makes sense to call him a Monetarist, just not an MMist. And he certainly does take some liberal positions. On his blog he has an article called "What is a supply side liberal?" which spells some of that out.
I think something that the left needs to change is that when calling for more govt, it doesn't necessarily mean more spending AND when calling for more spending it doesn't mean the size and scope of govt is increasing. Paying more to military contractors this year than last year is not increasing the size of govt per se it may simply be viewed as paying more for something the public desires. It doesn't mean anymore strings are attached or thea anymore govt personnel are involved, its just more zeros on a contractors balance sheet.
DeleteGreg I see this as kind of a semantical discussion-maybe for some reason the idea of increasing the size of govt is held to be an intrinsically bad thing. I don't think liberals should be afraid of the idea that sometimes the govt sometimes needs to be increased in size.
DeleteWe are the govt. The govt isn't the bad guy, at least there is some accountability. The reason Sumner loves the Fed is because of it's 'independence' which makes it totally unaccountable
To be sure we don't seek to increase the size of govt for the sake of. The Right on the other hand seeks the contraction of the size of govt for its own sake-it's a fetish with them.
ReplyDeleteDon't get me wrong. Liberals don't always support bigger govt. Take the old House of UnAmerican Activities. Liberals supported eliminiating that which was a decrease in the size of govt and that was the right move.
ReplyDelete