“Tyler Durden” at ZeroHedge is as excited as a kid on Christmas Eve, thinking that the Bank of Japan has finally “lost control” because of the breakout of 10 YR Japanese government bond yields (doubling in 4 hours and triggering circuit breakers).
Let me make a falsifiable prediction of which I am certain: No matter what happens, Scott Sumner and other committed market monetarists will not admit that their plan failed and that the critics hitting them from an Austrian perspective were right.
For example, let’s say the BoJ’s new commitment to massive monetary expansions plays out in textbook Mises/Hayek fashion. There is a boom for a few years, then when CPI starts rising too rapidly the BoJ raises rates and Japan plunges back into an awful depression.
Clearly, Scott will blog at that time:
[HYPOTHETICAL SUMNER BLOG POST FROM 2016: “I cannot believe we’re going through this again. Finally the BoJ started taking my advice back in late 2012 / early 2013. We had several years of rising NGDP, which in turn didn’t destroy the yen as Peter Schiff said, but in fact led to rising real GDP–the best economy in decades. Then, because CPI broke 5% (which was mostly due to one-off events, as I’ve blogged about here and here), the BoJ tightened, leading to the biggest drop in NGDP since the 2008 crisis. Unemployment shot up to 9% after NGDP growth began slowing. How many historical examples do we need to see, that show awful recessions are caused by tight money? And yet the inflation-hawks continue to beat their drums.”
By the way, I’m not even saying the above is evidence that Sumner is a bad guy. Macroeconomics has so many moving parts, that it’s virtually impossible to look at a five-year period and conclude what “the objective lesson” is. You can tell just about any story you want, Austrians included.