07 Oct 2011

Inflationists in Wolves’ Clothing

Federal Reserve, Shameless Self-Promotion 2 Comments

I continue my one-man campaign against the disastrous impact of the quasi-monetarists (aka market monetarists) on the punditry. It took Scott Sumner three years to become the new normal; it will just take a collapse of the currency for my own take. An excerpt:

Even though their conclusion strikes me as absurd, these quasi monetarists are serious thinkers and it would be a big task to comprehensively critique their position. (I’ve made modest efforts here and here when they defended QE2.) Yet despite their sophisticated calls for the Fed to “target NGDP growth,” shape expectations, and so forth, in practice their message is being distilled by the secondhanders into calls for unadulterated handouts of paper money. As we will see, I don’t have to engage in caricature; pundits like Matt Yglesias and Martin Wolf are openly calling for helicopter drops of money as a solution to our economic woes.

P.S. A quick point about the title (which is one of the rare ones that was my suggestion and the editor kept): I understand that the normal phrase is, “A wolf in sheep’s clothing.” Do you honestly think I don’t know that? The point of the title is that Martin Wolf (and Matt Yglesias) aren’t recommending something that sounds appealing on the surface, but would actually have bad consequences when you peek under the disguise. No, they are openly calling for helicopter drops of money…in order to give us (price) inflation. My point is, they aren’t even cloaking the rhetoric anymore. Sumner et al. have managed to convince people that what we need is a good dose of price increases to help the middle class.

P.P.S. Holy cow, please don’t lecture me that what Scott Sumner et al. want is to target the level of NGDP, and have it grow at (say) 5% per year. Yeah, I know. I read Scott’s blog. In this article, I’m talking about Yglesias calling for “free money for the rest of us” (sic!) when his call is clearly based on his reading of Sumner.

2 Responses to “Inflationists in Wolves’ Clothing”

  1. Rob says:


    Are you planning to do a comprehensive critique of NGDP-targetting itself in the near future?

    While these pieces on inflationist thinking may be entertaining I do not think they are necessary that relevant to the market monetarists viewpoint. I do not see anything in the theory behind NGDP-targetting that over the long term would be inflationary or lead to an Austrian-style boom.

    I’m genuinely interested in an Austrian analysis of what is wrong their thinking and why it must be rejected out of hand even as a “second best” option to address the demand-side symptoms of the current recession.

  2. Major_Freedom says:

    The hilarious part about all this is that the “pundit” interpretation of Sumner’s worldview actually does follow from “targeting NGDP.”

    There is nothing in the pundit’s interpretation that would contradict Sumner’s thesis. If the goal is to “target NGDP”, then if individual economic actors were to hold “too much” money, such that nominal “spending” fell below Sumner’s arbitrary magical target he pulled out of his arse and yet pleads that his flatulence is scientific, then it is no contradiction to say that Bernanke should fly a helicopter over the country and drop bags of paper money on every household.

    Sumner can’t say “that is not what I am saying!”, because if he ISN’T saying that, then he ISN’T saying that his goal is to increase NGDP. What he is REALLY saying is that he wants the government to target NGDP by printing money and giving it to only SOME people in the economy, which means he wants there to be wealth transfer away from those who don’t receive the new money first, to those who receive the new money first.

    Would Sumner be content if one person and one person only received so much newly printed money from the Fed that his relative share of aggregate spending rises to such a degree that the NGDP aggregate rose by 5%? Where in blazes is Sumner’s MICRO justifications? Are we all supposed to just pretend that Cantillon effects don’t exist, and that even if 90% of the economy was composed of government spending on weapons of war, and employing people to be part of a secret cabal that assassinates American citizens without due process, that as long as NGDP rises by 5%, we’re all to shut up and like it, because Sumner got his wish for a 5% rise in NGDP?

    I would like to know where in the heck is the HUMANIST aspect of Sumner’s worldview. Where is the individual? Where are the uncoerced choices? Where is the whole point of the market, which is for the individual to seek their separate interests via exchange, thus raising their prosperity? Why must I be content with an abstract statistic that masks all the details?

    Murphy is only partially right. Quasi-monetarists are not just wolves. They’re rabid bloody werewolves who actually believe they’re helping people by hurting them. I don’t know how people like him can even sleep at night. If I were espousing that garbage, I’d consider myself an inhumane monster who hates human life.