Yglesias and Krugman argue that an important part of why Iceland has done so well post 2009 recession even though their banking crisis was likely the worst in the world was they didn't do austerity.
"Sumner and his Market Monetarist disciple Mark Sadowski come back by claiming that Iceland did more austerity than anyone in the world except Greece-which ought to right there suggest that Sadowski's chart that shows this result is rather useless."
http://www.themoneyillusion.com/?p=29606#comment-391596
Sumner seems to have a pretty novel definition of austerity:
"Matt Yglesias says Iceland rejected austerity, and supports the claim with this graph:
"Sumner and his Market Monetarist disciple Mark Sadowski come back by claiming that Iceland did more austerity than anyone in the world except Greece-which ought to right there suggest that Sadowski's chart that shows this result is rather useless."
http://www.themoneyillusion.com/?p=29606#comment-391596
Sumner seems to have a pretty novel definition of austerity:
"Matt Yglesias says Iceland rejected austerity, and supports the claim with this graph:
"Sorry, but I don't see it. The crisis caused the debt to balloon, presumably due to the big cost of paying off depositors of failed banks, and the effects of the recession itself. But then Iceland started reducing debt as a share of GDP, from 101% to 86.4% in just three years. That's much better than the US and UK, which supposedly had austerity. The budget deficit in Iceland was 7.8% of GDP in 2009, but only 0.9% of GDP in 2013--better than the US and far better than the UK. So if the US and UK practiced austerity, what's so different about Iceland?"
http://econlog.econlib.org/archives/2015/06/market_monetari_1.html
Well it's nice to see that Sumner finally understands that debt to GDP ratios during the height of a recession are nothing to get too excited about: Keynesians have been making this point since 2010 when Reinhart and Rogoff told us the sky was falling because of countries being anywhere close to a 90% ratio. Now Sumner realizes what liberals have said for 6 years.
http://www.nber.org/papers/w15639
The whole argument for austerity in the first place was based on debt ratios. However, Sumner is now crediting Iceland's recovery in 2009 with the debt ratio between 2012 and 2015 dropping from 101 to 86.4%!
Sumner plays around with the goalposts when he tries to justify austerity he ought to be a field goal kicker. Maybe NFL Commissioner Roger Goodell ought to hire Sumner on as a consultant while they decide whether to change the distance on extra points.
You have really been going to town on Sumner lately Mike!! I like it!
ReplyDeleteHe does give one a LOT of material doesn't he?! He is such a despicable "academic".
He is the economics dept equivalent of science teachers in Louisiana that have been essentially teaching out of the bible.
http://www.salon.com/2015/06/11/its_official_louisiana_public_schools_are_using_the_book_of_genesis_in_high_school_science_classes/
I cant believe any self respecting "university" would employ him. He's snarky, unmovable from any idea he has and he is deceitful..... he hides his real intentions which are purely political. He is not about enlightening the world but simply being an apologist for his well to do friends.
This post is the perfect example;
Iceland is in the same financial crisis as everyone else in 2007-08. They choose to leave the Euro, reissue Kronas at a substantially devalued rate, allow their govt debt in Kronas to rise as an offset to private sector deleveraging (exactly what PKers (like MMT) would suggest) and allow an organic healing to take place.
Now, in one sense they did "do" austerity. They ALL, including any wealthy Icelander that was using Krona, were getting poorer terms of trade for things they purchased in Euros or dollars, which was likely not an insubstantial amount since being an ICE -land they probably don't have the growing season to supply all the demands for fresh veggies and such. That being the case, the people were still not exposed to mass layoffs, imposed income reductions by outside bankers/politicians or any other such nonsense like the Greeks are. They took their own medicine, restructured their private balance sheets and went on with life, a little less affluent (in terms of eating home canned veggies instead of fresh for winter months for example) then before but no crippling hardship imposed by German/ French or USA/Canadien scolds.
So to me the difference between what monetarists and other orthodox economists are prescribing and what really is necessary is simply where the austerity is coming from.
Icelanders took their medicine..... but in ICELANDIC terms, not ECB or Merkelian terms. They are better off for it.
As their private economy was healing their govt debt was rising. Any attempt to simply control govt debt by reducing Krona circulation would have hurt the private sector that needs Krona to transact, so they let govt debt rise as private debt fell. It reached a peak and now govt debt is falling as I imagine private Krona debt is rising again. They should be two opposite side of a seesaw. The trouble with most economists is they see Govt debt as a thing to target rather than as a scoreboard that simply shows you the inverse of private sector(and import/export sector), which should be your focus.
Imposing austerity on someone else is usually bad. They don't like being bullied and you are likely doing it for the wrong reasons. Choosing to tighten your own belt, work a little harder, pay down some credit cards/ mortgages and take one less vacation is a voluntary choice that you see as helpful to your self.
Big difference
Hey Greg! Great hearing from you again pal. I know that even when I don't get a comment from you for a while you are reading me.
ReplyDeleteI've been using Open Tracker to figure out who my readers are and every day I see a lot of visits by Athens, Georgia. LOL
You make a good point about Iceland. In a way they're experience is most damning for the Eurozone it seems to me as they show there is life after the Euro. The question that begs could Greece follow Iceland's example or would there be more pain in that case? It's hardly an idle question as Greece and the ECB can't come to any agreement.
For Sumner to claim that a drop in public deb from 102 to 86 long after the recession is over shows what an ideologue he really is as you say.
I've been going after Sumner a lot for a few reasons.
1. He deserves it
2. More importantly I like to say he''s the Rush Limbaugh of monetary economics, he uses the same bullying tactics as Rush does. So I think it's important to correct the public record on all his disinformation.
I still wish that Krugman would take him a little more seriously-if he were to criticize Sumner publicly that would have a real impact. I'd be interested to see how a debate between them would go.
Krugman probably sees arguing with him as punching down. However, I still think he ought to write maybe even 1 post a month criticizing Sumner. After that, he doesn't have to answer him-because you know Sumner, he will argue the same point for weeks like that time with Simon Wren-Lewis.
Anyway, I knock Sumner so much because no one else is and it needs to be done.
I think I might finally get your skepticism of NGDP targeting as opposed to inflation. Wile in theory you might think that NGDP would be better as it can interpret price changes-whether it's a supply or demand side price shock-the problem with NGDP is unlike inflation there's no clear way to know if you've hit the target.
Is that your point?
Because that's the reason Sumner needs NGDP futures-which has made no progress at all. This is probably why Sumner is becoming more cranky and hypersensitive to any criticism.
He actually isn't a professor anymore as he's left Bentley. Ken Duda is bankrolling his research at Mercatalus-a think tank funded by Duda who has some deep pockets and himself is not a bad guy and something of a liberal; I've spoken to him-on NGDP and futures.
Duda himself has told me he's suggested to Sumner that he engage in less snark with Keynesians to no avail.
If Sumner acted in the classroom in any way like he does at Money Illusion then he was a pretty bad teacher.
On the other hand, Nick Rowe-who is another MMer-is clearly a born teacher. Whether you agree with him or not, I can see how he was a teacher for all these years.
"For Sumner to claim that a drop in public deb from 102 to 86 long after the recession is over shows what an ideologue he really is as you say. "
ReplyDeleteI meant to say that he claims this relatively minor drop in PD way after the recession is austerity is absurd.
I find myself commenting a lot less everywhere Mike, so don't take it personally ;-)
ReplyDeleteHonestly on a lot of these matters Ive kind of said my piece and sometimes feel like a broken record to a degree. I still love following politics and econ because its like holding my finger up in the wind. Politics drives money and money drives economics.
I do share a lot of similar interests with you so I check your site daily. I haven't posted anything on my site for months til today. Im in a reading and information gathering phase and I will find something to regurgitate and discuss soon.
So..... yes that nasty little fact about Iceland giving the Euro the finger does get lost at times doesn't it. Of course Greece would feel pain but it would be a type of self induced pain. Once you have a sense of self determination, not being dictated to by outsiders you can be at peace with your lower living standards. The problem with austerity as it is currently being done is that the people asking for the cuts are NEVER satisfied... and they cant be. The cutting actually hurts them too because they want the Greeks to run budget surpluses so they can "pay down their debt" but cuts to spending actually lowers tax receipts and further tax increases lower aggregate demand....... leading to layoffs, output losses etc. This really shouldn't be arguable. The conservative position on all this is untenable and cant square with reality yet we are so wrapped up in religious thinking we cannot stop it..... shameful.
Yes a big part of NGDP criticism on my part is how do you know you are or are not hitting the target? If you cannot know then it is a completely worthless endeavor. And if you can only know every ninety days??? So you find out April 1st you were below target for Jan Feb March, what decisions were made (layoffs, delayed investment etc) during those 3 months that could/would have been avoided if the target had been hit?
If the purpose of the targeting isn't to try and eliminate "unnecessary" layoffs or divestments then what exactly is it for? And if you cant gather accurate information in fast enough increments what good is it? How many firms make decisions based on stock prices? Stock prices are adjusted to the 100th of a penny constantly while the markets are open...... plus while NY markets are closed there is off board trading being arranged that will happen as soon as the markets open. If NGDP isn't tabulated at least as frequent as every day or twice a day, how much will they miss? Its a real problem for NGDP I think
Yeah I know what you mean: though I write quite a bit, I find reading and learning more valuable. When I write I'm trying to participate in a public discussion in some way.
ReplyDeleteAgain, as I've said before I think that Socrates had it right: the difference between the philosopher and the non-philosopher-which is most people-is that the philosopher understands how little he really knows whereas the man in street thinks he already knows everything he needs to know.
What you say about needing the NGDP twice a day is the whole problem-the need for a futures market. I found this piece by Sumner way back in 2009-the year he started the blog-that tries to deal with this problem:
ReplyDelete" For simplicity, let’s assume that the central bank decides on a 3.65% NGDP growth path. To respond to David Glasner’s concerns that we first need to catch up to trend, we will set the first NGDP target 6% above current estimated NGDP. Each day, the target for NGDP is raised one basis point. Assume the policy begins on May 16, on which day the Fed estimates NGDP to be $15 trillion. Then they would set the NGDP target for May 16, 2010 at $15.9 trillion, 6% above current estimated levels. Each day they raise their NGDP target by one basis point. From now until forever. Thus the target NGDP for May 17, 2010 is $15, 901,590,000 and zero cents."
"At this point you may be scratching your head and wondering what I mean by daily NGDP estimates. Right now U.S. GDP is calculated quarterly. I assume that the government could come up with monthly NGDP estimates (doesn’t Canada do this?) And it’s obvious they could use monthly estimates for other potential targets such as the CPI or a nominal wage index. However, nothing really crucial hinges on that assumption; it just makes the plan easier to explain."
"But how do we get daily estimates? Simply take a weighted average of two consecutive monthly announcements. Thus the May 31, 2010 NGDP estimate is assumed to be an average of the May and June 2010 NGDP announcements. For the May 21, 2010 estimate, it would be about 5/6 times the May 2010 NGDP announcement, plus 1/6 times the June 2010 announcement. I don’t know if these numbers are exactly right, but I think you get the idea. Note that it is not particularly important that the actual future GDP is equal to these futures estimates, just that we have a reasonable way of determining the payoff for future NGDP contracts. Also assume that at maturity the contracts are worth 1/1,000,000,000,000th of nominal GDP, roughly $15.90"
http://www.themoneyillusion.com/?p=1184