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Saturday, March 1, 2014

Market Monetarism and Supply Side Fiscal Policy: Two Sides of the Same Coin

     Trying to get a Market Monetarist to explain why they support fiscal austerity is an interesting game. They play every word game and throw up every subterfuge to deny that they do. No, they are not for fiscal austerity but it doesn't matter as long as the Fed does QE or forward guidance, As the Fed is all powerful to hit any inflation or NGDP target it wants, it doesn't matter whether we do austerity or not.

   Yet they only criticize those who criticize austerity never those who argue for it. Notice that when Republicans call for more fiscal austerity the MMers are silent. However, when anyone criticize these calls, then they speak up. Don Geddis has left a huge amount of comments here recently-for which though I totally disagree with him, I welcome nevertheless-as is the same with Mark Sadowski or whatever fiscal austerians want to drop by.

   Mark recently left a comment that insulted me personally as a 'liar'-but he went on this is not surprising based on what I do for a living-I'm a telemarketer. This I found rather insensitive. I mean, I wish I had a better job than a telemarketer-my education was supposed to get me more-I'm actually have a bachelor's in accounting and am one class away from a Master's in finance. However, thanks to the terrible shape of the economy I had to get into telemarketing. It's conservatives like him who are so against the kind of policies that might give me and millions of others better alternatives to bugging him at home-or at work which has actually become my speciality

   This is why I honestly don't feel any sympathy for people who complain about telemarketing. After all, most of the people I call have much better jobs and make much more money than I do-though it's my goal for this to change. If I get them to buy something they don't wholly need or perhaps shove them a little into it, why should I feel guilty? These same people don't give a crap about my struggles and if they elected better politicians we might have more socially beneficial things for people to do than telesales.

    Listen, I'll admit, I quite like what I do. I find it very interesting for instance, that reading to people word for word from a script can actually be much more effective than those telesales jobs where they tell you to pretend to be 'spontaneous' like you're 'having a real conversation' and 'empathize' with them to the point of agreeing with them it's a pain to have so many telemarketers calling them all day. 

    However, when  I listen to the MMers they sound like telemarketers with a script, much as they insist otherwise. Listen to Don Geddis here when I asked him-yet again-why we want fiscal austerity in the middle of a deep slump:

   "So if austerity subtracts from AD why do it in the middle of a recession?"

    "That's a totally separate question, from everything else we've been talking about. The main discussion is: aggregate demand matters a lot, but the Fed controls it absolutely, so fiscal policy doesn't matter at all for aggregate demand (because of the power of monetary offset) -- a least, with a well-run central bank."

    "Now you've asked a completely independent question: given that the Fed can reach any AD it wants, regardless of the setting of fiscal policy, why might you want fiscal austerity? Especially, in the middle of a recession?"

     "We can talk about that if you want, but it has NOTHING to do with controlling aggregate demand."

      "I don't think it's productive to get into it, but that secondary discussion would be about improving the supply-side of the economy (rather than the demand-side, which is what the Fed controls). I.e., the deadweight losses from taxes, the disincentive effects from government interference in the economy, etc. None of this is specific to recessions, but it's the general arguments that conservatives (or libertarians) make, about controlling the size of government, spending within your means, etc."

      "In the abstract, if fiscal policy doesn't matter for controlling demand, then you probably want to settle on a long-term budget structure of balanced budgets, with deficits dropping to near zero, and expenditures balanced by tax receipts."

      "But again, this argument is completely independent of the different argument, over whether fiscal policy is a useful tool in combating depressed aggregate demand."

    http://diaryofarepublicanhater.blogspot.com/2014/02/turns-out-bernanke-doesnt-believe-in.html?showComment=1393685229712#c2991910979083624228

      Yes, he doesn't see it as 'productive' to get into it. That's obvious, as when you ask this of MMers they always dodge the point. Don is actually the first one who actually answers it here. What is interesting is why is it so unproductive to get into it here? Again, Sumner's hook has always been clear. He doesn't preach like Alesina or Reinhart and Rogoff about the virtues of fiscal austerity, however, he just handicaps MM theory so that if you follow him step by step fiscal austerity 'just happens.'  

     He then goes onto claim that it's possible to be a 'liberal Market Monetarist.'

    "It's easy to be a liberal Market Monetarist. I don't know how else to say it: fiscal policy is IRRELEVANT to controlling aggregate demand. That doesn't mean that MM requires fiscal austerity. It means that your arguments for or against austerity, have nothing to do with whether we're in a demand-side recession.

        "If your politics suggests that you want larger government, large deficits, whatever ... then by all means, go ahead. The only single thing I don't want you to use in your fiscal debate, is the Keynesian claim that we need large fiscal deficits today, in order to boost aggregate demand. MMs want you to throw away that claim."

      "Right, and if you do throw away that claim as a liberal you'll have very little left. In theory you could argue for liberal policies anyway. Yet this isn't very likely. You'll mostly be stuck with 'Supply Side' fiscal policies like Sumner-just happens to praise here."

       "I am viewed as being an opponent of fiscal stimulus, but I’ve always argued that an employer-side payroll tax cut would “work.”  It just seems kind of pointless.  If it’s a lower W/NGDP ratio that you need, just boost NGDP!  Christina Romer has also advocated this sort of payroll tax cut.  It lowers a country’s labor costs in much the same way as a currency devaluation.  If you add on a VAT increase it can even be revenue neutral, which keeps the Very Serious People on board. Since it’s supply-side, no monetary offset problem.  What’s not to like? "

     "http://www.themoneyillusion.com/?p=26278

      Oh, I don't know Scott! You've stumped mere there. Ok, it's a totally regressive fiscal policy-what's not to like? Nothing, if you're a supply sider or a wealthy employer. On the other hand those with low or middle income won't do so well as they're consumption costs will go up. You'll never convince me that this is not the real goal of Sumner, and all his conservative-or 'libertarian' which is a distinction without a difference-regressive supply side policies at any price.

       The idea of a liberal Market Monetarist is even less plausible when you remember that the GOP uses the budget as an excuse to cut important social programs. Essentially the point of MM is to give liberal opponents of Ryan as little leg to stand on as possible.  If we were to buy that balancing the budget during a recession doesn't hurt as long as the Fed does QE that would a tremendous boon to Ryan which is what the real goal is. 

   Geddis talks about the ability of the Fed to hit any target, or achieve any goal as if it's a fait accompli. Actually there is wide divergence on this argument that the Fed can hit any target it wants. Don's argument for how we know that it can is right out of Sumner. The existence of hyperinflation proves it. What we have is the classic Sumner 'Then how do you explain Zimbabwe argument.'

        "It's fine to not be convinced about this. But then this is the only question you should be exploring. It's silly to ask about fiscal austerity, if you're not yet on the same page about the power of monetary policy. EVERYTHING else in MM, depends on this understanding. If Krugman was right about the ZLB, then he would also be right about fiscal stimulus / austerity."

     "So you shouldn't get distracted by all the fiscal questions. Just try to resolve this one, very simple, focused disagreement. MMs have claimed that the Fed allowed NGDP to be too low after 2007, and should have raised it. Some people think that the Fed doesn't have the power to raise NGDP. Are you one of those people? What, exactly, do you think prevents the Fed from debasing the currency? Do you agree that hyperinflation is possible? If we can have the current nominal level, and we can have hyperinflation, then what, exactly, prevents the Fed from targeting some level of nominal spending in between?"

      Notice how he thinks he can actually pigeonhole me here.  Yes, I guess I'll just study the question of whether the Fed is all powerful or not for the next 5 years but not get 'distracted by all these fiscal questions', meanwhile the GOP will be doing fiscal austerity.  

       As to the how do you explain Zimbabwe argument it's been debunked many times before but here we go again. Hypeinflation is not the result of a CB trying to goose the economy but political instability. I think it's very questionable if the Fed can hit either an inflation or a NGDP target all by its lonesome. There is no proof that says otherwise. 

       P.S. When Sumner says he's viewed as an opponent of fiscal stimulus he doesn't have to mention me to know that he was thinking of me then. 

     

     

    

38 comments:

  1. Saxie,

    Your own job is why you should support GI/CYB and NGDPLT.

    I think you'll admit (tell me if you disagree with any):

    1. At full employment, labor has more leverage.

    2. By moving welfare to GI/CYB, the choices of labor for dream jobs dramatically improves. It basically subsidizes creative class jobs, so that jobs that are no as personally inspiring, or more rote, etc. of are done for Fortune 1000, etc PAY MORE than they do now.

    3. Sumner prefers using GI/CYB to get full employment to using NGDPLT. Meaning he recognizes, like Farmer, and I think even all Keynesian econs, Fiscal should be optimized to promote productivity gains and growth. To MM, that means just bc MP do the lift, doesn't mean Fiscal authorities should be dumb.

    My point is you get up and work for a living, and WELFARE as currently constructed, undermines the value of your labor. Those people staying out the labor force, doesn't mean you earn more.

    I know it feels to you like thats the case, but you are imagining a system where they STOP GETTING WELFARE and enter workplace.

    I and Sumner etc are talking about the welfare CONTINUING and the recipients ALSO get paid for working.

    This doesn't drive your wages down, it INCREASES YOUR RELATIVE VALUE. Because instead of being a 3 of 10 you become a 5 of 10.

    You might not be a telemarketer any more. But now you will be better than 30M MORE PEOPLE IN WORKFORCE, and they all earn more than MW!

    On top of it, you now have 30M driving down the prices of things you buy regularly, so your wage buys more - you consume more.

    Just noodle this: it is better to be a 5 out of 10, than a 3 out of 10.

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  2. "I think it's very questionable if the Fed can hit ... an inflation ... target"

    For the three decades of the Great Moderation, annual inflation was consistently in the 2-3% range. In the US, in Canada, etc. This was just a lucky coincidence, to you? The central banks didn't actually have the power to make that happen, the consistency just happened on its own?

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    1. This is a very good point. In fact from 1994 through 2013 core PCEPI has been between 1.2% and 2.2% on an annual basis:

      http://research.stlouisfed.org/fred2/graph/?graph_id=103845&category_id=0

      So for two decades, core PCEPI has been within one half a point of 1.7%, which is a remarkable record of stability for something that is very questionable the Fed can target.

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  3. "Hypeinflation is not the result of a CB trying to goose the economy but political instability."

    Have you studied hyperinflations? Zimbabwe, yes. Also 1920 Germany, 1980 Argentina, 1945 Hungary, etc. What was the growth in the money supply (and/or NGDP) during each of those instances? Does the central bank not have absolute power over the money supply? Has there ever been a hyperinflation, where the central bank did NOT exponentially expand the money supply?

    Yes, of course there's political instability too. But there's also lots of political instability elsewhere, with no hyperinflation. Whereas, there is NEVER hyperinflation, without the central bank exploding the size of the money supply.

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    1. Don, this from Mark Sadowski:

      "The correlations tend to be in the other direction. In the advanced world especially, high levels of government debt are associated with low levels of inflation or deflation (e.g. Japan). With respect to the size of the monetary base, its velocity is closely correlated to interest rates and inflation. Thus a large monetary base is more likely when inflation is low. "

      We were discussing what makes Argentina different that the US: his take was that by many measures the US looks worse off than Argentina, especially for a hyperinflationist biting his nails about hyperinflation, but the correlations are the other way around in the "advanced world."

      http://www.themoneyillusion.com/?p=26219&cpage=1#comment-319340

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    2. Definitely true that you can have a large monetary base, together with low inflation (in a recessionary advanced economy).

      But two points: (1) there's a difference between the monetary base going up by a factor of 6 or so [US, 2000->2010], vs. going up by a factor of 100 or 1000; and (2) hyperinflation cannot happen without an exponential rise in the monetary base [which is controlled by the central bank].

      The correlation is negative, only because the actions of central banks are not random. During normal economies, in advanced nations, central banks never choose to double their money supply overnight, for no good reason. It's like looking at data on pressing a car's gas pedal, as the driver tries to maintain a constant speed over a road that has hills and valleys. You would see the pedal go up and down, but the speed never change, so a naive conclusion would be that the car's gas pedal has zero effect on its speed. But you're leaving out that the pedal position is not a random sample, but instead controlled by an intelligent driver. Same with central bank money supplies.

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    3. "Have you studied hyperinflations? Zimbabwe, yes. Also 1920 Germany, 1980 Argentina, 1945 Hungary, etc. What was the growth in the money supply (and/or NGDP) during each of those instances? Does the central bank not have absolute power over the money supply? Has there ever been a hyperinflation, where the central bank did NOT exponentially expand the money supply?"

      As usual Don you want me to answer your questions while you fail to answer mine. I'll answer your questions now, next you answer mine:

      ""Have you studied hyperinflations?" Yes.

      " Does the central bank not have absolute power over the money supply?"

      No it doesn't as most of the money in ciruclation is endogenous.

      "Zimbabwe, yes. Also 1920 Germany, 1980 Argentina, 1945 Hungary, etc. What was the growth in the money supply (and/or NGDP) during each of those instances? "

      Just like Sumner, you simply point out a correlation and leave it there. Just because there is a growth of money in eery istance doesn't mean that the CB has total control of the money supply much less than it can magically hit any inflation target it likes.

      Now here's my question to you, we'll see if you even try to answer it. In all these historical episodes you mention which one of them didn't have huge political instability precede the hyperinflaton?

      " Has there ever been a hyperinflation, where the central bank did NOT exponentially expand the money supply?"

      Has there ever been a hyperinflation not preceded by huge political instability? These hyperinflations didn't come about because the CB printed too much money. Rather the money printing was a symptom not a cause of the disease-this cause was political instability.




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    4. Don you don't seem to have the foggiest idea that pointing out a correlation doesn't prove causation.

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    5. It might suggest it but it sure doesn't prove it.

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    6. Agreed, there was political instability leading up to historical hyperinflations. Because what central bank would deliberately cause hyperinflation, without a political need to do so? So the political climate is necessary to allow the central bank the opportunity to choose hyperinflation.

      But the actual mechanism, is the money supply growth. You can have all the political instability you want; without money supply growth, you never get hyperinflation. Instability by itself is not sufficient to cause hyperinflation.

      Let me try another way: the US, and Japan, each have their own currency units (dollars, and yen). In the US, a gallon of milk costs about 4 local units. In Japan, a gallon of milk costs about 700 local units. If you don't accept the quantity theory of money, do you have any alternative explanation for the absolute price level in different currencies? Why such a huge difference between 4 units and 700 units? What determines the price level?

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    7. Tom Brown,
      "Don, this from Mark Sadowski:..."

      To be clear, I don't think there is any contradiction at all between the statement that the growth in money supply and NGDP is high in countries experiencing hyperinflation and in saying that the monetary base as a percent of GDP is relatively small in countries experiencing hyperinflation. Countries experiencing hyperinflation have extremely high velocity of base money. In fact that was precisely my point if you reread my comments.

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    8. "the US, and Japan, each have their own currency units (dollars, and yen). In the US, a gallon of milk costs about 4 local units. In Japan, a gallon of milk costs about 700 local units. If you don't accept the quantity theory of money, do you have any alternative explanation for the absolute price level in different currencies? Why such a huge difference between 4 units and 700 units? What determines the price level?"

      Oh boy! Please don't tell me your going to go down the "Japans prices are over 100x what ours are" road that Sumner has stumbled down before.

      If we decided to list our prices in pennies the milk would be 400 units......... is that a 100x increase in the price of milk?

      The only sane way to determine if Japans milk is almost 200x ours is to convert both prices to the same unit and compare. Japans monetary base isn't 200 x larger they just choose to use a different unit of measure.

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    9. Mike Sax,
      "No it doesn't as most of the money in ciruclation is endogenous."

      Whether or not the quanitity of money is endogenous depends on the conduct of monetary policy of the central bank.

      If the central bank is targeting short term interest rates as the instrument of policy then commercial bank lending will cause the monetary base and commercial bank lending will cause bank deposits (broad money). Then money can be said to be endogenous.

      But if the central bank is not targeting short term interest rates as the instrument of monetary policy then typically the monetary base causes commercial bank lending and bank deposits cause commercial bank lending. This was true of countries practicing QE such as the US from 1933-37, 1937-41, 2008-present and the UK from 2009 to present, as well as countries targeting other currencies as nominal anchors such as Argentina from 2007 to present.

      Whether or not money is endogenous is something that is empirically testable. More importantly, the evidence suggests that it is conditional on the conduct of monetary policy by the central bank.

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    10. Mark, good point, but I didn't want someone reading Don's comment to conclude the opposite of the point you make again here:

      "...the monetary base as a percent of GDP is relatively small in countries experiencing hyperinflation."

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    11. Mark, regarding this comment:

      "This was true of countries practicing QE such as the US from 1933-37, 1937-41, 2008-present"

      How would you describe the situation prior to 2008 in the US? Say from 1990 to 2008? Some would say still not endogenous in the long term because the CB was targeting inflation long term. However, it's fair to say "endogenous" short term (between adjustments of the target value of short term interest rates). In your view, what does the evidence say? Over what size time interval would you describe the situation as "endogenous" if any during these years?

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    12. @Greg: "Japans monetary base isn't 200 x larger"

      US monetary base seems to be around 3 trillion units (dollars). Japan monetary base seems to be around 200 trillion units (yen).

      The difference in monetary base sure appears to be a fine explanation for the difference in absolute price level between the two local units. I'm eager to hear your alternative explanation.

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    13. @Greg: "is that a 100x increase in the price of milk?"

      You seem to be confusing "real" prices with "nominal" prices. If we started listing milk in pennies, you're asking whether milk has suddenly "really" become 100x more expensive, in the sense that it takes 100x more hours of labor to pay for it, or something. Of course the answer to that is no.

      But the question we're actually exploring, is the question of NOMINAL prices. What is the number written on the price tag? And of course that number has indeed gone up by 100x. That's the whole point of NGDP(LT) -- it's a proposal for stabilizing NOMINAL spending. It is explicitly NOT a proposal for stabilizing real spending, or the real cost of living, or the real purchasing power of worker's incomes. Only nominal amounts.

      The Fed does not control the real economy. But it has absolute control over the nominal economy.

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    14. Don, not sure what's meant by "adjusted" but this says about $3.9 trillion for the monetary base:
      http://research.stlouisfed.org/fred2/series/BASE/

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    15. Tom Brown,
      "However, it's fair to say "endogenous" short term (between adjustments of the target value of short term interest rates). In your view, what does the evidence say? Over what size time interval would you describe the situation as "endogenous" if any during these years?"

      You're of course referring to the six-week thingie:

      http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/04/monetary-policy-is-just-one-damn-interest-rate-after-another.html

      I guess one could say that the policy instrument (the fed funds target) was endogenous to the macro targets (inflation and employment) during that time period.

      But what I am talking about is the behavior of the monetary aggregates (the monetary base, commercial bank lending and bank deposits). The Fed had a fed funds target from 1982 through 2008 and I expect Granger causality tests to show money was endogenous during that period.

      The only published paper with Granger causality results on the US monetary base, commercial bank loans and money supply that I am aware of is by Thomas Palley (1994). Palley uses monthly data from January 1973 through June 1990 and looks at two measures of commercial bank loans: 1) commercial bank loans and leases and 2) commercial bank loans and securities. He finds that the monetary base Granger causes commercial bank loans (both measures). He then uses this fact to argue that the evidence supports Structural Endogeneity over Accomodationist Endogeneity. When I tried to reproduce Palley's results, using monthly data over the same time period as Palley, I found that commercial bank loans (both measures) Granger cause the monetary base. This contradicts Palley's results and supports Accomodative Endogeneity.

      There are a few possibilities why Palley's results are different from mine. First, he uses differenced data, whereas I did my tests in levels. Second, his data comes from CITIBASE, whereas mine comes from FRED. I've checked and there are in fact slight differences in the data. Finally, there is the remote possibility that I am mischaracterizing Palley's results because I'm going by an earlier draft of his paper, as I do not have a copy of the final published version.

      A friend of Mike Sax's, Joshua Wojnilower is working on a paper called "Empirical Evidence for the Endogeneity of the Money Supply in the United States from 1971-2008" which mostly confirms my results:

      http://bubblesandbusts.blogspot.com/2013/11/empirical-evidence-for-endogeneity-of.html

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    16. Mark, thanks for the info! ... I've been over the difference between "structural" and "accomodative" before, but it's gotten a little fuzzy. I'll check out the link.

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    17. Tom Brown,
      "Don, not sure what's meant by "adjusted""

      "Adjusted" means the monetary base is adjusted for changes in the demand for base money due to changes in statutory reserve requirement ratios within a given structure of reserve requirements conditional on an assumed model of depository institutions' demand for base money. (Don't ask.) The Fed started making these adjustments in 1996:

      http://research.stlouisfed.org/aggreg/newbase.html

      The unadjusted measure is called source base:

      http://research.stlouisfed.org/fred2/series/SBASENS

      When I want reserve balances and currency to add up more or less perfectly to equal the monetary base I use source base.

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    18. Mark, thanks. Yes, that's one of several articles where Nick mentions that, and I think I agree with your statement there about the FFR, but I took Nick to be referring to monetary aggregates in that piece:

      "Suppose the demand for bank loans increases. It doesn't matter why. And commercial banks satisfy that demand. The stock of money in circulation increases as a result. It doesn't matter if the quantity of reserves and currency demanded increases too, because the central bank will allow those stocks to increase by an amount equal to the quantity demanded."

      When Nick says "stock of money" he's including bank deposits I think, because Nick says money is MOE in general. So in other words, a "monetary aggregate."

      or here:

      "The Bank of Canada has a Fixed Announcement Date every 6 weeks, at which it looks at everything it thinks is relevant and sets a new target for the overnight rate of interest. And it really doesn't like to change that target between FADs unless something big happens. So drawing a perfectly interest-elastic money supply curve is a reasonable approximation to reality for 6 week periods."

      http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/04/the-supply-of-money-is-demand-determined.html

      or here:

      "Under inflation targeting the quantity of money is endogenous in both the short run and the long run. It's the nominal rate of interest that is exogenous in the very short run (6 weeks or less, for the Bank of Canada anyway), but endogenous in the long run."

      (Actually, that's a good one!... it brings up the FFR essentially: saying exogenous short term, endogenous long, with IT, for example)

      http://brown-blog-5.blogspot.com/p/links-to-remember.html

      Scott Sumner here refers to the monetary base (Scott and Nick sometimes mean different things when they use the term "money", Scott always means the base, but not Nick):

      "The endogenous money folks, who are right about the period between Fed meetings, overlook this longer run problem with their theory. Six weeks is not a long enough period to have major macroeconomic consequences. But in the very short run the banks are not constrained by a lack of reserves, if the Fed is targeting the short term interest rate. The base is endogenous during that period."

      http://www.themoneyillusion.com/?p=21786

      or David Glasner, specifically referring to "bank money" to make it clear:

      "So while I think that bank money is endogenous, I don’t believe that the quantity of base money or currency is endogenous in the sense that the central bank is powerless to control the price level."

      http://uneasymoney.com/2012/04/11/endogenous-money/

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    19. ... so looking at that all again, I think that's all consistent: Nick basically says that the "quantity of money" (by which he means the monetary aggregates I think) is "always endogenous" under I.T. but not in the sense that the "endogenous money folks" (that Sumner refers to) say it is (but of course this is a little confusing because Sumner is specifically referring to base money endogeneity)

      And yes, the dependence on time periods for endogeneity is like you say: for the FFR under IT (or other macro target(s)).

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    20. "You seem to be confusing "real" prices with "nominal" prices. If we started listing milk in pennies, you're asking whether milk has suddenly "really" become 100x more expensive, in the sense that it takes 100x more hours of labor to pay for it, or something. Of course the answer to that is no"

      Actually I'm confusing nothing. 100 cents is THE SAME as one dollar so listing the price in hundreds of cents is EQUIVALENT to listing it in one dollar. And Japan just uses pennies instead of dollars.


      "But the question we're actually exploring, is the question of NOMINAL prices. What is the number written on the price tag? And of course that number has indeed gone up by 100x"

      Yes the listed number is 100x larger but it is a different numeraire cents instead of dollars so the price hasn't changed AT ALL! Once you state the new price, 100 cents, in terms of dollars, they stay the same.


      "The Fed does not control the real economy. But it has absolute control over the nominal economy."

      Dubious claim for sure, but even if true......... so what? Its the real economy that matters. Who gives a shit what numbers get written on price tags

      My point is still that your question of why Japans base is in the hundreds of trillions of Yen while ours in only in trillions of dollars is a completely uninteresting one. Its like asking someone why they choose to say their height in cm vs inches.

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    21. "US monetary base seems to be around 3 trillion units (dollars). Japan monetary base seems to be around 200 trillion units (yen).
      The difference in monetary base sure appears to be a fine explanation for the difference in absolute price level between the two local units. I'm eager to hear your alternative explanation."

      First off the absolute price level cannot be detrained until you convert the Yen and dollar to the same unit. That is the absolute price level.

      Japans base is 200 trillion Yen......ooooooohh ... so what? How many dollars is 200 trillion Yen? Today its about 101.8 so Japans base expressed in dollars is under 2 trillion, ours is 3 trillion according to you.

      Whoop- de fucking dooo

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    22. @Greg: I wonder if you jumped in here, in the middle of a complicated discussion, without understanding the context.

      There's a lot of different pieces to Market Monetarism theory, but one piece (that was being discussed) is whether fiscal policy "matters" when in an economy with depressed demand. And whether the Fed can hit any nominal target it wants. There is disagreement about this point, and that's what we were discussing.

      You're absolutely right, that only the "real" economy really matters, in the end. The part you seem to be missing, is that unexpected shocks in the nominal economy, can have real effects (mainly because of sticky wages, and also sticky debts and maybe prices). That is why it "matters" what happens to nominal aggregates, because (since wages/debts/prices are not perfectly flexible), a nominal shock like the decline in NGDP in 2008, leads to real effects like millions of involuntary unemployed workers in the US for many subsequent years.

      So yes, I was indeed talking only about what the actual numbers are on the price tags. Just to try to focus, and make some discussion progress, on only a piece of the larger argument. There is so much to disagree about; maybe we can start coming to a mutual understanding on small pieces of the discussion.

      (And BTW: the absolute price level is not about converting between units. It's essentially about adding up all the numbers on the price tags in the economy. You may not understand why that is an interesting concept, but it's an important piece of the larger discussion.)

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    23. "@Greg: I wonder if you jumped in here, in the middle of a complicated discussion, without understanding the context."

      Yes Don. This complicated stuff is over my head


      "There's a lot of different pieces to Market Monetarism theory, but one piece (that was being discussed) is whether fiscal policy "matters" when in an economy with depressed demand. And whether the Fed can hit any nominal target it wants. There is disagreement about this point, and that's what we were discussing."

      Yes but the definition of nominal target matters too. When you ask "Well Japan has a base of 300 trillion units and ours is 2 trillion units, their milk is 300 units ours is 4 units" and act like this is some sort of revelation about CB policy and its ability to hit price targets by affecting base money levels.... I think you are nuts. When you talk about price level like its something derived from something like this;

      Base Money/Stuff produced= price level

      I think you are thinking like a second grader


      "You're absolutely right, that only the "real" economy really matters, in the end. The part you seem to be missing, is that unexpected shocks in the nominal economy, can have real effects (mainly because of sticky wages, and also sticky debts and maybe prices). "

      I'm not "missing" that at all. Money does matter, prices do matter and its not just stickiness of prices which are problematic.


      "That is why it "matters" what happens to nominal aggregates, because (since wages/debts/prices are not perfectly flexible), a nominal shock like the decline in NGDP in 2008, leads to real effects like millions of involuntary unemployed workers"

      It wasnt a "nominal" shock(whatever the fuck that means)! It was a true loss of output. Sales decreased dramatically which led firms to lay people off.
      See I dont buy the MM explanation one bit.

      "(And BTW: the absolute price level is not about converting between units. It's essentially about adding up all the numbers on the price tags in the economy."

      No Don, theres another name for that..... worthless information.

      The only thing that matters are the price tags on what was actually SOLD to a buyer.in a particular period...... and we call that GDP!

      Whats funny is I actually agree that the Fed could hit a nominal target.
      But they would have to do it by actually SPENDING! They can start by offering me 500k for my house and everyone on my street. Go around America and do the same. Go to the unemployed people and offer them 25k a year to wipe lints off their suits during FOMC meetings. Now, this is clearly outside of what a Fed has ever done, what this Fed currently has the permission to do and what most people think is a good idea for a Fed to do..... but they could hit whatever nominal spending target they wish.

      What they cant do is just simply add a zero to the base money number IN THE SAME UNITS and voila, all prices magically jump by 10x. But even if that were true, it would have ZERO affect on real economy and therefore be a waste of effort

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    24. Greg: " When you talk about price level like its something derived from something like this; Base Money/Stuff produced= price level"

      Yup, pretty much. You've left out velocity, which is very important too (and not stable). But the basic equation is MV=PQ, so indeed we have P=(MV)/Q, which is close to what you said.

      "I think you are thinking like a second grader"

      So you are mocking and dismissive, but I saw neither any specific criticism of MV=PQ, nor did I see any alternative theory from you about what determines the price level.

      "It wasnt a "nominal" shock(whatever the fuck that means)! It was a true loss of output. Sales decreased dramatically which led firms to lay people off. "

      "Nominal shock" means essentially the same as your "sales decreased". The point is that sales (aka NGDP) decreased FIRST, before the loss of output. The loss of output followed, BECAUSE sales decreased. And the Fed had the power to prevent sales from decreasing (but didn't use it).

      "simply add a zero to the base money number IN THE SAME UNITS and voila, all prices magically jump by 10x"

      The whole point of sticky prices (/wages/debts), is that when the money supply (or NGDP) changes, prices do NOT instantly adjust. The resulting short-term disequilbrium is what makes nominal shocks wind up having real effects. If all prices were perfectly flexible, then the nominal economy wouldn't matter at all, only the real economy. But they aren't, so it does.

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    25. See heres the problem with MM, it treats MV=PQ like E=mc2, when it is not anywhere close. E=mc2 was derived by looking at the data and was supported by testing. In fact if E=mc2 were not true, no nuclear reactor would function. MV=PQ is just an oversimplistic idea that has a ring of truth to it, but it is far from empirical. The entire edifice of MM crumbles if the QTM is false.

      This is why I say its second grade level reasoning. Probably more like 5th or 6th grade actually since that is when most are introduced to algebra.

      There doesnt need to be "an alternative theory to what determines the price level" , because price level is a meaningless term. Steadily rising prices in economies are due to myriad of factors; supply side, demand side and politics mostly but just because MM has a neat little theory of price level relating to base money doesnt make it correct. Not having a competing neat little story doesnt make your story right.

      This;

      ""Nominal shock" means essentially the same as your "sales decreased". The point is that sales (aka NGDP) decreased FIRST, before the loss of output. The loss of output followed, BECAUSE sales decreased. And the Fed had the power to prevent sales from decreasing (but didn't use it)."

      is batty. Sales dont decrease before the output loss, sales decrease IS the output loss! Output is created to be sold in a capitalist economy if its not sold there is no output. And the fed had power to keep sales from falling? Exactly how? Oh wait.... by buying the output them selves? By paying someone else to buy the output? Wait wait wait....by doing unlimited QE?

      "If all prices were perfectly flexible, then the nominal economy wouldn't matter at all, only the real economy. But they aren't, so it does."

      The nominal economy already doesnt matter, only the real economy does but deposits, bonds and currency all have affects on the real economy(because people use those to make their "real" desires known), they just arent as simple as you MMers wish they were.

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  4. I hardly see the period of the GM as anything worth bragging about I think the previous period of WWII till the 70s was much preferrable than the GM. That's my whole point. If you want to point to what MM can achieve by looking at the GM period I'm unimpressed.

    We saw mean incomes stagnate during this same period of supply side fiscal policy and MM monetary policy

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    1. Evilsax: you bring in so many non-sequiturs, it's hard to have a coherent discussion. The only point I was addressing, is your doubt about whether the Fed can hit an inflation target. It seems to have demonstrated that it can (1980-2005). I never made any claim about whether the GM was a good economy for US citizens. And I'm not trying to return to that economy. I don't even agree with inflation targeting. I'm only trying to challenge your claim that the Fed doesn't have the power to do it.

      And then you talk about this "same period of ... MM monetary policy". But MM monetary policy (NGDPLT) has NEVER been tried. The GM is not an example of MM monetary policy. It is ONLY an example of the Fed controlling the inflation rate for decades, something you claimed they were not capable of doing.

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    2. By 'non-sequitors' you mean I actually have a conversation here rather than just play by your rules. You want to narrow the discussion to what you're trying to pigeonhole me into. I don't have to play ball that way.

      I don't have to limit myself to what you feel you want to address. Sometimes I want to address something too, you know. And if you don't see the relevance you are thinking too narrowly about things.

      To me what's more relevant than that the GM was acutally not such a great economy really for most Americans? Market Monetarism is not just about NGDPLT-it's taken a certain attidtude towards the economy. Sumner has said it took this correct attitude during the GM and yet the performance was better in the previous Keynesian era.

      This tells me maybe we don't want to drink the MM Koolaid too fast. Maybe trend targeting-of any type-isn't the be all and end all.

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  5. "...I welcome nevertheless-as is the same with Mark Sadowski or whatever fiscal austerians want to drop by...It's conservatives like him who are so against the kind of policies that might give me and millions of others better alternatives to bugging him at home-or at work which has actually become my speciality..."

    To be clear, I have never advocated fiscal austerity, although, as I have said, I do not see any harm with cutting the defense budget, which made up almost exactly half of the non-interest sequester cuts. And if by "kind of policies" you mean fiscal stimulus, then I don't think such policies have any effect at all on aggregate demand, and therefore I seriously doubt you or others like you would benefit from such policies.

    As for being conservative, only a Marxist like you could even think that I am conservative, other than in the sense of thinking it desirable to conserve those policies enacted as part of the New Deal and Great Society.

    "...If I get them to buy something they don't wholly need or perhaps shove them a little into it, why should I feel guilty? These same people don't give a crap about my struggles and if they elected better politicians we might have more socially beneficial things for people to do than telesales..."

    This is a chillingly honest revelation of your sociopathic tendencies, although it doesn't surprise me in the least.

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    1. Mark, are you really saying Mike is a Marxist and a sociopath? Lol. You've got to be careful with that kind of thing or you end up sounding like this guy:

      http://www.themoneyillusion.com/?p=26254#comment-320541

      (which followed one of my favorite short comments ever... by Don Geddis actually):

      "MF: “Do you, Don, support me being shot”

      I do, yes. Thanks for asking!"

      Ha! ... I love that.

      Well, I guess I never actually asked:

      Mike, are you a Marxist? How about a sociopath?

      Well I guess it's the rare sociopath that would actually tell you that he/she is a sociopath...

      http://www.amazon.com/Confessions-Sociopath-Spent-Hiding-Plain/dp/0307956644

      BTW, I heard an interview with her that was really interesting!
      http://www.ttbook.org/book/m-e-thomas-confessions-sociopath-uncut

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    2. Mike, do you support Mark being shot? (just to make the comparison fair... I don't want to unnecessarily trash MF here! Lol)

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    3. @Tom Brown: glad you enjoyed my joke, over at themoneyillusion.com, at MF's expense. You know, I had just made one tiny technical comment, that he referenced "opportunity cost" but then used it incorrectly himself. I was right about that, which he acknowledged himself immediately. But then he just used it as a jumping off place for his usual rants about violence and guns, etc. I found that frustrating, so I made myself happy by ignoring the substance of his lengthy response, just taking a brief phrase out of context, and then deliberately misunderstanding it.

      I really enjoyed my joke. I'm glad you did too!

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    4. Don, it's not the 1st time MF has been fast and loose with accusing people of being sociopaths either. Once I asked Scott what he'd do if MF were made Fed chairman... MF shot back that that would be impossible because only sociopaths would consider working for the Fed! Lol

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  6. Well I even told Major he's a nut job after asking if Don wants to see him shot. However, Mark did the same thing here. Mark your comments here are just absurd. As far as being a Marxist, show me where I ever said anything remotely 'Marxist.'

    Yet while you call me Marxist-which would mean I'm radically anti-capitalist-you then call me a 'chilling sociopath' because I'm a telemarketer.What is more American-and part of the capitalist landscape than telemarketing?

    I also see you as having an interesting scale of values. I'm some horrible person for not having a problem in pushing some fat cat company into buying something they may not totally need, but you have no problem with people who struggle every day and have to take such jobs as better ones aren't available. You see these people as 'chilling' but not the economic and social circumstances which require it.

    What's truly pathological and 'chilling' is the kind of self-righeous little prigs-like you are-who let that homeless guy die here in NY back in a recent snow storm. Everyone just walked by and figured he must deserve to be homeless based on his own choices and so it's his problem. For this to happen in such a rich country I think is much more chilling.

    It says something about us as a society and it's not very pleasant. Not you though, you're more worried about a fat cat paying a couple hundred dollars on some overpriced stuff. That you consider a mortal evil.

    Well what do you think Wall Street is? I mean this is how stocks are pushed every day. You have a problem with that? I doubt it. Telemarketing is being taken up by more and more businesses. I've spoken to more than a few bankers who now have to call people at home to scare up new accounts.

    So telemarketing is a big part of the business landscape and it's only getting bigger. By the way in case you don't know what 'prig' is it's just a self-righeous clueless person who takes a morally superior attitude based on their own callow cluelessness.

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