28
Oct
2011
John Carney Smells a Rat, Too
Seeing that I criticized Sumner lo these many years and have lived to tell the (boring) tale, John Carney has lately been launching broadsides against the Brawler from Bentley, here and here. We’ll see if Scott plays bad blogger, good blogger with Carney like he did with Kelly Evans.
Evans & Carney, some Free Advice: This guy is dangerous. You don’t know what you’re dealing with. He is no standard inflationist, he is an evil genius. You can’t just go in, thinking you’ll take him down by saying people will fear soaring prices. That’s exactly what Scott wants them to think (assuming the term “soaring prices” had operational meaning, which Scott denies). You talk like that, you end up like this guy.
Good reference Bob. I’ve always thought of Sumner as the Hannibal Lector of inflation.
I’m pretty confused as to why an economist would value nominal GDP in the first place, much less use it as a barometer of a nation’s living standards? I mean technically you could plot Zimbabwe’s NGDP over the years and claim they’ve experienced astronomical economic growth, but anyone who’s taken Econ 101 ought to know better. I think you’ll easily mop the floor with this guy at the debate
Sumner’s sharp. He doesn’t just think that NGDP should grow, he believes it should grow at 5% a year based on our average over the last 30 years or so. He thinks the Fed should make up the shortfall since 2007 to create a recovery. It’s not the case that he thinks they should just try to make NGDP shoot through the roof.
The zimbabwe thing was just an example. My point is that NGDP doesn’t have any inherent relationship to actual living standards since it includes output AND inflation. So if living standards (RGDP) falls by 10%, but we have 15% inflation, NGDP will rise by 5% even though the people have a lower quality of life. Obviously this wouldn’t be an economic improvement.
That’s why I was asking why an economist would value Nominal GDP over Real GDP
What Bob said plus the Federal Reserve can’t control real GDP the way they can control nominal GDP due to supply shocks, increases in productivity, etc.
Scott doesn’t say NGDP is a barometer of economic health. Rather, he thinks path-reverting NGDP growth would eliminate unnecessary interruptions in real prosperity.
Bob,
What do you think of Rothbard’s analysis of the 1970s stagflation in Mystery of Banking?
I read him as saying that it’s not really a supply shock issue at all [or at least, the shock would have been a fast trigger thing… the bad economic conditions outlasted the shock]. I think he’s saying that at that point, people understood the government’s Keynesian fiscal and monetary strategies well enough to factor it into their real calculations… and at that point, the jig was up: the strategies became ineffective.
I think the conclusion is that Volcker and company needed to completely change strategy to get the public guessing again. And to do this, they needed to do things which would they knew would cause recession AND hang on until everyone got the message.
Sumner’s policy is obviously illegal. The Federal Reserve Act Section 2A. Monetary Policy Objectives, states:
The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.
The only way to accomplish those goals would be for the Fed to freeze the money supply and allow interest rates to be determined by the market. Or else, the Fed should simply go out of business.
The potential is there for horrific impairment of economic calculation, especially long term, from these policies and for substantial theft and shifting of purchasing power without due process of law or constitutional authority.
The only positive to come from this policy would be if the majority of the populace finally came to understand that inflation is a purposeful policy of the government and not a mysterious force of nature.
Carney says, “For another, much of household debt is not inflation sensitive, which means that the dollars they must use to pay down their debt are not devalued by inflation.” Can he or anyone else back this up?
Also, Bob Roddis, I don’t think you can interpret the phrase stable prices so literally. Inflation has averaged from slightly below 0% to 4% since the beginning of the great moderation. If NGDP targeting would be obviously illegal, then Volcker and Greenspan’s policies were obviously illegal too.
If NGDP targeting would be obviously illegal, then Volcker and Greenspan’s policies were obviously illegal too.
Really.
Be assured that I sincerely realize how gauche and unhip it is to bring up the trivial issue of “what is a dollar?” as actually defined by the US Constitution.
http://www.fame.org/HTM/Vieira_Edwin_What_is_a_Dollar_EV-002.HTM