Scott wins Ezra Klein’s Wonky awards

This is from Ezra Klein’s “first-annual Wonky awards”:

Central bank of the year: Sweden’s Riksbank. It’s hard to avoid noticing that Sweden has dodged the economic woes that are ailing most of the world. Part of the credit here goes to deputy governor Lars Svensson, who spearheaded Sweden’s extremely aggressive monetary policy. In 2009, the Riksbank — Sweden’s central bank — was the first bank to experiment with a negative interest rate. And it had assets on its balance sheet equal to a stunning 25 percent of GDP, a sign of how much cash it was injecting into the economy, compared with just 15 percent for the Federal Reserve. The bold moves worked: Sweden has been growing at a decent clip.

Central bank dissenter of the year: Charles Evans. While some on the Federal Reserve’s board of governors are worried that the central bank is doing too much and risking inflation, Evans has argued that the Fed isn’t doing enough to boost the economy. The president of the Federal Reserve Bank of Chicago, Evans is one of the few bankers who seems to recognize that 9 percent unemployment should, as he put it, set policymakers’ hair on fire as much as a slight uptick in inflation usually does.

Central bank harassers of the year: Though Rep. Ron Paul is the Federal Reserve’s loudest critic, it’s Bloomberg News that may, unexpectedly, have been the biggest thorn in Ben Bernanke’s side. Through a FOIA request, the news agency found out how individual banks took advantage of cheap lending from the Fed during the height of the financial crisis, ultimately reaping some $13 billion in profit from the loans. The new details sparked a huge tide of criticism against the Fed’s lack of transparency.

Most influential-yet-obscure economic blogger: Scott Sumner. Be honest, how many people had even heard of Nominal GDP level targeting before this year? No one. But as the economy stagnated, and policymakers seemed increasingly incapable of mitigating the pain, many analysts started reading Sumner’s blog with interest. So far, the Federal Reserve has rejected his idea for NGDP target—under which the Fed would essentially target a combination of real output plus inflation rather than focus on curbing inflation alone—but the notion has attracted support from everyone from Paul Krugman to Tyler Cowen to Goldman Sachs. And much of that has to do with Sumner’s near-monomaniacal focus on the topic.

Congrats Scott, you are becoming a super star…correction you ARE a super star

HT David Levey and Doug Irwin


Guess what Greenspan said on November 17 1992

This is then Federal Reserve chairman Alan Greenspan at the meeting of the Federal Open Market Committee on November 1992:

“Let me put it to you this way. If you ask whether we are confirming our view to contain the success that we’ve had to date on inflation, the answer is “yes.” I think that policy is implicit among the members of this Committee, and the specific instruments that we may be using or not using are really a quite secondary question. As I read it, there is no debate within this Committee to abandon our view that a non-inflationary environment is best for this country over the longer term. Everything else, once we’ve said that, becomes technical questions. I would say in that context that on the basis of the studies, we have seen that to drive nominal GDP, let’s assume at 4-1/2 percent, in our old philosophy we would have said that [requires] a 4-1/2 percent growth in M2. In today’s analysis, we would say it’s significantly less than that. I’m basically arguing that we are really in a sense using [unintelligible] a nominal GDP goal of which the money supply relationships are technical mechanisms to achieve that. And I don’t see any change in our view…and we will know they are convinced (about “price stability”) when we see the 30-year Treasury at 5-1/2 percent.

So in 1992 the chairman of the Federal Reserve was targeting 4.5% NGDP growth and 30-years yields at 5.5% and calling it “price stability”. Imagine Ben Bernanke would announce tomorrow that he would conduct open market operations until he achieved the exact same target(s)?

PS I got this from Robert Hetzel’s great book on the history of the Fed “Monetary Policy of the Federal Reserve – A History”.


The Economist comments on Market Monetarism

The Economist has an interesting article on Market Monetarists as well as would the magazine calls “Heterodox economics” – Market Monetarism, Austrianism and “Modern Monetary Theory” (MMT).

I am happy to see this:

“Mr Sumner’s blog not only revealed his market monetarism to the world at large (“I cannot go anywhere in the world of economics…without hearing his name,” says Mr Cowen). It also drew together like-minded economists, many of them at small schools some distance from the centre of the economic universe, who did not realise there were other people thinking the same way they did. They had no institutional home, no critical mass. The blogs provided one. Lars Christensen, an economist at a Danish bank who came up with the name “market monetarism”, says it is the first economic school of thought to be born in the blogosphere, with post, counter-post and comment threads replacing the intramural exchanges of more established venues.” (Please have a look at my paper on Market Monetarism)

There is no doubt that Scott is at the centre of the Market Monetarist movement. To me he is the Milton Friedman of the day – a pragmatic revolutionary. Scott does not always realise this but his influence can not be underestimated. Our friend Bill Woolsey is also mentioned in the article. But I miss mentioning of for example David Beckworth.

One thing I would note about the Economist’s article is that the Austrianism presented in the article actually is quite close to Market Monetarism. Hence, Leland Yeager (who calls himself a monetarist) and one of the founders of the Free Banking school Larry White are quoted on Austrianism. Bob Murphy is not mentioned. Thats a little on unfair to Bob I think. I think that both Yeager’s and White’s is pretty close to MM thinking. In fact Larry White endorses NGDP targeting as do other George Mason Austrians like Steven Horwitz. I have written the GMU Austrians about earlier. See here and here.

And see this one:

“Austrians still struggle, however, to get published in the principal economics journals. Most economists do not share their admiration for the gold standard, which did not prevent severe booms and busts even in its heyday. And their theory of the business cycle has won few mainstream converts. According to Leland Yeager, a fellow-traveller of the Austrian school who once held the Mises chair at Auburn, it is “an embarrassing excrescence” that detracts from the Austrians’ other ideas. While it provides insights into booms and their ending, it fails to explain why things must end quite so badly, or how to escape when they do. Low interest rates no doubt helped to inflate America’s housing bubble. But this malinvestment cannot explain why 21.8m Americans remain unemployed or underemployed five years after the housing boom peaked.”

Market Monetarists of course provide that insight – overly tight monetary policy – and it seems like Leland Yeager agrees.

It would of course have been great if the Economist had endorsed Market Monetarism, but it is great to see that Market Monetarism now is getting broad coverage in the financial media and there is no doubt that especially Scott’s advocacy is beginning to have a real impact – now we can only hope that they read the Economist at the Federal Reserve and the ECB.


See also the comments on the Economists from Scott Sumner, Marcus NunesDavid BeckworthLuis Arroyo (in Spanish) and Tyler Cowen.

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