I saw David R. Henderson link to this piece by Steve Chapman, and Bob Roddis posted it in the comments here as well. I am at “Porcfest” this week and would rather drink alcohol than think about my $500 bet. But some quick reactions:
==> I realize this might sound petty, but doesn’t there seem to be an asymmetry here? Chapman writes:
Inflation hawks have been predicting a severe outbreak for years. But David Henderson, an economist at Stanford University’s Hoover Institution and the Naval Postgraduate School, has been skeptical enough to put his money where his mouth is.
In December 2009, he publicly bet economist Robert Murphy of the Pacific Research Institute $500 that by January 2013, there would not be a single point at which the CPI would be up 10 percent or more from a year before. So far, it hasn’t been, and it shows no sign it will.
First and most obvious, why is David getting credit for putting his money where his mouth is, but I’m not? We both have money on the line. Second and less obvious, Chapman is making it sound like it was David’s idea to bet, when actually he just piggybacked on a wager that Bryan Caplan and I had concocted.
Third, the very reason I agreed to these bets was that I wanted to put some meat behind my warnings of a severe outbreak. I was aware of the non-falsifiability of just saying, “Uh oh, this is bad, get ready, it’s a comin!” for years on end. So yeah, it looks like I will probably lose my bet to David, but something about Chapman’s description bothers me, like I’m somehow Bugs Meany to David’s Encyclopedia Brown.
==> If I now put aside my own ruffled feathers, I find Chapman’s discussion of Scott Sumner to be quite bizarre:
Another economist who thinks inflation is the least of our worries is Scott Sumner of Bentley University in Massachusetts. He says the increase in the money supply has not unleashed inflation because the demand for dollars has risen as well.
When banks or individuals hold on to cash, he notes, the effect is the same as if the Fed were shrinking the money supply. By refusing to spend or invest, they stifle economic activity.
The Fed’s past quantitative easing programs have helped, but they haven’t been big enough or lasted long enough. Sumner argues the central bank should commit to sticking with that tactic as long as it takes to get growth back to a healthy pace — backing off only if inflation gains a real foothold.
I realize that I’m in a bad mood because I used to read Chapman when I was in high school and now he’s pointing to me as a warning for his readers, but I really think his discussion of Sumner is pretty bad. There’s nothing of Scott’s signature idea–targeting NGDP growth as opposed to just dumping in more money–and the stuff about backing off if inflation gets too high, is just flat out wrong. If there is a supply shock and real GDP falls 10%, then with a 5% NGDP target Scott would want to see 15% price inflation. Anything lower than that, and Scott would say the Fed is engaging in too tight money.