David Beckworth (here and here) is taking on the hard-money enthusiasts by challenging one of their central claims. David emailed me about this–and by the way he has a good sense of humor–so I’m pretty sure he wants me to rip him. Kind of like when Terry Gross had Don Rickles as a guest on “Fresh Air,” and she begged him to insult her. Okay David you asked for it; I will treat you like Scott Sumner, which I gather is your goal in life…
Let me focus on a subset of the arguments in this dispute. For brevity, I will boil them down into two representative statements by the generic Critic and then Beckworth’s reply (the words of course being mine).
CRITIC: Man I can’t believe how nakedly the Fed is propping up the apple market! Apples are in a bubble; their price would collapse if the Fed weren’t buying so many apples. In fact, last year the Fed bought 100% of every apple produced!
BECKWORTH: What are you talking about? The fact that the Fed bought 100% of every apple produced last year, has nothing to do with whether the Fed is “supporting the apple market” as you claim. Rather, let’s look at the real price of apples. They are at historic highs. If in fact the Fed were propping up the apple market as you claim, then why would apple prices be higher than they were before? You can’t explain that.
Another major problem with your conspiracy view: Last year the Fed began specifically targeting Macintosh apples, and it stopped buying Golden Delicious. Yet the apple growers stopped planting Golden Delicious, and switched to planting record amounts of Macintosh. If the Fed were really acting to subsidize the apple growers, then wouldn’t the two be acting in concert? Yet instead, you’ve got the Fed buying massive amounts of Macintosh apples, and the growers planting record amounts of Macintosh, rather than Golden Delicious. Your theory just doesn’t fit the facts, man.
In fact, it’s not merely that I disagree with you. Your views are so at odds with the data, that I have to stop having this conversation.
Now, to be clear, I made a few substitutions in the above. I wanted us to forget we were talking about monetary policy, because for some reason market monetarists seem to think the laws of economics change all of a sudden in this realm. Can we all agree that the hypothetical Beckworth above is making no sense at all?
OK, if so, change “apple” to “Treasury,” “100%” to “77%,” and “Macintosh” to “long-term Treasuries.” I have read his stuff a few times, and I’m pretty sure the above is a fair summary of some of his arguments. Not all of his arguments, but some.