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It seems to me if you concede all those things (about Tyler and Sumner and Krugman and DeLong) then what we do now is keep pressing the point, knowing that the political economy is never going to implement it perfectly.

I've always found your version of robust political economy a little odd. It sounds to me like "your policy can't be implemented perfectly, politicians are not benevolent, so it's not robust", when I would have thought the point is:

(1.) nobody expected it to be perfect but imperfect and a bad recession is better than REALLY imperfect and a depression, and

(2.) nobody expected politicians to be benevolent but if we press the point hard enough presumably we can get a bearable imperfect instead of a counterfactual awful imperfect.

We know a robust political economy requires constitutionally restrained politicians, decentralized power, and a market economy. We have that. We seem to be able to implement bearable imperfect over unbearable imperfect. So what else were we expecting? Was anyone waiting on a benevolent dictator?

I don't think the difference is a political economy one - nobody is relying on a benevolent dictator here. The difference is that you say this: "Let's assume for sake of argument that in the fall of 2008, an activist monetary policy could have avoided the financial crisis (as Tyler and Scott Sumner argue), that a much bigger stimulus could have kick started the economy in 2009 and 2010 (as Paul Krugman and Brad de Long argue), etc." But you really don't assume that. And that's fine that you don't assume that, but I think that's real the difference.

"No What?"

Post titles haven't been your friend recently, have they?

Daniel, you missed a key point in Pete's argument.

He agrees with the ME theory held by Sumner, White, Selgin, Horwitz, ect., yet he does not see how it can be implimented practically under central banking.

This leads to the position that the countercyclical monetary and fiscal stimulus is worse than holding the money supply constant along with old-time fiscal discipline, and allowing relative prices fall and clear the market. Neither position is without bad side effects, but in terms of the long-term public choice considerations, recession fighting measures from stimulus are worse.

At the end of the day, governments never cut spending, they won't raise taxes enough, the debt will continue to baloon, the treasury will continue to borrow as long as it can, then the game will be finally be over. When? Nobody knows, but it is certain that it will come to a bad conclusion. The Fed will be left with no option except default via inflation. Nations have too much pride to ever admit they are bankrupt and opt for an orderly process.

Why is that story so hard for many smart folks to accept? This story was good in Adam Smith's day, and it is still a good story now. If anyone thinks that knowing a bunch of monetary theory gets one out of this box, then they have moved from becoming a scientist to becoming a full-fledged crank.

Ironically, I think the Chinese have become Austrians by necessity.

They see what is happening here, and I'm not sure why everyone is so quick to assign bad motives to the Chinese public statements, and not take them at face value. They don't want to be paid back with worthless paper. What is so darn hard to understand here?

re: "the debt will continue to baloon, the treasury will continue to borrow as long as it can, then the game will be finally be over. When? Nobody knows, but it is certain that it will come to a bad conclusion."

Forgive me K Sralla, but I'm finding this a little too vague to make sense of. What do you mean by "balloon", exactly? Do you just mean continually grow or do you mean grow at an unsustainable pace? Because it seems to me it's not certain at all that it will come to a bad conclusion - although given the state of entitlements that's clearly possible. But the public choice problems associated with entitlements seem quite different from the public choice problems associated with stimulus or austerity. What is "ballooning" to you? I worry about the debt, but I find when people tell me they worry about the debt too they are worried about very different things than I am.

"They don't want to be paid back with worthless paper. What is so darn hard to understand here?"

The part where they keep buying it.

Daniel,

You have your head in the sand. When sovereign debt has been downgraded by a credit agency, that means it has balooned out of control. Balooning further means that all three credit agencies downgrade, and the bond market crashes and short- term yields explode.

Then you say that public choice problems associated with entitlements are quite different from public choice problems associated with stimulus.

No Daniel. The insentives facing politicians are intimately connected. Fiscal stimulus is related to an economic theory that politicians all to willingly accept. Like a devil, it quitely whispers in their ear the thing they want to hear. "More deficit spending and lower taxes are good for the economy and getting votes. Do more." It is this same devil that whispers in their ear about entitlements. Give the people what they want and keep taxes low, and you can stay in office forever. You might even get a building named after you.

The entitlement problem and fiscal stimulus are both enabled by a juggling trick of debt and debasement. This same juggling trick makes possible fiscal stimulus. Money printing keeps all these balls in the air.

You miss the forest for the trees.

"The part where they keep buying it."

Yes, they are addicted due to their crawling peg. However, it may not be long before they go into de-tox.

Lee,

Not typing on my computer but on mobile devices that I have while I am traveling. Not that I am perfect with language anyway. But I appreciate the attention to detail you provide.

“Ludwig von Mises once wrote that he started out as a reformer, but instead became a historian of decline.”

I don’t think that is such a bad thing. Every nation needs an Isaiah when that nation is hell bent on self-destruction. Recall Albert Nock’s essay on the “remnant”:

“Still, I reflected, even the greatest mind cannot possibly know everything, and I was pretty sure he had not had my opportunities for observing the masses of mankind, and that therefore I probably knew them better than he did. So I mustered courage to say that he had no such mission and would do well to get the idea out of his head at once; he would find that the masses would not care two pins for his doctrine, and still less for himself, since in such circumstances the popular favorite is generally some Barabbas. I even went so far as to say (he is a Jew) that his idea seemed to show that he was not very well up on his own native literature. He smiled at my jest, and asked what I meant by it; and I referred him to the story of the prophet Isaiah.” http://mises.org/daily/2892

In other words, concentrate on the remnant. When the masses get tired of their dismal state, they will fire mainstream economists, but not before. Then they might be ready for the truth.

Keynesian economics dominates because it tells the politicians and the people what they want to hear: we don’t have to save, invest and work hard to prosper; we merely need to have the government borrow and spend and the Fed to print more money.

Frustration comes from the belief that people want the truth but we’re not doing a good job of communicating it. People don’t want the truth most of the time. They will accept it only when they have no other options.

Meanwhile, feed the remnant and teach them to prosper in spite of bad policy. There is a lot of money to be made from the policy machinations of the feds. A lot of people were poor during the Great D, but a lost became rich, too. A lot of people grew poorer in the German hyperinflation, but a lot became richer because of it by investing in things that increase in value with inflation.

I am, of course, in philosophical agreement with Pete. We need constitutional change in both fiscal and monetary policy. What would once have been deemed radical is really now the only practical alternative.

When you have heretofore responsible economists calling for 4-6% inflation for a decade, you need to render that option impossible. The Fed crossed the rubicon with its foray into fiscal policy, as many now recognize. In my last WSJ op ed, I called for the abolition of the Fed's emergency lending power. That would be one option. Freezing the money supply, as Pete suggests, would go a step further.

On the fiscal side, neither side of the ideological divide has come to grips with the magnitude of the problem. The right wants to protect (even add to) defense spending. The left wants to protect the New Deal/Great Society legacy. It all needs to be cut.

While he was contemplating running for president, Gov. Mitch Daniels made a courageous proposal: sunset entitlements. Don't reform them, but as of a date certain, end them.

Pete,

I agree with you on technical economics if we had either a free banking system, or if benevolent and omnipotent despots were running the Fed. But precisely because we have neither, I think the political economy position is one that basically focuses on flexibility of the price system and establishing a level target for NGDP and not freezing the money supply.

See what I did there?

Freezing the money supply is monetary policy. It means the government is deciding, every few months, how much money there should be, regardless of changes in the demand for money, interest rates, or NGDP. That the government happens to decide the money supply should remain constant does not stop it from being activist monetary policy.

Moreover, politicians would eventually get control by corrupting the definition of "money." After all, they might say, money is the medium of exchange, and so money being held by people for speculative reasons is not being used as money but as a substitute for savings. Perhaps money held in this way should not be considered "money" after all, and, therefore, to keep the money supply constant we need to offset changes in speculative demand for money.

What this ultimately boils down to is rules vs. discretion: you just prefer one set of rules to another. I happen to think, if we are going to constrain the monetary authority with rules, that a NGDP level target is far superior to a fixed supply of money. You, apparently, agree with me about the technical economics, and so I don't see why you should prefer a rule which fixes the money supply.

Getting the "right" rate of money growth is a fool's errand. It is like seeking the right prices under socialism. Well said, Pete.

1. Once, the ideology of the American economics profession was to stabilize the price level. The Fed stabilized the price level. Then the ideology was hydraulic Keynesianism. The Fed pursued hydraulic Keynesianism. Then the ideology was New Keynesianism and inflation targeting. The Fed pursued New Keynesianism and inflation targeting. Then the ideology was that targeted bailouts of key firms was important, not liquidity per se.The Fed issued targeted bailouts to firms it believed were important, not (initially) issuing liquidity per se.

So if the ideology of the Fed were to become NGDP targeting, is the most likely outcome that this time around the Fed will not be able to pursue NGDP targeting because of political incentives?

2. First, something I don't completely agree with. The money illusion means something more than fooling people. Even in the presence of anticipated inflation, it is much easier to give someone a 0% raise in the presence of 4% inflation than it is to give a 4% pay cut in the presence of 0% inflation. When they've gone around during recessions, there are an inordinate number of people who have received no change in salary in comparison to those who receive a cut in wages. Firms find it easier just to lay people off instead. This is a different problem than automated wage increases as a result of inflation expectations. It needs a different response.

3. Now the part I would agree with more- we need more money because there is a demand for more money. Not meeting the demand perverts the structure of the economy. The opposite of the standard ABCT story takes place: too little long term investment takes place and too little consumption. I've drawn this out before ( http://increasingmu.files.wordpress.com/2011/06/reversed.jpg?w=630&h=436 ) and believe it is correct - hopefully I am not just missing something here. No amount of price flexibility will fix this for the same reason that no amount of price flexibility will eliminate ABCT in the presence of inflation. In other words, the argument otherwise is very similar to the New Classical argument against ABCT.

Getting the "right" rate of money growth is a fool's errand. It is like seeking the right prices under socialism. Well said, Pete. - Roger Koppl
Exactly, so presuming the "right" amount of monetary growth is zero is no better than any alternative.

I have a little saying: a criticism that can be brought against everything ought not to be brought against anything.

The idea is to defend against arguments like this. Any rate of monetary growth (including negative and zero rates) will not be a market rate while the government still has its monetary monopoly. Therefore, this point cannot function as a criticism against any particular proposal in the present argument context.

One might as well observe that trees have leaves, because that is about as decisive in the current debate as the facts you and Pete have brought up.

STRONGLY agree with your point 3 Ryan.

I like ABCT and capital structure elongation ideas a lot. But it bugs me to no end that it's just set up so that the "right" structure is the rebalanced capital structure and the "wrong" structure is the elongated structure.

I believe we talked about this when you originally posted that.

From Pete's post:
"Isn't any supply of money optimal given a flexible price system?"

Yes, but implicit in the assumption of "perfect" flexibility is the omniscience of the agents. They must know "perfectly," during the process of change in the money supply, the difference between relative price changes and absolute price changes. No Hayekian can assume this!

Mario,

Isn't the question ultimately a comparative institutional one? Do you expect the policy makers at the Fed to be able to stabilize MV better than market participants to adjust their behavior to changes in relative prices? My view is that the policy makers can never out perform the market participants.

The assumption of omniscience can be placed at the feet of the stabilizers of MV, but I don't see how market participants groping at prices rely on anything even close to omniscience.

Pete

Pete - could you explain why you think the assumption of omniscience can be placed at the fee of the stabilizers of MV? You always seem to think people require omniscience or benevolence to implement these sorts of policies and I don't see why.

Making a pencil - that takes a degree of knowledge approaching omniscience.

Targeting an M that stabilizes NGDP seems relatively straightforward in comparison. Whatever knowledge it requires certainly seems manageable and if we question the benevolence of central bankers (maybe a concern for some), we can bind them constitutionally.

Pete -
re: "My view is that the policy makers can never out perform the market participants."

At the same task, I would agree with you. But adjusting behavior to relative prices and stabilizing MV are quite different tasks. There's nothing absurd about trusting central bankers to stabilize MV better than you trust people to adjust to relative prices, but still trust people to adjust to relative prices better than you trust central planners to adjust to relative prices.

*Not that I think a relative price adjustment is the primary problem here - I'd like to clarify. It's just worth pointing out that asking central bankers to stabilize MV is not the same as asking them to plan out a myriad relative prices and subjective values.

Pete,

My point was simply about the "optimality" of any supply of money. The Rothbardians often invoke this as if it had policy significance, that is, the quantity of money could fall or the demand to hold could rise without any messy effects IF ONLY PRICES WERE FLEXIBLE.

(And, of course, there is no coherent meaning to "perfect" flexibility -- information costs,etc. They have to mean simply that there is no coercive interference in the setting of prices -- so how much flexibility that would be we are not told.)

Now simply keeping the flow of expenditure constant does not require omniscience on the part of the central bank. What incentives it has to do or not do this is a separate question.

This is again getting asymmetrical. In either case, market participants are adjusting their behavior to relative prices. The only question is whether or not the relative prices will be more or less screwed up by stabilizing spending. We KNOW that relative prices will be wrong with a frozen money supply in very predictable and systematic ways. For what reason do we ignore all the pernicious aspects of deflation out of fear of the pernicious aspects of inflation, when they are mirror images of each other? Okay, the incentives, but as I said, the Fed's actions are dominated by ideology, which has historically been dominated by Keynesianism.

It's like there's a fire to be put out, and you are arguing we shouldn't pour water on it because we might miss. This is the fallacy of Loki's Wager. It is not true that just because we can't precisely define how to achieve MV stabilization, we can't do anything about it at all.

Not to mention that Sumner's policy proposal is to use an information market to target NGDP, so actually yes, market participants would have an incentive to guide it with their dispersed information. It might not be perfect in the sense that free banking's system is "perfect," but when did austrian economics require anything to be perfect to be useful and good?

Ryan: "We KNOW that relative prices will be wrong with a frozen money supply in very predictable and systematic ways."

Why would prices be wrong with a frozen money supply? Reisman and other argued that the only accurate prices happen with a frozen money supply.

If people demand more cash, they're demanding it with respect to goods, so prices should fall. What's wrong with that?

And how would Sumner's information market be any better at forecasting than existing futures markets? They're terrible forecasters.

Mario said:

"Yes, but implicit in the assumption of "perfect" flexibility is the omniscience of the agents."

As a stubborn 100%er I would say no. Pricing is a discovery process, isn't it? Flexible prices are free prices, in the sense of freedom of action and rivalry.

The price level (P) and the equation of exchange used by monetary equilibruim theorists is a false god. The only thing with a real economic meaning for economic action are relative prices .

We are seeing today that prices are pretty flexible. After all, the stock market is part of the big time market. If Bernanke is keeping bond rates artifically low, well, the market is flexible enough to correct interest rates via the stock market. A plunging stock market is nothing but an interest rate correction, a price settlement in conformity with time preferences.

High order goods are being repriced against consumer goods (or, in general, input prices against output prices), even if the big fallacious mean P is falling. And messing up with this correction via MV stabilization is disastrous. Haven't we seen enough of this failure?

The suggestion, now repeated several times on this forum as well as elsewhere, that arguing in favor of some "ideal" pattern of M adjustment is equivalent to arguing for for having central banks attempt to mimic that ideal, is one I don't accept. It misrepresents my own position very egregiously. After all, as Pete knows well, I have long argued that the task assigned to central banks is essentially one of "centrally planning" the money supply, and that this particular sort of central planning is no more likely to succeed than any other, both because central banks lack the requisite knowledge and because they lack the right incentives.

I have, consistent with this stance, not been an advocate of QE except in the very limited sense of observing, in retrospect, that the Fed kept money too tight in late 2008 and much of 2009. I fail to see how such an observation need indicate a "soft" attitude to central banking any more than the observation that the Fed kept money too easy between 2002 and 2006. Indeed, I don't see how one can consistently argue that central banks face an impossible task unless one allows that they may err by making M too tight as well as by making it too easy. (It has always struck me, on this score, that Rothbardians sometimes suggest that central planning money is actually a cinch: just don't let the quantity ever increase and, hey presto! everything should be fine.)

Speaking of the anti-FR people, only recently Jamie Whyte confronted a similar criticism, from the Cobden Centre's Toby Baxendale, to the effect that we were implicitly arguing for intervention in defending Hayek's constant MV ideal. To Jamie I wrote as follows:

"I've tried to convince him [Toby] that the relevant vision of a free market monetary system isn't one of a system that simply keeps M constant, but is rather a vision of a free banking system with its own automatic regulation of M. In my own works I've shows [sic] that such a system tends to stabilize MV, just as Hayek said a good monetary system should. Viewed against such a free banking ideal, a central bank that manages M so that MV declines drastically, as happened in the fall of 2008, is actually committing a serious planning error, not less than it would if it allowed MV to grow excessively and cause a bubble. The alternative Rothbard view, in contrast, gives central bankers a free pass when they err on the downside."

Somewhat later I wrote to Toby himself as follows:

"Can't repeat it enough: I do not advocate central banks doing anything. I consistently argue that they cannot do what needs to be done to avoid cycles etc. I also theorize about both what FRFB systems would do and about what sort of M behavior is most consistent with stability. I find that FRFB can come reasonably close to "mimicking" the latter ideal, and that central bank's cannot. I also use the same ideal as a standard by which to argue, after the fact, that this or that central bank appeared to pursue a policy that was too easy or too tight on this or that occasion. If it's legitimate to say, in retrospect, "The Fed kept rates too low in 2002-6," and if so doing doesn't implicate one as an apologist of central planning of M, surely it ought to be no less legitimate to say, again in retrospect, "The Fed kept M too tight in late 2008" without having to be taken as an apologist for central planning of M."

Finally, as regards Scott Sumner's idea, he and I both seek a market-based plan that will achieve our respective ideals (we disagree about the ideal MV growth trend only). I've put my money on free banking and a frozen base; he has his on NGDP futures targeting. In fact there's no reason why you can't try both. If free banking works as I imagine, there won't be much open-market action under Scott's plan once the banking system is capable of doing all it can.

McKinney: I don't see Reisman cited too much when it comes to these things. I could hardly give a better answer than those here who have argued for flexibility. The short answer is that relative prices change when people want to hold more money. It's bad for the same reasons ABCT is bad - see the graph I drew and linked to.

I agree that Sumner's proposal is imperfect - I would prefer free banking. I brought it up because of the argument that there is no incentive for central banks to get MV right. This is one such mechanism. If you want to call it scientistic, I won't argue with you.

The reason why I am making the arguments that I'm making is that the enactment of NGDP targeting is so tantalizingly plausible. So many mainstream economists are accepting Sumner's arguments, and in contrast to the insurmountable barriers to getting free banking through, a simple change of the majority of the profession's ideology will change the behavior of the Fed. Will it do as well as free banking? No. Would it be the best banking + monetary policy the US has ever seen? With the exception of a couple states in the fake free banking era, probably.

In response to the critics of price flexibility as a "solution" to market imbalances compared to the monetary central planners attempting to stabilizing MV, I would suggest that Pete's point is not inconsistent with Mario's observation that "price flexibility" is not some type of "silver bullet" that in one stroke brings about perfect market readjustment.

The structure of relative prices are out of balance in the post-bubble period. Assets must be revalued, prices must reflect the discovered proper ratios of exchange at which supplies and demands are brought more into a re-coordinated pattern; and resources must be reallocated among sectors of the economy to reflect the post-boom relationships in the market.

It is more likely that the actors in the market, in their respective corners of the division of labor, with this special and localized knowledge of their own circumstances, will "grope" towards the right prices and wages (even when this involves downward adjustments of both) than relying on the ability of the central bankers to inject money in "just the right places" and in "just the right amounts."

Superimposing further monetary expansion, even when it seems to be only maintaining a certain level of MV, runs the risk and (from an Austrian non-neutrality of money perspective) is more likely to superimpose new misdirections of resources and malinvestments of capital that will exacerbate and prolong the adjustment process when viewed from a longer-run view.

As Mises, Hayek, Machlup and Robbins (of the 1930s) argued during the Great Depression, it is not a matter of advocating price or wage "deflation." What is required is freedom from government interventionist and monetary manipulation so the appropriate market wages and prices can be discovered and re-established to bring about sustainable coordination and stability in and across markets.

This is a central element in the historical "Austrian" answer for re-establishing "full employment" and longer-term sustainable growth.

Richard Ebeling

Richard Ebeling

Just to be clear: I think it is a very bad mistake to equate freezing the money supply with "laissez faire" monetary policy. (Freezing the monetary base is another matter; the two proposals are very different.)

George, FWIW I take your points fully. You clearly say that your judgments about too much and too little are retrospective. Okay. Do you think freezing M or high-powered money would be lot better or not much better than available options that preserve a central bank.

Pete: How would you bind the hands of the central bank to prevent them from "adjusting" the "frozen" level?

There are two major issues in the debate over a rule for a fiat money system: knowledge and incentives. I know of no monetary rule, except the one implemented in New Zealand, which addresses incentives to adhere to the rule. Experience says central banks will deviate from rules. A plan without an incentive structure is not serious.

Despite what several people have suggested, targetting anything is not a simple matter. First, we can only observe values with a lag. Second, if we want forward targetting, we need a model with all the problems that come with that. Third, whenever you target a magnitude you alter the relationships among the variables.

Even apparently simple rules like freezing the monetary base involve complexities. If the base had been frozen in the 1980s, there would have been major dislocations as a huge poriton of US currency migrated overseas. The Fed doesn't even now (much less in real time)know how much currency left. Ex-post estimates have been made, too late to have stabilized the domestic base.

Deflation increases the real supply of money until the demand for money is satiated and real nominal expenditures are enough to allocate available resources. In other words, during an excess demand for money, money stops behaving like money should: people start using it for purposes other than a medium of exchange. Deflation solves this problem by reducing the quantity of money required to satisfy the needs of exchange.

However, in the process, deflation disrupts the role of money as a unit of account. Each monetary unit is worth more after the deflation than before. This kind of variability in the unit of account rearranges the relationship between creditors and debtors, and it disarrays long term economic planning generally.

We're not really arguing about whether the central bank should stabilise MV, but whether "M" should be interpreted as a nominal or real variable. All deflation does is increase the real money supply rather than the nominal money supply, but with the unwelcome side-effect of disrupting the stability of the unit of account.

The other problem is that deflation is qualitatively different from relative price changes. Falling sales are interpreted by individuals as a fall in demand; customers have found something else to buy instead; the company selling the old product reduces production and, perhaps, goes out of business altogether. But now suppose that customers aren't buying anything else, but rather are just holding money; the business is producing the most desirable product in the marketplace; relative prices are fine, but the company begins to wind down production because, from its perspective, there has been a fall in demand.

If prices just snapped to the level, then this wouldn't be a problem. In an ideal world, businessmen would just know the difference between a fall in demand for their particular products and a general fall in demand because of monetary disequilibrium. In the case of deflationary pressures, they would all just coordinate to bring prices down. But in the real world the price system does not convey that kind of information. Instead, bausinessmen reduce production and may even go out of business before the deflation has run its course.

Seems to me that what Alex Taborrok is suggesting "an unbalanced budget amendment" is both sensible and consistent with Keynesian policy (countercyclical policy that obtains surpluses during business cycle peaks).

That idea was resurrected during the Clinton years but tossed over the side by Bush 2. What was surprising was Obama's acquiescence to continuity with Bush 2 policy.

What we are seeing I think is the death of the idea that tax cuts are policy solutions for all seasons.

I'd like to clarify an issue alluded to by George. Hayek did want a system in which MV was stabilized. But he did not believe in the ability of central banks to actively manage monetary policy.

At the end of Preface to Monetary Theory and the Trade Cycle, Hayek wrote: "...The one thing of which we must be painfully aware at the present time ... is how little we really know of the forces which we are trying to infuence by deliberate management; so little indeed that it must remain an open question whether we would try if we knew more."

(Hayek was to repeat this same point much later in The Fatal Conceit in a broader context.)

Pete has captured the Hayekian spirit on managed money. Even if we know in theory the best outcome (e.g., stable MV), we don't know enough to improve matters (systematically) through active policy. Richard reiterates the Hayekian insight when he asks what in fact it would take to stabilize nominal spending.

I'm not saying we can't improve on Hayek, or learn to do things better. But I will say the plans presented in this forum don't generally address the Hayek knowledge problem. (Free banking is a possible exception.)

Jerry is correct about the problems involved in fixing B when it includes a large component on currency in circulation. Movements of portions of B in and out of circulation will then be destabilizing. Freedom of note issue tends to limit these movements. But to prevent them altogether one has to more-or-less completely privatize the currency stock.

Roger: for reasons my last post explains, I would never endorse a base freeze without also calling for restoring banks' right to issue notes. It would also help to discourage the use of FR notes for transactions (imagine recalling all existing FR notes and replacing them with notes in inconvenient denominations only, like $3 and $83) so as to further encourage people to make payments with private money. I confess that the libertarian in me (there's one in there somewhere) is someone reluctant to urge the latter step, which is somewhat like a paper-money version of Ricardo's gold-bullion standard.

I am working on a paper dealing with the issues connected to a frozen B reform for an upcoming LF conference revisiting Yeager's "Search for a Monetary Constitution." There I refer to such a frozen-fiat money as a "quasi-commodity" money, since the shutting down of the central banks' powers of new money creation in effect makes the fiat standard into something that's genuinely rather than just provisionally scarce.

I think we need to remember that what is conceptually distinguishable is not always practically separable.

Money begins and primarily remains a medium of exchange that precisely because it comes to more or less comprehensively serve this function in market transactions, also ends up serving some other useful purposes, that is, as unit of account (the common denominator in terms of which the market value of goods and services are expressed and which then facilitates the process of economic calculation), and a store of value (that commodity which because of its wide marketability and often relatively "stable" value enables a more economically useful way to defer and undertake transactions through time).

It is true that sometimes during periods of severe monetary instability (high or hyper-inflations, for example) market transactors may start to use or calculate in terms of different commodities rather than do all three "functions" through the same commodity).

Changes in money's usefulness and expectational dependability in any or all of these three functions happen in an interconnected way that cannot be separated.

If you want to stabilize the general scale (or "level") of prices, you may have to modify the money supply and necessarily influence the structure of relative prices due to the inescapable affect of the monetary injection (or withdrawal) process resulting from money's non-neutrality.

If you want to stabilize a particular structure of relative prices, for example, maintaining a certain structure of money or real wages without a negative effect on sectoral or general employment, a goal of influencing the structure of output prices relative to those money or real wages may require a change in the supply of money and a resulting tendency to bring about a change in the scale (or "level") of prices in the market as a whole.

We should also keep in mind that a decline in the quantity of money in circulation or an increase in the demand to hold money does not, itself, bring about a resulting lower level of prices (price deflation).

It is people's decisions to change their buying or selling at the initial structure of relative prices and the accompanying general scale of prices (given the change in the supply of or the demand for money) that brings about a tendency for a decrease, first in this price, then another price, and then another price, and so on.

The cumulative effect of these individual demand, supply, and pricing decisions for individual goods and services (given the decrease in the supply of money or the increase in the demand for money holding) will be that the general scale (or "level") of prices will have declined (or be declining) as an inseparable accompanying aspect of these relative demand and price changes in one general direction.

Any changes in the general scale of prices occur only through changes in the demands for and prices of individual goods in the face of a monetary change; and changes in the demand and supply and prices offered and paid for individual goods on the market carry with it potential changes in the general scale of prices (the "price level") in the face of a monetary change.

This exacerbates the problems and inconsistencies present in virtually all forms of monetary management by central banks. Indeed, it is a fundamental theoretical reason why, as Pete suggests, the market should be allowed to just work itself out, without attempts at stabilizing MV, or virtually anything else.

Richard Ebeling

Pete proposed freezing the quantity of money. George has long advocated freezing the quantity of base money, combined with private currency issue and the end of reserve requirements--free banking.

It wasn't clear what Pete had in mind, but base money was the more plausible candidate.

But would either of you favor freezing it at 2.6 trillion?

I think this would result in hyperinflation for a time--though I don't really think it would destroy the real demand for the money base, so that the price level would stablize at a much higher level. You know, like 30 times higher than today.

Surely, as government currency is retired, base money needs to be cut. But today, it is reserves that are hugely inflated by historical standards.

I don't have any problem with the huge reserves, but that is because they can be decreased in the future when the demand for them falls.

If the increase were really permanent, then I would be very much concerned about their current level. (And sometimes I think that some of those worried about these huge levels of reserves don't recognize that the quantity of them can and should be reduced in the future.)

As usual, George and I coverge on a common position. We need to move to some possibility of private currency issue, even if there is still a Fed and its cuurency. I think that requires a return to gold first, but am always willing to be convinced otherwise.

I always find Woolsey's posts interesting, but I cannot understand his model. And frankly I cannot link his policies to his assumptions. For me, there is always a lot of implicit theorizing. He obviously wants to connect with Austrians, which I genuinely appreciate. I hope he keeps up the dialog.

Jerry

It seems to be the case that theory says that there is an optimal behavior for M. It also seems to be the case that free banking will, non-perfectly, get spontaneously 'close' to this optimal behavior. If there is a central bank as given, what's the less worst thing it can do; nothing, or try to hit (but miss none the less) the optimal behavior M? What course of action misses by a farther distance, doing nothing or trying to mimic? But, certainly, from saying that in FRB there's an optimal behavior for M doesn't follow that one is arguing in favor of a central bank.

I'm not sure I would say that any supply of M is optimal given flexible prices, I would say that any supply of M can be optimal once we are in equilibrium.

Prof. Boettke says, if I understand him correctly, that there's also another cost besides the monetary one, there is a public choice problem. If we allow the central bank trying to 'mimic' the theoretical optimal behavior of M, then the central bank will respond to other incentives and finally make things worst. But this is a different cost from that of missing the ideal change in M. Monetary costs and institutional costs are together, but the monetary argument assumes everything else unchanged, including the institutional cost. If we allow for the institutional cost to change, then it is a matter of speculation which one will be better, (a) higher monetary cost but lower institutional cost or (b) lower monetary cost but higher institutional cost.

I won't argue that the FRB literature ignores the institutional aspect, or thinks it is unimportant, let alone assumes omniscience by a central banker (or anyone), I'd rather say that is focused on the monetary aspects of the problem. But if that's the case, then it's a matter of value judgement what anyone considers for any particular case what will be the better course of action.

Roger: 'Getting the "right" rate of money growth is a fool's errand.'

Isn't Pete implying the right rate is *always* zero?

Gene,

Maybe. I took him to saying something a little different, however. I think he is saying that freezing M is robust policy if we must have a central bank. Not optimal, but doable, simple, robust. Jerry and George have questioned how simple and doable it really is, but I think Pete was going for robustness, not optimality.

George, thanks for clarifying your position. I am one of those that misunderstood you.

Seems to me that the flexible money proponents view money as just another commodity: rising prices are a signal to produce more of the commodity, so the rising value of money signal the producers of it to produce more.

Money acts like a commodity in many respects, but it is a very dangerous commodity: it is also our ruler for measuring the value of all other products.

People always want distances to be shorter. What would happen in the world if we doubled the distance that a mile covers? Suddenly the distance between NY and London would be half as long. But would it really? No, we would be fooling ourselves.

In a similar way, increasing the supply of money just because people want more of it fools us by distorting the measure of value of everything that we use money to value. So just because people want more of it doesn’t mean we should give it to them.

If people suddenly demand more cash, prices should fall to reflect the lower demand for them. Pumping money in to keep prices/ngdp/mv constant only fools them into thinking there still is a demand for goods when there isn’t.

We have to look behind Hayek’s statement about keeping MV constant and interpret it in light of all of his writings. V is normally a constant. When does V go crazy? After a crisis caused by manipulation of M. So the key to keeping MV constant isn’t elastic money; it’s keeping M constant. With a constant M there are no crises caused by rapidly changing M, so V retains its constancy.

The crises only get amplified when you start monkeying with M to offset V because of the long lags. What banks intended as counter cyclical policy turns pro cyclical, as we have witnessed for almost a century.

Daniel said:

"Making a pencil - that takes a degree of knowledge approaching omniscience.

Targeting an M that stabilizes NGDP seems relatively straightforward in comparison. Whatever knowledge it requires certainly seems manageable and if we question the benevolence of central bankers (maybe a concern for some), we can bind them constitutionally."

This is how utterly backwards Keynesians are about the world in general, and the economy in particular. Daniel, are you seriously saying that a series of simple, linear, physical processes such as require making a pencil is more complex and more difficult than attempting to control a complex, nonlinear, psychosocial process driven by paradoxical interactions and strange attractors? The fact that you can say that says you don't have even the foggiest idea how an economy actually works. Such a statement is utterly bizarre and a demonstration of the worst kind of ignorance of the nature of economic reality. You cannot do what you think you can do. And you cannot predict with any kind of accuracy what the real outcomes will be of just about any policy -- ever heard of unintended consequences? But you can predict that if you confuse people about what will happen in the future, they will be less than enthusiastic about making long-tern plans. Or if you continue to do the same stupid thing over and over, people will adapt to it, and it won't have the result you intended. In other words, Keynsians seem to think that it's not economic man who is omniscient, but them, while the average person is a complete idiot who are infinitely manipulable. That's the only way to make sense of people like Daniel or Paul Krugman.

Thus, the recession goes on and on.

Prof. Boettke, please clarify: you did mean base money, didn't you? It would be nice to see that update in the post itself, to avoid confusion.

Prof. Rizzo, you write: "keeping the flow of expenditure constant does not require omniscience on the part of the central bank"

Maybe I misunderstand your position, but it seems that Austrian literature suggest otherwise, both 100% and FRFB - the point is that for every new dollar spent by the central bankers, they would have to know beforehand what will be the reaction of the money holders. They can spend all they want, but unless they have a method of making people spend it further (and stop them from sterilizing the injection by keeping it in their cash balances), the CB has a problem. In that sense I'd say, that prof. Boettke is right by saying, that it requires omnisciense. That's precisely the problem, that the FRFB literature tries to solve by introducing competing banks, that are supposed to figure it out via competitive entrepreneurial discovery...

Good post, Pete. Sort of like people arguing over "optimal tariffs" in a country with the power to influence world prices. Sure we can roll our sleeves up and see if the argument is theoretically sensible, but even if it is, no way do we say politicians should start implementing tariffs to get Pareto improvements. Better to say, "Free trade baby!" all the way.

I'll end my contributions with a point frequently driven home by Fritz Machlup. Optimality is a property of models, not the real world.

Models may be applicable to real-world problems, but to know that you must have information beyond the model. Institutional knowledge is required.

This is important because we now have policymaking being conducted by people with little or no institutional knowledge. They only know the model. It is positively dangerous.

I think the monetary policy = central planning is absurd.

For example, suppose the government monopolized gasoline. (Something that exists in some countries.)

Trying to adjust the production of gasoline and its price in a way that clears markets is difficult. And getting the price and quantity optimal is harder still. I think a competitive gasoline market is unlikely to do either perfectly, but will do better than a government monopoly.

But operating a government gasoline monopoly in a competitive market system is nothing like trying to use central planning to run the entire economy.

Monetary policy is much closer to the gasoline monopoly that central planning. While I think the problem is harder because of the special qualities of the medium of exchange, it still isn't central planning. Adjusting M to offset V is adjusting the quantity of money (supply) to match the amount of money people want to hold (demand.) It is like adjusting the quantity of gasoline supplied to the quantity demadned. Nothing like comprehensive central planning.

When I hear the claim that monetary policy is like central planning, it seems to me that those saying that have never really thought about what central planning means. How difficult it would be. (And how can that be true of Austrian economists?)

Rather than gasoline, consider a nationalized electricity network (the wires and switching systems.) Getting that right is going to be tough whether it is private provision or state provision. And, maybe getting it perfect would require the knowledge necessary to centrally plan the economy. But that doesn't mean doing a tolerable job of it, (avoiding blackouts most places most of the time) is as impossible a task as trying to do an effective job of allocating all resources to produce all goods by command.

Some of the monetary policy as central planning take interest rate targeting as given. Well, even there the problem of setting a price control for a particular good is nothing like comprehensive economic planning. Maybe getting it perfect would require knowledge like a central planning. But adjusting the price control to keep shortages and surpluses at a tolerable level isn't nearly as hard as comprehensive planning. (Naturally, I am against price controls, including on interest rates.)

By the way, I support private issue of hand to hand currency, and index futures convertibility, but under current conditions, I think freezing base money is a very bad idea (because it is so inflated right now.) I favor having the Fed adjust the quantity of base money to keep expected GDP on a steady growth path. I think it is unlikely to work perfectly. It is just better than what they do now, or targeting a growth rate or path of some money supply measure, or fixing base money where it is now.

> Sort of like people arguing over "optimal tariffs"
> in a country with the power to influence world prices.
> Sure we can roll our sleeves up and see if the argument
> is theoretically sensible, but even if it is, no way
> do we say politicians should start implementing tariffs
> to get Pareto improvements. Better to say, "Free trade baby!" all the way.

Pete's plan is is more like saying "Government will always interfer in international trade, so lets just fix the amount of cars the nation imports and let prices adjust".

People aren't going to shut up about ngdp targeting until the Fed tries it, so I wish it would.

How is anyone going to know if it works? You can't do controlled experiments with the economy. There are going to be so many highly correlated variables, and variables ignored, that no one will know if it worked or not.

From empirical evidence, whatever policy Greenspan followed in the 90's worked, until it didn't.

I expect ngdp targeting would work like everything else the Fed has done and those of us who invest using the Austrian Business Cycle theory will always make a lot of money off the Fed's arrogance.

Bill: "I think freezing base money is a very bad idea (because it is so inflated right now.)"

How do you know the money supply is so inflated? Price inflation is quite low.

Besides prices will adjust to any quantity of money and then stabilize.

Current: "Pete's plan is is more like saying "Government will always interfer in international trade, so lets just fix the amount of cars the nation imports and let prices adjust".

As I wrote above, money is not just any commodity; it is a super-commodity. A change in car production doesn't affect much of anything else. But a change in the production of money changes every single thing in the economy.

No one measures the value of real estate by how many cars it takes to buy a house. Money has a special role as a commodity. It is a measuring device, like a yardstick or a liter. Messing with money is like messing with the size of a yard or a liter.

As I wrote, doubling the amount of real estate that a mile covers doesn't shorten distances any more than doubling the money supply makes us twice as rich.

If people want more cars then car makers should produce them. But if people want more money, they should settle for price reductions so that the money they have becomes more valuable.

In fact, it's probably a bad idea to say that people want more cash when they hold more cash. What they really want is more purchasing power and less uncertainty. Cash is just a tool for achieving those. Lower prices will achieve exactly the same thing.

Changing the money supply only fools them into thinking they have more purchasing power when what the really have is just more money that is worth less.

And the damage to price signals is disastrous.

Joseph E. Gagnon at the Peterson Institute recommends a $2 trillion Fed injection to help the economy. http://www.piie.com/realtime/?p=2313 But how would we know if it worked? If unemployment didn't budge, Gagnon would say it wasn't enough. But if unemployment fell, how would we know something other than the injection caused it and we're guilty of the post hoc fallacy?

McKinney:

One thing that bothers me about amateur Austrian "economists" is their notion that it is the secret to riches (and really, that it is an ideology about wealth protection.)

I don't know that the demand for reserves won't stay above $2.4 trillion, but I don't believe it will. And yes, I said that my expecation would be a 30 fold increase in the price level if the quantity of base money were fixed at $2.4 trillion and private notes replaced government currency. If it was a 32 fold increase or merely a 25 fold increase, I wouldn't be surprised.

Wow. I just read one of my earlier comments fired off too quickly. I really do need to take a second to proof read and spell check. Sorry for diminishing the very high standard of remarks here.

@Woolsey:
One thing I don't like about professional economists is when they make statements like this:

"I don't know that the demand for reserves won't stay above $2.4 trillion, but I don't believe it will. And yes, I said that my expecation would be a 30 fold increase in the price level if the quantity of base money were fixed at $2.4 trillion and private notes replaced government currency. If it was a 32 fold increase or merely a 25 fold increase, I wouldn't be surprised."

... and then they make policy prescriptions based on facts they admit they "believe." If economy is a believe game, it is not a science, but a religion dressed up in a sophisticated jargon to obfuscate the stupidity of its practitioners.

Bill: "One thing that bothers me about amateur Austrian "economists" is their notion that it is the secret to riches..."

Amateur or not, I think that is a pretty good definition of Austrian economics. It's about wealth creation, not gdp growth.

Adam Smith's magnum opus was about national wealth creation.

What else should "professional" economics be about?

Perhaps that's why mainstream econ has gone so far astray: they forgot that the goal is wealth creation.

I realize that I offend a lot of "professional" economists when I translate the jargon into English, but that is one reason I like to do it.

I spent many years in public relations translating the techno jargon of engineers into English and it pissed them off too.

When you translate jargon into English it reveals how simple the concepts really are and how much the pros are trying to obfuscate in order to justify their salaries, as Niko wrote.

As you might expect I side with Lee Kelly, George Selgin and Bill Woolsey in this discussion.

An example is useful here... Let's say that this year I earn £10000 and my normal consumption purchases come out at £9000. I save the difference of £1000.

Let's suppose firstly that we have a central bank which varies the supply of money. Let's suppose that next year due to it's monetary policies and due to fluctuations in demand for money I receive £10100 in income. In that year my normal consumption purchases come out at £9200. I save the difference of £900.

Alternatively, let's suppose that we have a central bank which doesn't vary the supply of money. Let's suppose that due to changes in demand for money I receive £9950 in income. In that year my normal consumption purchases come out at £8940. I save the difference of £1010.

Why is the latter case clearly superior to the former? Suppose I have simple expectations and I expect that every pound is always worth the same. In this case I'm frustrated in both situations. My example here isn't unrealistic either, demand for money or "velocity" does change. I could make this here into an example of account falsification. Account falsification is only a generalisation of money-illusion applied to businesses. Imagine that in the numbers above the income is revenue and the cost of consumption purchases is instead total cost of sales. In that case the number I put as my savings would be profit. Now, in either case will the profits suffer from account falsification? Yes, they will, in both cases because the purchasing power of each pound will vary.

None of the above changes if expectations are brought into play unless those expectations are highly accurate.

Since we live with price inflation it's likely that I would have expected price inflation and wage inflation. Let's suppose that in both cases I expected that my normal consumption purchases would cost £9300 and my income would be £10300. In that case my expectations have not been met in either case. The analogous case applies to a business with expectations too.

So, in all of these cases we have expectations frustrated. We have plans for saving disturbed and investment plans disturbed. The measuring stick of money that McKinney mentions will fail in both cases (as it did under simple expectations too).

Notice that we can't avoid injection effects. If you read the explanation of injection effects in "The Theory of Money and Credit" Mises says that he is talking about an injection of money above demand, not just an injection of money. That makes sense because the logic of the argument ends with a new higher price level having been reached. That could only have happened if supply of money had risen more than demand had. I get the impression that some people seem to agree that velocity changes but forget this when thinking about injection effects.

The real question here is if some paths are better than others. I believe that they are. It doesn't take a solution of the socialist calculation problem to judge the state of price expectations to some accuracy. All it takes is to note that the public will probably expect something similar to what has happened in the past.

V has a good history of rough constancy but I don't think that helps us in this case. It varies in recessions, which is what we're talking about here. And it varies when the future price level is at it's most uncertain.

Current, all excellent points. But let me focus on one: V varies in recessions. But what causes recession?

Now if recessions were random shocks (!@#$% happens!) to the demand for goods or demand for money as mainstream econ seems to think, then elastic money that could rapidly dampen higher V might be an excellent idea.

But you still have the problem of long lags to deal with and I don't see how you can get around it. The long lags will turn counter-cyclical policy into pro-cyclical policy.

However, if recessions happen because of money manipulation, as the ABCT says, then elastic money will only make matters worse. It will come too late and become pro-cyclical and set up the unsustainable boom that goes bust.

If you don't create booms with elastic credit, then you don't have to worry about raging V in the bust.

Now I am confused. Jerry O'Driscoll agrees with George Selgin but not with Bill Woolsey. How can all three scholars agree with each other?

I don't think Selgin and Woolsey are on the same page. Theory wise they agree, but not in real world application. And therein lies the rub.

Under Central Banking, MET can only be turned into effective monetary policy with a ceteris paribus type assumption, and with 20/20 hindsight. To assert otherwise is to assume that a human being has within his grasp the power to consoldiate all the dispersed knowledge of all the individuals comprising a market, and that he can predict the future actions of market participants.

Consider the fact that Selgin, Horwitz, White, Sumner, Beckworth, Woolsey, Cowen ect. ect. all subsribe to the exact same ME theory. However several of these guys do not agree on the most effective way to impliment it, nor do they all measure the demand for money with exactly the same barometer. They only learn if their money injection overshoots or undershoots in retrospect. Maybe they miss very badly, maybe they get lucky? From reading Woolsey, he is even highly agnostic free banking helps substantially.

So let's now pretend that their common hero Leland Yeager was Fed chair, and the others were on the board of governors. Could these guys arrive at a monetary policy consensus? Would their recommendation be effective? What tools would they possess to impliment the policy effectively. What rules would they bind themselves with concerning the types of assets to put on the Fed's balance sheet?

I was only gently nudging home my point by making Yeager fed chair.

Let's be fair and suppose Scott Sumner is Fed chair.

McKinney,

> Now if recessions were random shocks (!@#$% happens!)
> to the demand for goods or demand for money as
> mainstream econ seems to think, then elastic money that
> could rapidly dampen higher V might be an excellent
> idea.

Recessions often are shocks. The 2008 crisis follows the pattern of ABCT quite clearly, but many others don't. ABCT isn't the exclusive cause of recessions, even Mises didn't think it was.

Think about this crisis from the point of view of the smaller economies. There was certainly an element of "global ABCT" but the crisis was centred on the US. (I think the UK and the PIIGS had an ABCT problem too and would have gone into recession even if the US didn't but that didn't have much to do with the global crisis). To many of the countries I haven't mentioned the crisis and subsequent recession was an external shock.

There are many ways that external shocks can occur, wars and trade wars have often caused them in the past. Even in periods without recessions V has changed. Velocity of M2 rose by 18% from 1991 to 1995.

I agree that there are long and variable lags, and I agree that this makes the issue more complicated. As I said above, I think the situation could become more clear if the asset side were not ignored and MV=PT were studied in a bit more detail. But, ignoring that I think that the Quasi-Monetarists make a better case than the Monetarists did. In Monetarism the idea was the V is stable and that the lag was the reason that PQ didn't directly reflect M. The idea of Quasi-Monetarism is rather different, it's that PQ (or equivalently) MV are taken to be variable. That means M can be altered and MV will change. This is better because unlike old monetarism it doesn't ignore the variability of V.

@Current:
"Think about this crisis from the point of view of the smaller economies. There was certainly an element of "global ABCT" but the crisis was centred on the US. (I think the UK and the PIIGS had an ABCT problem too and would have gone into recession even if the US didn't but that didn't have much to do with the global crisis). To many of the countries I haven't mentioned the crisis and subsequent recession was an external shock."

From my knowledge we kind of had a global real estate bubble. I think only African countries, North Korea and Cuba were not affected. Actually I could also think of Germany, but that one already had a big one during the '90s and they were still recovering. They even had a law, I don't know if they still do, were people had to accept the first job offer, meaning that if you've gone to an interview and they said "ok,we'll hire you, but here our conditions," you were obliged to accept. In Germany prostitution is legal, so we can imagine some tragedies. I don't know the exact conditions, feel free to complete the story. But I deviated.

What we have is countries with central banks. Those inflate. This time it was a concentrated effort in Europe, USA and Asia to inflate. I don't think there are many compelling evidence for external shocks. I actually think that, in a global market, we cannot talk about external shocks.

Niko,

To some extent I agree there was global ABCT. Though Germany didn't have a property boom as you say. I think monetary policy in Australia and New Zealand was tight before the crisis too.

Let's suppose though that there had been one country that had been on a constant M policy. Would there have been no external shock there? I very much doubt it in the modern global market.

In this case to the extent that there haven't been any external shocks that has been because central banks have all been running the same policies. Once they start running different policies (and it really doesn't matter what policies) then external shocks will clearly reappear.

I haven't heard anything about the German law about job offers you mention.

@Current:
I would not call it an external shock. An inflationary policy in a country were you export causes a boom in your country also. Would you call the boom an external shock too?

Nico:

What is happening to exchange rates due to this boom in other countries? What is happening to the term structure of interest rates? Why does an excess supply of money in a trading partner necessarily result in an excess supply of money domestically?

If there is a "boom" due to exports, how is that different from a domestic firm benefiting from a temporary fad in other countries? In other words, what does it have to do with credit creation specifically.

One of the problems I see with amateur Austrians is that too often it seems like the ABCT is all the economics they know. And every round peg gets hammered into that square hole.

@Woolsey:
"What is happening to exchange rates due to this boom in other countries? What is happening to the term structure of interest rates? Why does an excess supply of money in a trading partner necessarily result in an excess supply of money domestically?"

Well, I guess I'll hae to leave the experts to answer that.

By the way. If an amateur Austrian seams to know something, at least he makes recomandetions based on what he knows, unlike a professional economist who believes, but doesn't know much, yet he makes policie recomandations.

Bottom of line is that the amateur has an informed opinion, one which he could defend, based on the little he knows. The expert asks you to take his word for it, trust his guts mostlly, not his (lack of) knowledge.

PS:
I could answer your question. As a matter of fact this hole M or MV stabilization policie is nonsense, but I think, based on your posts so far, you lack some basics and I don't have the time to fill them.

PPS:
This blog is not very good when it comes to monetary theory. My uninformed, amateurish opinion.

Sralla:

With the 7 member FOMC, I probably get to choose the target path of GDP. Selgin, Horwitz, and White go for lower, Cowen, Sumner, and Glasner go for higher.

I like being the median voter.

Clear majority for ending reserve requirements and private issue of currency.

I bet we could get rid of paying interest on reserves today, but I have my doubts about negative rates.

What kind of assets should the Fed buy? I know Sumner doesn't think it matters--that is, T-bills work just fine always.

Index futures trading? I'm note sure how the votes go on that.

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