22 Jun 2012

Chapman Should Re-Read Sumner

Inflation, Market Monetarism 57 Comments

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.

57 Responses to “Chapman Should Re-Read Sumner”

  1. Jonathan M.F. Catalán says:

    Just out of curiosity, what was Caplan’s/Henderson’s reasoning behind their prediction (or, maybe more accurate, rejection of your prediction)? Depending on the answer, maybe 2009–12 has been unfair to you. Maybe we shift attention to even less accurate predictions: two days ago, I was told that in a lecture given in 2010, Jesus Huerta de Soto proclaimed that the recession was over in Spain — the structure of production had re-adjusted. Here we are two years later, with falling housing prices, plenty of unproductive debt held by banks, and growing unemployment.

    • MamMoTh says:

      He probably didn’t expect the government to go all austerity

        • Beefcake the Mighty says:

          What was it this time, Bob? I’m referring to my post here, about the inherent circularity of Keynesianism. There was no profanity, insults, etc. So what was the problem? This should be interesting.

          • Major_Freedom says:

            Stop whining.

            • Anonymous says:

              And you’re a whiner.

          • Jonathan M.F. Catalán says:

            I actually agree that your comment was pretty mild (especially given MamMoth’s response); at least it wasn’t an ascii middle finger.

            • Beefcake the Mighty says:

              I didn’t see his response, which I assume was also deleted. What was the gist?

              • MamMoTh says:

                I didn’t respond.

                First, because I didn’t even see your “comment” before it was removed.

                Second, and more importantly, as a strict self-imposed rule that I don’t always follow, I don’t respond to your “comments”.

            • Jonathan M.F. Catalán says:

              I meant the original one.

  2. Bill Woolsey says:

    I agree that Chapman’s discussion of Sumner wasn’t very good. Sumner was asked by Chapman about it.

    Sumner posted about it.

    Anyway, if nominal GDP goes above the target growth, then inflation will be too high, and the Fed should “back off” so that nominal GDP returns to the target growth path.

    • Major_Freedom says:


      • Beefcake the Mighty says:

        Bill Woolsey is a crank.

        • Major_Freedom says:

          Sure, and you’re a whiner.

          • Beefcake the Mighty says:

            MF is simply lame.

            • Major_Freedom says:

              You’re simply boring.

          • Beefcake the Mighty says:

            What’s the story MF, you seem irritable today. Perhaps you’ve been bitch-slapped more than normal over at Scott Sumner’s blog? I can understand if that’s the case; Sumner knocking you down is pretty much solid proof that you are indeed an amatuer.

            Better hope Starbucks keeps that free WiFi, huh?

            • Major_Freedom says:

              Haha, it is normal for me to be doing the bitchslapping over on that blog. Haven’t you been paying attention? I’m a firecracker causing such a conniption that Sumner is now name calling, saying I am wrong about everything, agreeing and defending and promoting anyone who disagrees with me no matter how outlandish their claims are, and going out of his way to correct himself after my criticisms by using his other readers as a springboard to salvage his demolished claims.

              Sure, I make goofs on that blog, but it’s not like you say.

              At any rate, that’s not why I am irritable.

              I am irritable because you keep posting vulgar posts here after being kindly asked not to, and yet you keep doing it anyway like you own the place, and then you whine when they get deleted, as if you are owed something, as if your vulgarisms deserve to be treated with anything other than the trash bin.

              After I called you a whiner for whining, you posted the same copy pasted “[Fill in the blank name] is the intellectual equivalent of a [vulgar urban dictionary reference]”.

              Do you have any idea how boring and unoriginal that is?

  3. Bob Roddis says:

    Consistent with my 40 years of Austrian experience, I note no discussion by the Austrian critic of Cantillon Effects or the distortion of the price, investment and capital structure.

    James E. Miller found an excellent chart from Martin Sibileau. The other day, I found the original chart which is larger. It’s out there somewhere.


    • Daniel Kuehn says:

      I talk about this on occasion, sir! I’ve shared several empirical papers supporting it as they’ve come out. I’ve even shared info about how Keynes agreed with several of these claims, and just argued that it wasn’t a driving force.

      In my RAE piece you like to dissect so much, actually implored Tom and Bob (Powell isn’t an Austrian) to talk more about this with respect to 1920-1921, because I thought there might be something there, and in Tom’s original article on it he only explains the process in theory without tracing out what actually happened in that regard in the run-up to 1920-21.

      Some of us talk about this.

  4. David R. Henderson says:

    Dear Bob,
    Now that I reread Chapman’s statement, I see your point. You were just as willing to put your money where your mouth is as I was. As for whose idea it was to bet, yes, I did piggyback, but I’m the one who structured the specific bet. There, I do think you’re being a little petty.

    • Bob Murphy says:

      David, fair enough.

      • Ken B says:

        I was actually gonna defend you a bit here Bob. Chapman’s tone suggests a herd of doomsayers ever revising their predictions until bravely called out by the knight in shining armor, until one of them, Bob Murphy by name but that’s incidental he’s just an example of the bunch, from hubris, shame, or ignorance accepts battle and is routed. Think a gang of punks called out by Robocop.

        • David R. Henderson says:

          Ken B,
          Although if anyone’s going to imply that I’m a knight in shining armor, I’ll take it. 🙂 Seriously, though, Bob is a knight in shining armor on many, many issues.

          • Major_Freedom says:

            Bob is a knight in shining armor on many, many issues.

            But not all issues, where you take the mantel of knight?

            Do tell!

            [Waits with head resting on hands]

            • MamMoTh says:


              • Major_Freedom says:

                So I gather you have a PhD in economics, and have published books and papers on economics, and have a following of people the size of which is larger than one, his mom?

                Do tell!

                [Waits with head resting on hands]

              • integral says:

                I follow him all the time. This is his blog, right?

              • Bob Roddis says:


                In case there was any doubt that MMTers are central planning commies, read this horrifying little bit:


              • Major_Freedom says:

                In case there was any doubt that MMTers are central planning commies, read this horrifying little bit:

                I’m not surprised at this point. When your entire intellectual foundation starts with

                “We have a monopolized money system. You might not agree with it, but that’s the reality. Deal with it.”

                is guaranteed to attract followers who themselves start with the assumption that communism is attractive.

              • Bob Roddis says:

                “We have a monopolized money system. You might not agree with it, but that’s the reality. Deal with it.”

                I always thought that line was a full BS come-on. Their “democratic” totalitarianism is truly the essence of those people while their beloved funny-money direct from the treasury provides them with “unconstrained” control and power.. YOU HAVE NO RIGHT TO MAINTAIN THE VALUE OF YOUR MONEY OR YOUR SAVINGS! YOU AND YOUR MONEY BELONG TO THE REICH!!

                Actually, the MMTers have quit telling me I don’t get it. I get it.

              • Bob Roddis says:

                Be sure not to miss Mike Norman’s video “Thinking about how dumb the gold standard is” up in the upper left corner of the blog. The Euro is “the gold standard”. Really.

                Sharp bunch of guys. Honest too.


              • Major_Freedom says:

                If the “gold standard”, which supposedly is a country using a money produced by some entity outside the country, then by MMT logic, every monetary system that is controlled by a group of people “on behalf of” everyone else, are ALSO “gold standards”.

                Example. I can’t print my own money and pay taxes with it. I must accept US dollars and pay taxes. Therefore, I am on a pseudo-gold standard, because I cannot pay my debts in my own issued currency. The MMT optimal solution then, is for me to be able to pay my debts to the IRS in currency I myself print, so that I can escape from the restricting, choking, suffocating, under-supply of money that constantly puts limits on what I can consume.

                The supreme irony of MMT theory is that when their attacks against non-fiat money are taken to their logical conclusion, the result is a world where everyone can print money, which of course means nobody will accept paper money, and a precious metals standard will arise.

                That is too funny.

              • Bob Roddis says:


                I think Keynes was a brilliant BS-er. Neither these MMTers (nor Krugman for that matter) can BS to save their lives. Even as brain-dead as the public might be, I don’t see them falling for this nonsense packaged in this manner.

              • MamMoTh says:

                I’ve been waiting for 40 years for our opponents to show the slightest understanding of basic MMT concepts, like tax-driven currencies, sectoral balances, and that government debt is an interest rate maintenance account.

                We won


              • Bob Roddis says:

                We’ve experienced Randy Wray’s deep insight and his special brand of honesty before:

                Q: Austrians use a bait and switch operation—denying that what we have is capitalism and comparing it to some sort of ideal utopian capitalism.

                A: Agreed. That makes it easy to blame all of real world capitalism’s problems on its deviation from utopia. It is fundamentally an anti-scientific approach. Let’s analyze what we have and try to make it better. We cannot have utopia. We’re dealing with human society, after all.


              • Major_Freedom says:


                I’ve been waiting for 40 years for our opponents to show the slightest understanding of basic MMT concepts, like tax-driven currencies, sectoral balances, and that government debt is an interest rate maintenance account.

                It was the opponents who educated MMTers on what they were sloppily trying to say regarding these concepts but couldn’t without butchering the English language.

            • Bob Roddis says:

              And don’t miss this one:

              PUBLIC CURRENCY is a fluidly distributed accounting method used to organize distributed transactions into valuable patterns. Financial returns accrue when productive patterns of currency-use follow intelligent patterns of credit decisions. In short, currency follows real results, not the inverse. We the people are more important than the currency which we create for our own use. We can create as much currency as we want, in unlimited quantities, and use it in any pattern we choose, based upon our distributed credit decisions. Our fiat currency is only as useful as the way in which we decide to use it! The quality of life for citizens of the USA depends upon the quality and tempo of our distributed decision-making, NOT upon how much fiat currency some individuals hoard and keep from distributed use.

              We profit more when we hoard group capabilities and coordination methods, not fiat currency! We can achieve most anything we the people set our minds to, and we can always make enough currency to denominate whatever we decide to do. That’s what fiat means. Again, let’s not dictate how, but:



              • Major_Freedom says:

                Haha, my favorite part is this statement that contradicts the entire MMT edifice:

                “In short, currency follows real results, not the inverse.”

  5. Blackadder says:


    You deserve credit for being willing (repeatedly) to make falsifiable predictions about coming inflation, and for being willing to put your money on the line, so to speak.

  6. Bob Roddis says:

    It’s tough to make predictions, especially about the future.

    Yogi Berra

    I drove a non-driving libertarian home to Detroit from Grand Rapids in 1983 and all he did was warn about imminent hyper-inflation. Which I didn’t believe and which didn’t occur. Using the aforementioned empirical historical method of analysis, I presumed that we wouldn’t have hyper-inflation either in the immediate aftermath of the housing bubble bust.

  7. Bob Roddis says:

    More Yogi Berra:

    There are some people who, if they don’t already know, you can’t tell ’em.

  8. Tom says:

    You’re at Porcfest!?!?!?!?!?

    When are you going to be on Free Talk Live?

  9. joshua says:

    I’ve been reading a book called The Coming Economic Earthquake written in 1991 by Larry Burkett (interestingly enough Bob he’s a Christian who talks about Mises). This guy was expecting national debt of $20T by 2000.

    On the one hand, we know that terrible economic things have happened and will likely happen again, especially due to X factors that we understand. On the other hand, the world is so complex that there may also be Y factors we don’t understand, so it’s difficult to say with much confidence exactly what will happen and when. The only thing we can be sure of is that whatever crises do or do not happen in the future, someone will have predicted it somewhere.

    • Jonathan M.F. Catalán says:

      And there ‘Z factors,’ shrouded in uncertainty: like the fact that the Federal Reserve essentially pays interest on bank reserves, controlling the circulation of new money.

    • Beefcake the Mighty says:


      butt-plug say what?

    • MamMoTh says:

      We can be sure Murphy is going to write something about Krugman soon

      • Beefcake the Mighty says:

        Shockingly, you’re right for once.

  10. BZ says:

    The post by Dr. Henderson on econlog fascinated me. I’ve been trying to hunt down more information on his views. I’m not so interested in why we didn’t have 10% inflation over the last 3.5 years, but why Drs. Henderson and Caplan were so sure in 2009 that we wouldn’t. Poking around econlog hasn’t helped. Can anyone point me to a Story like the one I’m after?

    As an aside, I think Dr. Murphy should go double-or-nothing for a 2017 prediction.

  11. Rob says:

    Shouldn’t a bet about future inflation levels be indexed ? If Bob wins he gets less spending power than David would.

  12. austrianeconisfordementedcultists says:

    I can see why you guys are so angry and hate filled. The whole world thinks you’re wrong.
    Name one country that follows your economic ideas.

    • Major_Freedom says:

      Name one prosperous country without any instances theft, murder, or rape.

      Can’t? That means theft, murder and rape are beneficial and necessary for economic growth. I mean after all, if abolishing them were so good, then there should have been countries that did it by now.


      • austrianeconisfordementedcultists says:

        Keep screaming nonsense like the bunch of demented cultists that you are. The whole world thinks you’re wrong because your beliefs are imbecilic. Only a tiny group of simple-minded cultists like yourselves would ever be stupid enough to believe the childish nonsense you spout. You see yourselves as free thinking individuals but all you ever do is repeat exactly the same party lines, word for word. I have yet to come across a single original thought from anyone in your cult. Just the same horseshit said over and over again. The same expressions, the same opinions, the same nonsense stated as if were divine revelation itself. You consider your reasoning to be irrefutable, because you equate simple-minded sophistry with absolute truth. There is no dissent within your ranks. Only repetition, each a clone of the other.

        The whole world thinks you are wrong because you are wrong . Anyone not a deluded simpleton suffering from extreme tunnel vision can see that. This fills you with hatred and rage. You hate the rest of the world because it refuses to conform to your fundamentalist beliefs. You hate anyone who refuses to submit to the the ‘unquestionable truth’ of your cult, as you yourselves have submitted. You despise those that see the world differently to you, differently to the cult. You are like sick servile little drones that feel nothing but rage towards those that think differently to you. Everyone must submit to the beliefs of the cult. There must be no deviation from cult dogma.

        Your cult will never succeed because there aren’t enough people in the world stupid enough to join you. Name one country that has been stupid enough to follow your ideas. One.

        There are none. Your cult has no future.

        • Bob Murphy says:

          Here is an example of me practicing the cult-craft (in the comments with Nick Rowe).

        • Richie says:

          A Keynesian cultist calling out another group for acting like a cult. Oh the irony.

        • phantom says:

          dude, have you heard of this drug called Effexor?

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