Now that I had time to carefully read Scott’s response to my initial post on Japan, I have backed off a bit. I still think he is being slippery, but he was clearer in his response than I initially thought. So, my reaction in turn was not very helpful, and I can understand why Scott and his fans would dismiss me as an annoying gnat.
In this final post, let me summarize why I think he’s being slippery–engaging in the Scott Sumner Shuffle.
1) The BoJ announced a major monetary expansion, and Scott quoted a news article as if it confirmed his worldview.
2) I argued that this was weird, since Scott has consistently argued that looser money would lead to higher long-term yields, not lower.
3) Scott responded in a post that opened with these lines: “I often point out that on a few occasions easy money policy announcements have actually raised long term bond yields. But that’s obviously not always true.”
So, I am here to say that that way of framing his past writings is simply not true, and was the crux of our spat today. In the two sentences I’ve quoted above, Scott makes it sound like he says, “Hey, did you know that it’s theoretically possible that a surprise announcement of more asset purchases could actually raise long-term yields?! Really! It’s even happened a few isolated times in history!”
But no, that’s not at all what Scott has been saying over the years. Or at least, I can point to a few examples where he said something much stronger. Remember, the reason I know about this quite vividly, is that I was on the receiving end off Scott’s learning stick when he thought I denied the possibility of such things. Here we go:
==> On 12/26/12 Scott wrote: “People who pay attention to monetary policy know that easy money often raises long term interest rates. We have lots of high frequency data showing this (expansionary monetary surprises often raise long term bond yields)…”
==> On 12/12/12 Scott wrote: “[O]nce again Fed stimulus raises interest rates and lowers bond prices…” So that phrase “once again” means that this is a common thing. You wouldn’t say, “Once again, man bites dog.”
==> And the smoking gun: On 12/7/12, specifically in response to me (by name), Scott wrote a post with the title “If I Buy T-Bonds, Their Price Rises. If the Fed Buys T-Bonds, Their Price (Usually) Falls.” It was this post title that made me think that Scott Sumner believed that if the Fed buys T-Bonds, their price usually falls. Perhaps I read too much into it…
For extra clarity, from that post itself Scott says:
I notice that lots of commenters insist that bondholders gain when the Fed injects money by buying bonds. Even if this were true, it would have no bearing on my criticism of [Sheldon] Richman…But there’s a much bigger problem with this fallacy. It’s unlikely that monetary injections would raise bond prices at all.
Do monetary injections always reduce bond prices? No, just most of the time. Obviously there are special cases that relate to how the injection changes expected future policy, and very small effects depending on which maturities are purchased. But the dominant effect is that more money means lower bond prices.
OK? Clearly Scott was lecturing me (yes, by name, I’m not pulling a Carly Simon here) on the fact that the default, normal case–in both theory and history–was for long-term bond yields to rise in response to an expansionary monetary surprise.
So today, when Japanese 10-year yields fell to record lows on the BoJ’s announcement, I pointed out that this was a little awkward for Scott.
And in response he said, “I often point out that on a few occasions easy money policy announcements have actually raised long term bond yields.”
That, my friends, is the Scott Sumner Shuffle–not to be confused with a Krugman Kontradiction.