Conservatives Peddling a Bill of Goods on Britain

     That's literally the name of the guy Sumner sites on the British Election: Johnathan Peddle.

     "Tyler Cowen directed me to an excellent new paper by Jonathan K. Pedde:

Standard zero-lower-bound New Keynesian models generate large fiscal multipliers and expansionary negative supply shocks. Thus, according to these models, a political party that implements fiscal contraction coupled with policies to increase aggregate supply should unambiguously cause economic contraction, compared to a party that implements the opposite policies. I test this prediction using high-frequency prediction- and financial-market data from the night of the 2015 U.K. election, which featured two such parties. By analysing financial-market movements caused by clearly exogenous changes in expectations about the election winner, I find that market participants expected higher equity prices and a stronger exchange rate under a Conservative Prime Minister than under a Labour P.M. There were little to no partisan differences in interest rates, expected inflation, or commodity prices. These results cast doubt on the empirical validity of zero-lower-bound New Keynesian models

     http://www.themoneyillusion.com/?p=29417

     Sure, if you assume market participants are right. In America, CNBC always assumes that the market wants the GOP to win, yet historically the market does better under Democratic Presidents rather than Republican ones. Even Fox News knows this:

     http://www.foxbusiness.com/investing/2012/09/04/history-shows-markets-gdp-outperform-under-democrats/

     It's only up 280% since March, 2009 under the Kenyan Socialist. 

     What's clear about the British elections is that

      1. It certainly bodes ill for Labour

      2. But it isn't necessarily a huge mandate for the Conservatives much less their policies. 

      The Conservatives are still in an unstable position-the entire country is right now.

      I pointed out in a previous piece-but I got the insight from Matt Yglesias-that the Austerity Coalition-the Conservatives and Liberal Democrats-actually collapsed from 59% of the vote in 2010 to 45% in 2015-due to the LDs going from 23% to 8% of the vote. 

      So the Conservatives only picked up 1% of the vote. 

      Labour failed to pick up the imploding vote of the LDs-the trouble is that a lot of natural Labour votes ended up voting for SNP. James in London-another Sumner regular-dropped by and disagree:

     "It's more complex. A big chunk of Conservatives went to UKIP, perhaps as much as 10% of the total vote. A big chunk of LDs returned to the Conservatives, filling the gap. We'll never really know. Progressives are very quiet about UKIP, but if you put them on the "right", the "right" had a storming swing from the "left". Have you heard of UKIP?"

    http://www.bbc.co.uk/news/election/2015/results/england

     http://diaryofarepublicanhater.blogspot.com/2015/05/on-why-labor-lost-uk-election.html

     Well sure, I've heard of UKIP. They did get an impressive amount of the vote in England. Yet at the end of the day they garnered exactly 1 seat in the whole UK. 

    I do agree with James that it's more complex than any simple narrative including one where the Conservatives have a huge mandate for austerity. 

      On the question of Sumner's NGDP futures things are not going well:

   "Interestingly, the paper relied on the Hypermind prediction market for the election probabilities.  This market also contains a set of NGDP futures markets, but with only $10,000 in prize money this year.  Think about the following.  If we boosted the prize money 50-fold to $500,000 per year, the market would be much more liquid, much more efficient.  That’s a lot of money for you and I, but for the Treasury or the Fed it’s like the coins that slip down between the cushions on your couch.  It’s nothing.  And it would open the door to a new golden age of macro research.  We could identify the stance of monetary policy in real time.  VAR studios would immediately by 100 times better."

     "Why hasn’t it happened yet?  Good question.  All I can say is that I’m doing my part; now I’d like to see some bigger name economists make a push for these markets."

     Scott all you have to do is retract the lies you told about me and Ill do it-the name Mike Sax is a pretty big name among economists. LOL. 

      Scott is so obtuse he'd probably take this as a serious comment. 

      So his Hypermind market needs more money in it. However, what's most impressive to me about Money Illusion is the Herd-mind. This is what happens when you preach to the choir all day: you get the classic kind of feedback loop that Fox News is famous for:

    "These results cast doubt on the empirical validity of zero-lower-bound New Keynesian models."

      Here is TallDave's reply:

     "Hard to believe that evidence is still needed."

   "I think the participation rate is probably more important than the prize money, though they’re obviously related."

    "Prediction markets are a good idea with a lot of applications. For instance, I’d love to see climate science funding tied to prediction markets based on IPCC predictions — the whole issue could be self-(de)funding."

      It's hard to believe if you live in the Market Monetarist cocoon that evidence is still needed. My first reaction is we've had no-credible-evidence yet so of course it's needed. 

     TallDave's other jibe about climate funding shows the whole thing wrong with using a futures market for at least some kinds of applications. I mean if Wall Street doesn't think climate change is real that proves it isn't?

      It kind of suggests what is really being peddled here. 

     P.S. I have always been fair to Sumner-which is more than he can claim. He's a smart guy who has popularized monetary economics to a lot of people who were previously unaware of it. But I really do imagine that the bigger name economists find his conduct embarrassing. 

   You know when he crows about winning imaginary bets from Krugman-he makes himself a punchline. 

      While I talk about Money Illusion as kind of Fox News for monetary economics-a good name for the blog would actually be Confirmation Bias-I should be fair to some of the other MMers. Nick Rowe and David Glasner at least conduct themselves as professionals and educators on their blogs

     Neither one of them engage in the pointless snark and name calling that Sumner does and neither seems to lose control of their blogs by not doing so. Glasner always puts anyone really out of line in their place. He and I have never had the slightest problem and I've always gotten along fine with Nick as well. As I've said before, I think that Nick is just a born teacher-he loves to explain and clarify things for his students. 

     Sumner has his virtues but bedside manner isn't one of them-and this is probably part of why he isn't taken seriously. 

     He also has the tendency to overstate things and make some very heavy weather over some pretty noisy data. The whole idea of winning a bet from Krugman is based on cherrypicking GDP in 2013. He proves austerity had no ill effects by looking at just the 4th quarter of 2012 and  comparing that to the 4th quarter of 2013 without any reference to the first 3 quarters of 2013 or the first quarter of 2014.