Sumner is at it Again After Latest Job Numbers

     I guess it falls to me to have to respond as no other Keynesians of any stripe seem to want to take a whack. He's clearly all but begging for a response. 

     "Yesterday I reported that RGDP growth in 2013 was running ahead of the pace for 2012, using either the official figures or the new Philly Fed GDPplus estimates. Today we received another strong jobs number, which means that employment gains in the first ten months of 2013 are running at over 186,000/month, versus less than 183,000/month last year and 175,000/month in 2011."

     "Given the predictions of the Keynesian model, anything even close to 2012 results would have been a win for MM.  The Keynesian model predicted a sharp slowdown from the higher income/cap gains/dividends taxes, payrolls taxes, sequester, government shutdown, etc, etc.  But we are running ahead of 2012, and even if the last two months are weak we will be essentially even."

     "And yet on the Keynesian side of the aisle I hear a deafening silence.  Where is the discussion of this great “experiment?”  Could it be that academics and pundits only like to discuss experiments that validate their priors?

     http://www.themoneyillusion.com/?p=24627&cpage=1#comment-292450

     In the comments section he only had gotten 6 comments after a while so he complained:

     "Only six comments, for my most important post of 2013?"

    Then a MM commentator suggested this is because he has shattered the filed:

     "Critics are silenced? Repost monthly."

     Why is is the most important of the year? Because he's not like the people Krugman talks about here:

     "I’m sorry, but I think that when S&P complains about lack of reform, it’s actually complaining that Hollande is raising, not cutting taxes on the wealthy, and in general isn’t free-market enough to satisfy the Davos set. Remember that a couple of months ago Olli Rehn dismissed France’s fiscal restraint — which has actually been exemplary — because the French, unacceptably, are raising taxes rather than slashing the safety net."

      "So just as the austerity drive isn’t really about fiscal responsibility, the push for “structural reform” isn’t really about growth; in both cases, it’s mainly about dismantling the welfare state."

      "S&P may not be participating in this game in a fully conscious way; when you move in those circles, things that in fact nobody knows become part of what everyone knows. But don’t take this downgrade as a demonstration that something is really rotten in the state of France. It’s much more about ideology than about defensible economic analysis."

     http://krugman.blogs.nytimes.com/2013/11/08/ideological-ratings/?_r=0

    Similarly Sumner's talk about NGDPLT is less about a real interest in demand stabalization than providing a rational for fiscal austerity. 

     The fact that GDP was 2.8% in the third quarter doesn't tell us anything about what it would have been without the sequester. If it would have been at least as high how is this a victory for Sumner much less his most important post of the year?

The Mimimum Wage and Monospony: At Cafe Hayek, Microeconomics Runs Amok

     In the recent debate of Bob Murphy and Warren Mosler, Murphy explains that the Austrian school is characterized by the eschewing of economic aggregates in favor of explanations of the economy that start at the microeconomic level of individual behaviour. 

     http://diaryofarepublicanhater.blogspot.com/2013/11/the-bob-murphy-vs-warren-mosler-debate.html

     This is another way of saying that Austrian economics is basically the counterrevoluationary school of pre Keynesian economics as it was Keynes who invented macroeconomics prior to him all economics was microeconomics. Austrianism then is just the extreme version of methodological individualism. 

    It strikes me that this argument employed by Boudreaux is a classic example of such methodlogical individualism run amok:

    "If an academic tells you that his research finds that the price of Acme Corp. stock – a stock traded, say, on the NYSE –  is too low, what would be the first question you ask this scholar?  The first question I would ask him is “How much of that stock are you buying?”  If the scholar tells me “none,” or looks at me befuddled as he explains that he’s an academic and not an investor, I would dismiss his research on this front.  That person, as I see him here, offers proof as good as it gets that he does not believe what he asserts."

    "And my confidence in my dismissal of his conclusion would be bolstered when, after he publishes his research in a prominent journal, he and his like-minded scholars continue to insist that the price of Acme Corp. shares is too low.  Why, I would wonder, are none of those greedy, profit-hungry Wall Street types – now blessed with ready access to this scholar’s research – not buying lots of Acme stock and, thereby, bidding up the price of this stock to its appropriate level."

     http://cafehayek.com/2013/10/an-empirical-conclusion.html

     I'm not so sure I buy it. Just because a scholar doesn't take the implicit advise of his own paper doesn't mean he doesn't believe what he says. The assumption that he must be lying is based on the idea that economic agents are 'maximizers.' Yet many scholars are already doing very well financially and may well not have the need to go out and buy up a stock. Is Boudreaux suggesting that there shouldn't be any academic work on stocks? If you believe him then supposedly it's all a scam. Yet I doubt this. I don't mean that the scholar in his hypothetical is right in his pick but he may well believe he is and yet it never occurs to him to invest himself. I once worked at a pizza place where the manager told me he hates eating and wishes he could be sustained intravenously-a strange thought but people do compartmentalize. 

    The point Boudreaux is getting at is even less plausible. He claims that the theory of 'monospony' is false because if it were true then the author of the book would go out and take advantage of workers himself rather than writing about the practice of it. Yes, that's really his augment. 

    "If folks such as Paul Krugman, Robert Reich, Alan Krueger, and Daniel Kuehn are unwilling to put their own money where their mouths are, the rest of us are more than justified in refusing to let them put our – or anyone else’s – money and livelihoods where their mouths are.  Ability to talk endlessly about this blackboard theory and that academic proposition is, in this context, wholly unimpressive if this talk inspires only politicians but no one else to act, and inspires absolutely no one (not even the confident talkers themselves or the politicians who the talkers regard as trustworthy social engineers) to stake anything personal to act on the assertions of the talkers"

    Even David Henderson isn't impressed with this argument. 

    http://econlog.econlib.org/archives/2013/11/if_youre_so_sma.html#312267

     The importance of all this is that Boudreaux wants to prove that there is no such thing as 'monospony'-a kind of monopoly power for employers in the labor market where there able to exert a lot of control over the wage they pay-ie, they're far from passive 'price takers' as the perfect competition model has them. He thinks that if he disproves monospony then there's no argument left for the minimum wage. 

    "The argument that such employers do have monopsony power is crucial for the more sophisticated proponents of legislated minimum wages because, absent such power, a hike in the minimum wage would indeed price many, or at least some, low-skilled workers out of jobs – a consequence that defenders of minimum wages understandably do not wish to defend."

    http://cafehayek.com/2013/10/an-empirical-conclusion.html

    In a way this is quaint as it assumes that economists get to unilaterally decide on public policy all on their lonesome. Yet on many things society reasons differently than economists. The minimum wage wasn't passed with the blessing of economists in fact the majority were against it at the time. In civil rights we didn't wait for them to agree that discrimination in hiring is uneconomic or that its uneconomic to refuse to serve black customers. 

    Even a great economist like Arthur Okun understood that economics doesn't get to be the final arbiter on all social policy. 

   http://diaryofarepublicanhater.blogspot.com/2013/10/dont-feed-bears-or-smile-at-children.html

   This is not to say that I think that economics can't make a case for the minimum wage just that as a society we agreed to this a long time ago. Economists may not be convinced-even now it's probably about 50-50 of economists who think the MW harms the economy and those who think it doesn't-some of these even think it helps the economy by putting a floor under the income of the poor-but society long since has been. 

There Sumner Goes Again Announcing that Keynesianism is Dead

      However, this news seems a little exaggerated. How big a coffin does Keynesianism have? Every few weeks he's claiming it has another nail in its coffin. It is  possible there's some confirmation bias here?

     "To say that today was a bad day for Keynesian economics would be an understatement.   Two more developments undercut the entire rationale for fiscal stimulus."

     1.  The ECB cut rates by another quarter point. For those not keeping score at home, here are the ECB rate cuts that have occurred since the summer of 2011:

Deposit rate down 75 basis points.

Main refinancing operations rate down 125 basis points.

Lending rate down 150 basis points.

     "Recall that in 2011 Keynesians like Paul Krugman were saying the fiscal austerity was slowing growth in the eurozone, but only because the ECB was stuck at the zero bound. I suppose some people might try to argue that 1% or 1.5% interest rates are fairly close to the zero bound. Sorry, but that argument won’t work. As long as the ECB is raising and lowering interest rates they are effectively steering aggregate demand, and fiscal policy is fully offset by monetary policy. You might not like the direction in which the ECB was steering inflation and nominal GDP.  I certainly agree with Krugman that it was far too contractionary. But the fact remains that as long as they are steering aggregate demand then fiscal policy is completely ineffective."

     http://www.themoneyillusion.com/?p=24616

      So now just the fact that the ECB has made monetary policy moves at all proves Sumner right? The fact that the ECB is able to raise or lower the interest rate is all the proof needed to disprove Keynesianism?  Then he claims that because the U.S. economy grew by 2.8% this proves Keynesianism is wrong, presumably because it could possibly have grown 2.8% if the sequester hurt the economy in anyway at all. 

      "The Keynesian model tells us nothing about fiscal austerity in the eurozone, because they have not been at the zero bound for most of the past five years. And it tells us nothing about fiscal austerity in the United States because (despite the zero bound) the Fed has used QE and forward guidance to offset the fiscal austerity of 2013."

     How has he shown that it was fully offset? As for the ECB it's not clear why this vindicates him. Yes, the interest rate was above zero but remember this idea that you only use fiscal policy when we're at the zero bound is more like the view of the bastard Keynesians of the Neoclassical school. 

    Keynes himself wouldn't have agreed with this:

    "The preceding analysis may make it appear to be in conformity with the view of those who hold that over-investment is the characteristic of the boom, that the avoidance of this over-investment is the only possible remedy for the ensuing slump, and that, whilst for the reasons given above the slump cannot be prevented by a low rate of interest, nevertheless the boom can be avoided by a high rate of interest. There is, indeed, force in the argument that a high rate of interest is much more effective against a boom than a low rate of interest is against a slump."

      "To infer these conclusions from the above would, however, misinterpret my analysis; and would, according to my way of thinking, involve serious error. For the term over-investment is ambiguous. It may refer to investments which are destined to disappoint the expectations which prompted them or for which there is no use in  conditions of severe unemployment, or it may indicate a state of affairs where very kind of capital goods is so abundant there is no new investment which is expected, even in conditions of full employment. It is only the latter state of affairs which is one of over-investment, strictly speaking, in the sense that any further investment would be a sheer waste of resources. Moreover, even if over-investment in this sense was a normal characteristic of the boom, the remedy would not like in clapping on a high rate of interest which would probably deter some useful investments and might further diminish the propensity to consume, but in taking, drastic steps by redistribution, incomes or otherwise, to stimulate the propensity to consume."

       "Thus the remedy for the boom is not a higher rate of interest, but a lower rate of interest!" 

         I submit that the EU technically being above the ZLB in now way harms the fellow who wrote these words in any way. 

         It's gotten so bad over at Sumner that Geoff-aka Major Freedom-as become the voice of reason:

         This blogpost is misleading of Sumner’s beliefs.

The title suggests that Keynesianism suffered a blow empirically, that is, due to specific past observations and relations between variables.

But Sumner’s actual view about monetary policy is a priori. For when he says:

“I certainly agree with Krugman that it was far too contractionary. But the fact remains that as long as they are steering aggregate demand then fiscal policy is completely ineffective”

He is not actually claiming fiscal policy effectiveness is conditional on monetary policy “steering” or “not steering” aggregate demand. Despite the argument, in his view monetary policy is always steering aggregate demand. Even if the captain is asleep and the wheel is left idle, aggregate demand is still being determined by the arbitrary movements of the wheel as the ship coasts along at sea.

So let’s not pretend that Sumner’s view on fiscal policy is conditioned by observable data. It is instead a method of interpreting any data whatever.

Fiscal policy to Sumner is always “ineffective” because the “real” controller is the Fed, not the Treasury. The Fed decides NGDP, not the Treasury.

     You could knock me over with a feather: Major Freedom is totally right. 

     

Josh Wojinlower's Upcoming Paper on the Granger Causality of the Monetary Base and NGDP

     I haven't heard from my buddy Josh in awhile as school and responsibilities have left him no time for blogging. It's welcome to hear from him again:

     "Sorry that it's been so long. School has overtaken my life, including blogging, but I still manage to read posts from time to time (so keep up the good work). Anyways, I wanted to let you know that I'm currently working on a paper that uses Granger-causality tests to demonstrate the relationship between commercial bank loans, the monetary base, monetary aggregates, NGDP and the Fed funds rate from 1971-2008. A draft version should be available soon but the general conclusions strongly support the endogenous money hypothesis. 

Just wanted to point out that someone else is working on these topics."

     http://diaryofarepublicanhater.blogspot.com/2013/11/mark-sadowski-increasing-monetary-base.html?showComment=1383866829271#c1410212094703560381

   Here is his blog though as he says he hasn't been able to keep it up lately. 

   http://bubblesandbusts.blogspot.com/

    Still, that he is writing a paper on the MB and it's relation to NGDP is very welcome news. It's funny that he's going to use Granger-causality tests as this was what Mark Sadowksi invoked the other day to justify the claim that the tripling of the MB in 2008 and the fact that we subsequently saw no effect should be put aside as he's proven that MB Granger-causes all kinds of things-like a rising stock market. 

    Here was Mark Sadowski the other day during this debate on whether a doubling of the MB would lead to a doubling of NGDP and-'almost' doubling the price level:

     "Recently I’ve noticed New Economic Perspectives blog author Dan Kervick repeating some version of the following question in response to any claim about the monetary base:

     “What empirical evidence exists for that claim?”

     "I’ve done Granger causality tests on the monetary base over the period since December 2008 and find that the monetary base Granger causes the real broad dollar index, the S&P 500, the DJIA, commercial bank deposits, commercial bank loans and leases, the PCEPI, and 5-year inflation expectations as measured by TIPS."

    "The empirical fact that QE has an effect on the exchange rate of the dollar means that the Exchange Rate Channel is effective. (It’s always been curious to me how people can believe in the liquidity trap when Bulgaria, Denmark and Switzerland all successfully control their exchange rates despite being at the zero lower bound.) Does MMT address how exchange rates are set? (I honestly don’t know.)"

    "The empirical fact that QE has an effect on stock prices (something which is obvious to nearly everybody) means that the Tobin Q Channel, the Wealth Effects Channel, the Balance Sheet Channel and the Household Liquidity Effects Channel are all effective. The usual MMT response is that “the markets are irrational”.

    "The empirical fact that QE has an effect on inflation expectations and the PCEPI means that the Unexpected Price Level Channel is effective. The effect on the PCEPI is not easy to observe, but most people acknowledge that QE has an effect on inflation expectations. Again the usual MMT response is that “the markets are irrational”.

      "The empirical fact that QE has an effect on commercial bank deposits, and loans and leases, means that the Bank Lending Channel is effective. This is particularly significant in debunking MMT (as well as Accomodative Endogeneity) since they claim that this is completely impossible."

      "But here’s by far biggest problem with Dan Kervick’s question."

    "I’ve read some of the research published by MMT economists such as Randy Wray (e.g. “System Dynamics of Interest Rate Effects on Aggregate Demand”). Mostly it consists of constructing stock-flow models using parameters derived from “neoclassical” economics estimates. I’ve never seen a single empirical MMT research paper, or even any evidence that they have any knowledge of econometrics at all.

What empirical evidence exists for MMT? None."

      Sumner often has tried to disparage me personally when I've tried to engage him on his blog by claiming that since I'm not an economist I should just let him talk I guess and say nothing other than shake my head in agreement. He's often said since I don't understand economics I shouldn't write this blog which shows that he is certainly not very good at psychology-no wonder he hates Keynes so much.

      http://diaryofarepublicanhater.blogspot.com/2013/10/mark-sadowski-and-my-apparent-war-with.html

    http://diaryofarepublicanhater.blogspot.com/2013/10/mark-sadowski-may-be-great-wonk-but-he.html

     http://diaryofarepublicanhater.blogspot.com/2013/10/yes-scott-sumner-one-certainly-should.html

     I don't even have a problem admitting that's there's plenty in economics I don't know though I'm determined to learn. I'm not as clueless as Sumner wants to claim but I know very well I don't know everything far from it. I'm just not quite so naive or so stupid as to look to him to learn these things. 

    I've felt that I've often felt like something of a voice in the wilderness on the need to engage Sumner's ideas-I admit engaging him is not for everyone. Still the ideas must be engaged. As for what I don't know about economics, let me admit that I could use some elucidation on exactly what Granger-Causality is. I'm aware of it, and know that it's the product of the Nobel Prize winning economist, Clive Granger. 

   I know that is has many great uses in figuring out true causality in dealing with correlations and isolating them from noise. However, he himself said when he received his reward that GC has been used in all kinds of 'ridiculous' ways. 

    http://en.wikipedia.org/wiki/Granger_causality

    So Josh, if you have time, maybe you could elucidate on GC a little. What are legitimate and illegitimate uses of it? I know for starters, that Granger-Causality is not causality itself. If we say that X Granger-Causes Y this doesn't necessarily mean that X causes Y. 

     In trying to get at the truth someone with the formal training you have but that I lack will be very helpful in getting there. 

     P.S. I think that I have a natural feel for economics-I certainly I'm fascinated by it, but no doubt I'm an intuitive thinker-for me I kind of think that thinking intuitively about it and thinking as a trained academic economist do are kind of a relation like that between a piano player who reads sheet music and one who plays by ear. In piano I can actually do a little bit of both. In economics I'm mostly intuition though I want to understand the academic side adequately-to make sure they don't get over on me for one thing!

    The reason why economists prefer models to intuition is intuition can't be repeated but models work for everyone even those with little intuition. 

   

      

      

   

Why Keynes Was not an Austrian: His Solution to the Business Cycle

     Often Keynes's analysis the business cycle-where there are booms borne of 'overconfidence' followed by slumps of a collapse in confidence. I'm getting close to the end of the General Theory now. It's like the third time I've read it-at least.

     His analysis of booms and slumps might seem that he at least agrees with Austrian Business Cycle Theory (ABCT) that the trouble is over-investment during booms which lead to under-investment during slumps. This is a misreading of him however.

    He doesn't hold that the way to avoid slumps is to avoid 'over-investment' which is held to be the characteristic of booms. He certainly wouldn't agree with the idea that the Great Recession was due to Greenspan failing to raise interest rates enough and fast enough-or that the fault for the 90s Internet bubble popping was Greenspan failing to raise interest rates fast enough then.

    Here is the man himself on the subject of 'over-investment.' I think what these quotes will establish is that he's skeptical that there is such a thing-though it seems possible that he believes there could be 'misallocation' of investment. However, even if he agrees with this he clearly doesn't see the solution in sharply jamming on the monetary brake:

    "The preceding analysis may make it appear to be in conformity with the view of those who hold that over-investment is the characteristic of the boom, that the avoidance of this over-investment is the only possible remedy for the ensuing slump, and that, whilst for the reasons given above the slump cannot be prevented by a low rate of interest, nevertheless the boom can be avoided by a high rate of interest. There is, indeed, force in the argument that a high rate of interest is much more effective against a boom than a low rate of interest is against a slump."

   This view he's referring to certainly applies to Hayek and the Austrians. However, the inference that one should use a high rate of interest against a boom is certainly not what he has in mind:

   "To infer these conclusions from the above would, however, misinterpret my analysis; and would, according to my way of thinking, involve serious error. For the term over-investment is ambiguous. It may refer to investments which are destined to disappoint the expectations which prompted them or for which there is no use in  conditions of severe unemployment, or it may indicate a state of affairs where very kind of capital goods is so abundant there is no new investment which is expected, even in conditions of full employment. It is only the latter state of affairs which is one of over-investment, strictly speaking, in the sense that any further investment would be a sheer waste of resources. Moreover, even if over-investment in this sense was a normal characteristic of the boom, the remedy would not like in clapping on a high rate of interest which would probably deter some useful investments and might further diminish the propensity to consume, but in taking, drastic steps by redistribution, incomes or otherwise, to stimulate the propensity to consume."

   I have this book on Amazon's online Kindle, which unfortunately doesn't let you cut and paste so I had to write this out word for word. Kindle also doesn't have pages exactly-it just shows you what percentage of the book you have read. So I can't give you the exact page for this as I can't find my own paper version of the General Theory right now. The chapter is 22 "A Theory of the Trade Cycle' Part III in the chapter.

  Clearly his remedy is not Austrian. He's saying that 'slamming on the brakes is never the answer.'

   "Thus the remedy for the boom is not a higher rate of interest, but a lower rate of interest!" he sums up. Keynes as I suggested above, does see 'malivestment' as would seem to obviously be the case in the housing and subprime bubble.

    "It may, of course, be the case-indeed, it is likely to be-that the illusions of the boom cause particular types of capital-assets to be produced in such excessive abundance that some part of the output is, on any criterion, a waste of resources: which sometimes happens, we may add, even when there is no boom. It leads, that is to say, to misdirected investment. But over and above this it is an essential characteristic of the boom that investments which will in fact yield say, 2 percent in conditions of full employment are made in the expectation of; say, 6 percent, and are valued accordingly."

   However, Keynes doesn't see this as a 'corretion' where the ensuing bust gives us the real price of assets."When the disillusion comes, this expectation is replaced by a contrary 'error of pessimism' with the result that the investments, which would in fact yield 2 percent in conditions of full employment, are expected to yield less than nothing; and the resulting collapse of new investment then leads to a state of unemployment in which the investments, which would have yielded 2 percent in conditions of full employment in fact yield less than nothing."

   In this chapter he clearly rejects both Monetarism-that the rate of interest can be lowered enough to bring back investment-and Austrianism-that there is salvation in raising the rate of interest so long as it's done 'soon enough.'

 

    

Virginians Can't Miss Ken Cuccinelli Until He's Gone

     Cuccinelli is many things-one thing is that he's obsessed with sodomy as he tried as Bob McDonnell's AG to bring back anti-sodomy laws. Another is that he's virulently opposed to abortion even in the case of rape or the life of the mother. He was also stridently anti-immigration and against Obamacare. 

    http://thinkprogress.org/politics/2013/11/05/2888221/cuccinelli-defeat-wing-record/

    Another we've learned after his defeat to Terry McAuliffe yesterday: he's a very poor sport as he refused to call McAuliffe up to congratulate him:

    "Attorney General Ken Cuccinelli (R) had not called Democrat Terry McAuliffe after losing the Virginia gubernatorial race and had no plans to do so as of late Wednesday morning, according to a report in The Washington Post."

Cuccinelli has already publicly conceded he lost the race.

     "At a press conference later on Wednesday McAuliffe said he had still not heard from Cuccinelli.
"I have not had the opportunity yet to speak to the attorney general," McAuliffe said. 

    "The fact that Cuccinelli has not called underscores how bitter the Virginia gubernatorial race was for both candidates. Much of the advertising by both Cuccinelli and McAuliffe's campaign was negative. And despite public polling ahead of Election Day showing McAuliffe with a wide lead over Cuccinelli, the now governor-elect only narrowly defeated Cuccinelli."

     http://talkingpointsmemo.com/livewire/report-cuccinelli-has-no-plans-to-call-mcauliffe

     It's a welcome sign that a Democrat is back at the helm in Virginia and while Virginia has been known as a red state in recent years, this has now changed as this is the first time since the Nixon Administration that the GOP is actually locked out of statewide office. 

     It's also a welcome break to the radical agendas the state GOP had been pursuing-like Governor McDonnell's very invasive mandatory vaginal ultrasounds for all women who seek an abortion in the state. 

    While a radical social and economic agenda has been pursued by many state GOPs it stops in Virginia. Many Dems see Cuccinelli's defeat at the hands of a candidate that certainly had his share of baggage-with his long associations with the Clintons-as being all about the House GOP and hopefully an omen for 2014.

     "House Republicans and Ken Cuccinelli’s agenda are one and the same, and swing voters unequivocally rejected that agenda on Tuesday."

     "From attacking women’s rights to make their own health care decisions and opposition to immigration reform to an obsessive focus on undermining health care reform and rejection of gay Americans’ full equality, Ken Cuccinelli’s agenda has been in lockstep with that of House Republicans," the memo said. "The Republicans in this Congress who will be on the ballot next year are not Chris Christie Republicans – the only Republican to survive Tuesday’s trouncing. They were elected by and are beholden to the Tea Party."

    "The memo comes a day after Democrat Terry McAuliffe eked out a slim victory over Cuccinelli in the Virginia governor's race and former state Sen. Bradley Byrne (R) defeated tea party-backed conservative activist Dean Young in a Republican runoff for Alabama's first congressional district. The results were read as a victory over the tea party and conservative Republicans. "

     http://talkingpointsmemo.com/livewire/dccc-memo-house-republicans-agenda-common-weight-bringing-down-cuccinelli-and-gop

     Best of all, the Dems think they saw McAuliffe employ a strategy that it will pay the Dems to emulate. 

    "Democrat Terry McAuliffe eked out a narrow victory in the Virginia governor's race on Tuesday night, defeating Attorney General Ken Cuccinelli (R) and Libertarian candidate Rob Sarvis. McAuliffe's victory speech focused on bipartisanship. He thanked the Republicans who backed him in the race and said the victory was hard fought."

    "This election was never a choice between Democrats and Republicans," McAuliffe said. "It was an election over whether Virginia would continue the mainstream bipartisan tradition that served us so well."

    "McAuliffe's win ends months of him leading Cuccinelli in most polls. It also marks a victory for a number of outside groups that poured millions in the race in support of McAuliffe and against Cuccinelli like Independence USA PAC and Planned Parenthood."

     "Democrats see the victory as proof that hitting conservative candidates on their tea party leanings can win elections."

    "The Republican brand has become the tea party brand. They are inseparable now," Democratic National Committee Communications Director Mo Elleithee told TPM. "Kind of take a step back from just Virginia. Joe Lhota up in New York, where they haven't elected a Democrat in 20 years, spent the entire general election trying to distance himself from the Republican Party brand, even though he previously called himself a Goldwater Conservative, tried to distance himself from the Republican brand. That didn't work. Polling is showing that for the first time the tea party and the Republican Party are polling at the same abysmal level."

     "The idea, Elleithee continued, is to tie Republicans to the tea party as tightly as possible."

    "People don't see a distinction between the two," Elleithee continued. "And both brands are weaker than ever. This is becoming a referendum on the Republican Party."

    "Even before polls closed Tuesday night the Democratic Senatorial Campaign Committee had already sent out a campaign email to supporters capitalizing on an expected McAuliffe win. The email cited contentious Senate races around the country as examples where the same strategy of hitting Cuccinelli could work."

    "Faced with a choice between a reckless and irresponsible candidate who backs the Tea Party agenda and Democrats willing to push for responsible solutions to the problems our nation faces, Democrats win," the email said. "And unfortunately for national Republicans, their Senate candidates in North Carolina, Arkansas, Louisiana, Alaska, Georgia, Kentucky, Iowa, Michigan, Montana, and West Virginia have made it clear they're on the side of Ted Cruz and Ken Cuccinelli. On the government shutdown, women's issues, and jobs and the economy, voters in Virginia tonight will reject their platform."

     http://talkingpointsmemo.com/dc/dems-hope-to-use-same-strategy-as-mcauliffe-elsewhere

     The GOP's 'strategy-call it the 'ostrich strategy'-is only going to get tougher in the coming years. This is a party determined to learn nothing the easy way, assuming they are willing to learn anything at all, indeed, there's no evidence whatsoever that they are.  

I Make Mike Norman's Economics Blog Again and Sumner Declares an IRR Paying World Safe for the QTM

   
     I'm besides myself with joy-really. Judging by the commentators I still don't think many MMTers get it:

     The problem is Sumner's got nothing…

     "So if Wray is misunderstanding Sumners argument it doesn't matter…Sumner doesn't have one (that makes sense)…he's incoherent. Embarrassingly so."

     "The best description of monetarism I can come up with is they are chasing their tails, or caught in an endless loop of nothing.."
     http://mikenormaneconomics.blogspot.com/2013/11/mike-sax-wray-vs-sumner-on-interest.html

     What is missing in comments like this is any understanding that a lot of people think Sumner has it and that MMT has nothing. Sumner has been very successful in changing the terms of debate over 4 years. The trouble is that even if Sumner has nothing, many believe otherwise. He has given aide and comfort to some conservatives but also led centrists and liberals to the Right. 

     Perhaps commentators like Paul Meli should read Rorty-who Sumner also claims to be a big admirer of. For there's the truth and then there are 'social truths' or things society believes are true. Social beliefs are the name of the game if you want to improve things for the better. If many people think monetarism is the answer there's a problem that can't be ignored. 

     I got a kick out of this new post by Sumner-he declares that in an IRR paying world the QTM still holds. It really did remind me of the recent discussions of his post he wrote on MMT and my and Randy Wray's interventions. Consider what he said in his piece on MMT.

      "Suppose we pick a fairly “normal” year, when NGDP growth and nominal interest rates and unemployment are all around 5%.  It might be 2005, 1995, 1985, whatever.  The exact numbers aren’t important.  Now the Fed does an OMP and doubles the monetary base by purchasing T-securities.  They announce it’s permanent.  What happens?"

      "One MMT answer is that the Fed can’t do this.  It would cause interest rates to change, and they peg interest rates.  But the more thoughtful MMTers seem to be willing to let me do this thought experiment, as long as I acknowledge that interest rates would change and that it’s not consistent with actual central bank practices.  I’m fine with that. "

      "So let’s say they double the base and let rates go where ever they want.  I claim this action doubles NGDP and nearly doubles the price level.  MMTers seem to disagree, as I haven’t changed the amount of net financial assets (NFA) at all."

  

      "But here’s the Achilles heel of MMT.  Neither banks nor the public particularly wants to hold twice as much base money when interest rates are 5%, as that’s a high opportunity cost.  So they claim this action would drive nominal rates to zero, at which level people and/or banks would be willing to hold the extra base money.  Fair enough.  But then what?  You’ve got an economy far outside its Wicksellian equilibrium."

      http://diaryofarepublicanhater.blogspot.com/2013/11/sumner-on-achilles-heel-of-mmt.html

      http://diaryofarepublicanhater.blogspot.com/2013/11/randall-wray-speaks-of-sumner-on-mmts.html

     So we see the power of the MB year by doubling it in a year of economic growth when there'd be no reason for the Fed to increase it much less double it. 

     His argument for QTM is similar.

     "Assume the monetary base is 50% interest-bearing reserves and 50% non-interest-bearing cash.  We are in normal times, with no liquidity trap.  The government decides to embark on a Latin American-style monetary policy of 100%/year trend inflation.  Because they read that OMOs don’t matter when you have zero IOR, they’ve decided to do so through changes in IOR, leaving the monetary base unchanged.  So they lower IOR, which reduces the demand for reserves.  Within a year or two the monetary base is almost 100% currency, which earns no interest.  I.e. America circa 2007.  And then they are stuck.  They have no mechanism for causing prices to rise 100% per year, for year after year, if they are constrained by a decision to avoid OMOs.  You need OMOs because money really does matter.  The HPE works for currency, if nothing else.  If you want even more inflation, there is no substitute for printing currency."

     "But that’s not the only problem with Steve’s argument, indeed the QTM holds much more than even the preceding example would suggest.  Suppose the differential between the IOR and short-term market rates was always kept very small, say 1 basis point.  At this spread the demand for reserves was very large, say 50% of GDP.  Currency demand is 5% of GDP.  What happens if the central bank permanently doubles the monetary base?  Ireland showed that money is still 100% neutral.  In the long run (once wages and prices have adjusted), all nominal interest rates and interest rate spreads remain unchanged.  NGDP doubles, as does the stock of currency, bank reserves, M1, M2, the price level, the nominal output of the toaster industry, nominal ad revenues earned by Facebook, etc.  Neutral is neutral, there’s no getting around that fact."

     "Don’t worry monetarists; the QTM is not going away."

     http://www.themoneyillusion.com/?p=24597

     He then warns us to disregard the last 5 years as having no bearing on his argument. 

     " Commenters, I’m begging you to avoid bringing up the past 5 years.  If you think they are relevant you have not understood a thing I’ve said here."