We spend a lot of time thinking about how to get out of a liquidity trap. Maybe we can think more clearly about that question if we instead ask the exact opposite question.
But let's be a little more precise about our question:
How can you get an economy into a liquidity trap in such a way that someone else couldn't get it back out of that same liquidity trap just by reversing whatever it is you were doing? Because it's not really a trap if someone else can get the economy out of it.
I can get a car stuck. That's easy. Any fool can do that. But getting a car stuck so badly that another driver couldn't take over and reverse the car back out is a little bit harder. You have to do something that's irreversible to make it really stuck.
With cars, it's easy to think up lots of irreversibilities. Get it stuck going downhill (it's very hard to get permanently stuck going uphill, because you can nearly always just reverse back down again). Get it stuck resting on a tree stump with all four wheel spinning uselessly off the ground (happened to me once, where the Land Rover's 4WD was finally defeated). And it's extremely easy to get a car permanently stuck if reverse gear doesn't work. What would be the economic equivalents of those sorts of irreversibilities that would make it possible to get an economy stuck and impossible for someone else to get it unstuck?
If monetary policy were loose enough, you would never get into a liquidity trap in the first place. The Zero Lower Bound on nominal interest rates won't be a constraint, for any conceivable shock, if you are targeting 100% inflation. Hitting the ZLB means you were running too tight a monetary policy, given the driving conditions, in the first place.
If one night I snuck in past security, locked the doors behind me, and took over the Bank of Canada, and if I were full of bad intent, I could very easily get the Canadian economy stuck at the ZLB. I would just tighten monetary policy, and announce loudly that I was tightening monetary policy, and force NGDP growth to be so negative that the equilibrium nominal interest rate would need to be negative. No problem.
But what happens when they finally break the locks, escort me out, and Steve Poloz and his old team take over again, and everybody sees that Steve is back in charge of monetary policy?
What could I possibly do, short of physically smashing the printing presses, that would prevent Steve from simply reversing what I had done? Where's the irreversibility?
The fact that I would have destroyed a lot of physical and human capital is a form of irreversibility. But it's not a form of irreversibility that would make it harder or impossible for Steve to get the economy out of the liquidity trap. If anything it would make it easier for Steve, because standard models of investment say that investment demand is a negative function of the existing capital stock, so a war that destroys part of the capital stock causes a rebuilding boom and increases the natural rate of interest when the war ends.
I can only think of one plausible candidate that might work: inflation inertia. If there is inflation inertia, monetary policy still ultimately controls inflation, but the inflation rate has a lot of momentum, so that it's hard to get it to speed up or slow down quickly. If there is sufficient inflation inertia, I might be able to get the Canadian economy stuck in a liquidity trap so badly it would be very hard for anyone else to get it out again.
Suppose I targeted minus 10% inflation, and I eventually hit my target, before they managed to break the locks. If there is inflation inertia, the inflation rate won't immediately go back to 2% when Steve takes over. Just like a car, no matter how powerful the engine, won't accelerate from 0 to 100km/hr in 0 seconds. This means there may be some strictly positive time period during which the ZLB will be a binding constraint on short-term nominal interest rates even after Steve takes over again and everyone knows Steve is back in charge for good. If that is the case, does there exist an equilibrium time-path in which inflation eventually returns to Steve's 2% target? If not, then I have succeeded in getting the Canadian economy irreversibly stuck in a liquidity trap.
The answer isn't obvious. If saving and investment depend only on the short-term real interest rate, and if actual inflation depends only on lagged inflation and current output and short-term expected inflation, then there may not exist an equilibrium time-path in which inflation eventually gets back to Steve's 2% target. Because Steve's forward guidance can influence long-term real interest rates and long-term expected inflation, but these don't matter by assumption. So the short term real interest rate will be above the natural rate for some period, which means output will be below the natural rate for the same period, which means that actual and expected inflation would fall still further during that period, which prolongs the return to the 2% target, and so on. Which means I might be able to get the economy irreversibly stuck.
But is there inflation inertia? The answer to that question isn't obvious either.
There is no inflation inertia in the Calvo Phillips Curve assumed in standard New Keynesian models. If output is at the natural rate, and if expected inflation is at 2%, actual inflation will also be at 2%, regardless of what it was in the past. So if the standard New Keynesian model is true, Steve can reverse what I did and get inflation back to 2% with no lag. But nobody actually believes the Calvo Phillips Curve; we only assume it because it makes it possible to do the math.
Empirically the evidence seems to be mixed, at least to my eyes. During relatively normal times there looks like a lot of inflation inertia. It's just too easy to forecast inflation, especially core inflation, from lagged inflation. But in abnormal times, when there is a clear change in monetary regime that changes expectations, inflation seems to change very quickly. We saw that when the Bank of Canada announced the original inflation targeting agreement. We saw it even more clearly in Sargent's "The ends of four big inflations" (pdf). Dragging me out of the Bank of Canada and putting Steve Poloz back in charge would be a very big and obvious change in monetary regime.
[Update: See Marcus Nunes for another example where apparent inflation inertia suddenly disappeared when the monetary regime changed.]
Dunno. It might be possible to get an economy irreversibly stuck in a liquidity trap. But it's a lot harder than you might think.
Worthwhile Canadian Initiative 
I enjoyed reading this post.
Although I reckon a maritime metaphor would be even more fitting( navigating in shallow waters, turning supertankers etc.)
But it’s your blog, so I go with the vehicular thingy.
“someone else couldn’t get it back out of that same liquidity trap just by reversing whatever it is you were doing?”
Set up an asymmetrical governmental system, so that you need only 41 Senate votes or a House majority to cut the deficit, but you need 61 Senate votes and a House majority to raise the deficit or print money.
Yes, this is a US-specific answer, but it’s very straightfoward as an answer. You can create a trap by making it impossible to reverse policy.
OK, now for the more economics oriented part of this. I do not believe that “lending policy” (so-called monetary policy) is sufficient to manage an economy. While it is always true that you can escape a liquidity trap with fiscal policy, you may easily get into a situation where “monetary policy” cannot fix things.
You get into that situation with policies other than “monetary policy” — and you have to get out of it with policies other than “monetary policy”. However, policies other than “monetary policy” may be very hard to reverse.
Tom Brown,
But I’ve never heard anyone (including what you might call “endogenous people”) dispute what Philippe referred to here:…i.e. that with QE (ZLB conditions) deposits grow in the non-bank private sector since they were swapped for Tsy debt…Is my perception wrong?”
Very much so.
There is a widespread delusion, particulaarly among endogenous money advocates, that QE does nothing to alter broad money supply. They think it goes straight into reserve balances. Of course the only way this can occur is if banks are the only sellers of Treasury and Agency securities to the Fed.
But banks only held about 4.6% of the non-intragovernmental Treasuries not held by the Federal Reserve at the end of 2013Q1, and precise figures are not available for Agency securities, but if the distribution of Agency securities within the financial sector (mutual funds, banks, insurance companies, pension funds etc.) is similar to that of Treasuries then banks likely hold only about a sixth of Agency securities not held by the Fed. Thus the study Philippe cites only confirms what commonsense already strongly suggested.
Mark, good to know. I guess I’d always thought “what commonsense already strongly suggested” (as you say) but I got that (correct) information from Cullen Roche and JKH primarily. The 4.6% figure you quote here is in agreement with Roche’s estimate. And prior to that he’d simply written off bank held Tsy debt as insignificant. I guess I just never encountered people that thought otherwise, so your statement here:
“I’ve noticed in ZIRP episodes with monetary base expansion (QE) normally there is corresponding broad money expansion which the endogenous money people say is impossible.”
was an over-generalization (especially since I think Philippe might be an “endogenous money person” as well). One thing that you wrote that confuses me though: if the distribution of Agency securities within the financial sector is similar to that of Treasuries then why do you say this is about 1/6 of the non-Fed total of these securities rather than 4.6%? If you’re assuming a similar distribution, why the difference?
… and I’m not sure what “endogenous money people” are, but both Nick Rowe and Scott Sumner are in this category too given a central bank targeting something else,… at least at the “structural” level, if I get your meaning there correct:
“Under inflation targeting the quantity of money is endogenous in both the short run and the long run. It’s the nominal rate of interest that is exogenous in the very short run (6 weeks or less, for the Bank of Canada anyway), but endogenous in the long run.” – Nick Rowe
http://brown-blog-5.blogspot.com/p/links-to-remember.html
“In a sensible system the base money is endogenous. You set the NGDP target, and the public tells you how much base money they want to hold. I’m all for that.” – Scott Sumner
http://www.themoneyillusion.com/?p=22948#comment-267116
Scott also indicates that he agrees with Nick’s quote above:
http://www.themoneyillusion.com/?p=23186#comment-271999
and of course Nick again (actually, this was in response to you Mark):
“Couldn’t someone believe all these 3 things: commercial banks create money; the amount they create (generally) depends both on what the central bank does and on other things too (so it’s endogenous in that sense); monetary policy is effective? I believe all those 3 things!”
http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/04/monetary-policy-is-just-one-damn-interest-rate-after-another.html
I’m perfectly aware that the central bank can do as it pleases… and if it wants to target base money stock as an exogenous variable, then it certainly can. No doubt Nick and Scott would agree with that, but then who wouldn’t? Again, maybe I don’t see it, but I don’t know anybody that would say otherwise (maybe I don’t get out much!). Is that what you’re getting at with your “structural” vs “accommodative” sub-categories of “endogenous people?” If Nick and Scott are in the “structural” camp with their statements here, I guess I would be too.
Tom Brown,
“One thing that you wrote that confuses me though: if the distribution of Agency securities within the financial sector is similar to that of Treasuries then why do you say this is about 1/6 of the non-Fed total of these securities rather than 4.6%? If you’re assuming a similar distribution, why the difference?”
That’s because the financial sector holds a much larger share of the Agency securities not held by the Federal Reserve than it does the Treasuries. The financial sector (mutual funds, banking institutions, insurance companies and pension funds) held 24.2% of all Treasury securities not held by the Fed at the end of 2013Q1. In contrast the financial sector held 77.1% of all Agency securities not held by the Fed at the end of 2012Q4.
“I’m perfectly aware that the central bank can do as it pleases… and if it wants to target base money stock as an exogenous variable, then it certainly can. No doubt Nick and Scott would agree with that, but then who wouldn’t? Again, maybe I don’t see it, but I don’t know anybody that would say otherwise (maybe I don’t get out much!). Is that what you’re getting at with your “structural” vs “accommodative” sub-categories of “endogenous people?” If Nick and Scott are in the “structural” camp with their statements here, I guess I would be too.”
I gave a quick and dirty summary here:
http://worthwhile.typepad.com/worthwhile_canadian_initi/2013/08/how-can-you-get-an-economy-into-a-liquidity-trap.html?cid=6a00d83451688169e2019aff20aa92970d#comment-6a00d83451688169e2019aff20aa92970d
The modern strand of endogenous money theory has its roots in the old Nicholas Kaldor rants against poor old Milton Friedman of the 1970s and early 1980s. It’s entirely a Post Keynesian/MMT/MR project and if you read between the lines the whole point of it is simply to prove that monetary policy is impotent.
Fundamentally if you truly believe in “endogenous money” you believe monetary policy is an effect, not a cause. There is of course no such thing as “exogenous money” school although the endogenous money people like to pretend that there is, and do all they can to encourage people to believe in mischaracterizations of what non-endogenous money people actually believe (this includes Cullen Roche). So they carefully construct an exogenous money strawman complete with a series of erroneous beliefs to rail against, similar to what Nicholas Kaldor did 40 years ago.
Thus I would not describe Rowe or Sumner as believers in Structural Endogeneity because that is a strand of Post Keynesian thought that is fundamentally antithetical to the whole Market Monetarist project.
A nice little summary of the subsects of the different endogenous money schools of thought can be found in Table 1 of this paper (unfortunately I cannot find a free copy):
http://ideas.repec.org/a/mes/postke/v25y2003i4p599-611.html
If I had to identify the different endogenous money schools of thought with economists, I would say Accomodative Endogeneity is represented by Basil Moore, Structural Endogeneity by Thomas Palley and Robert Pollin, and Liquidity Preference by Peter Howells.
Tom Brown,
“One thing that you wrote that confuses me though: if the distribution of Agency securities within the financial sector is similar to that of Treasuries then why do you say this is about 1/6 of the non-Fed total of these securities rather than 4.6%? If you’re assuming a similar distribution, why the difference?”
Because the financial sector holds a much larger proportion of the Agency securities not held by the Federal Reserve than it does of the Treasuries not held by the Fed.
At the end of 2013Q1 the financial sector (mutual funds, banking isntitutions, insurance companies and pension funds) held 24.1% of Treasuries not held by the Fed. In comparison at the end of 2012Q4 the financial sector held 77.1% of all Agency securities not held by teh Fed.
Tom Brown,
“I’m perfectly aware that the central bank can do as it pleases… and if it wants to target base money stock as an exogenous variable, then it certainly can. No doubt Nick and Scott would agree with that, but then who wouldn’t? Again, maybe I don’t see it, but I don’t know anybody that would say otherwise (maybe I don’t get out much!). Is that what you’re getting at with your “structural” vs “accommodative” sub-categories of “endogenous people?” If Nick and Scott are in the “structural” camp with their statements here, I guess I would be too.”
I gave a quick and dirty but fairly complete comprehensive summary here:
http://worthwhile.typepad.com/worthwhile_canadian_initi/2013/08/how-can-you-get-an-economy-into-a-liquidity-trap.html?cid=6a00d83451688169e2019aff20aa92970d#comment-6a00d83451688169e2019aff20aa92970d
The current thread of endogenous money theory traces its origins to the Nicholas Kaldor bitchy rants against poor old Milton Friedman of the 1970s and early 1980s. It is almost entirely a Post Keynesian/MMT/MR phenomenon, and implicitly the whole point of the endogenous money project is to somehow prove that monetary policy is completely and utterly impotent. If you truly believe in endogenous money you believe that monetary policy is an effect and not a cause (hence it is “endogenous”).
Note that there is no “exogenous money” camp. Thus the believers in endogenous money have carefully constructed an exogenous money strawman, complete with a series of erroneous beliefs and nonexistent defective textbooks, so that they could have something to verbally abuse and physically beat up in socially binding demonstrations of rage.
Thus, since Scott Sumner and Nick Rowe are not Post Keynesian/MMT/MR, and they do not believe that monetary policy is always and everywhere completely impotent, I would not describe them as believers in Structural Endogeneity.
A good summary of the main schools of endogenous money can be found in Table 1 of this paper (sorry no free copy):
http://ideas.repec.org/a/mes/postke/v25y2003i4p599-611.html
If I had to identify the different schools of endogenous money with a particular economist I would say Accomodative Endogeneity is represented by Basil Moore, Structural Endogeneity by Robert Pollin and Thomas Palley, and Liquidity preference by Peter Howell.
Tom Brown,
“I’m perfectly aware that the central bank can do as it pleases… and if it wants to target base money stock as an exogenous variable, then it certainly can. No doubt Nick and Scott would agree with that, but then who wouldn’t? Again, maybe I don’t see it, but I don’t know anybody that would say otherwise (maybe I don’t get out much!). Is that what you’re getting at with your “structural” vs “accommodative” sub-categories of “endogenous people?” If Nick and Scott are in the “structural” camp with their statements here, I guess I would be too.”
I gave a quick and dirty but fairly complete comprehensive summary here:
http://worthwhile.typepad.com/worthwhile_canadian_initi/2013/08/how-can-you-get-an-economy-into-a-liquidity-trap.html?cid=6a00d83451688169e2019aff20aa92970d#comment-6a00d83451688169e2019aff20aa92970d
The current thread of endogenous money theory traces its origins to the Nicholas Kaldor bitchy rants against poor old Milton Friedman of the 1970s and early 1980s. It is almost entirely a Post Keynesian/MMT/MR phenomenon, and implicitly the whole point of the endogenous money project is to somehow prove that monetary policy is completely and utterly impotent. If you truly believe in endogenous money you believe that monetary policy is an effect and not a cause (hence it is “endogenous”).
Note that there is no “exogenous money” camp. Thus the believers in endogenous money have carefully constructed an exogenous money strawman, complete with a series of erroneous beliefs and nonexistent defective textbooks, so that they could have something to verbally abuse and physically beat up in socially binding demonstrations of rage.
Thus, since Scott Sumner and Nick Rowe are not Post Keynesian/MMT/MR, and they do not believe that monetary policy is always and everywhere completely impotent, I would not describe them as believers in Structural Endogeneity.
A good summary of the main schools of endogenous money can be found in Table 1 of this paper:
The Endogenous Money Hypothesis: Empirical Evidence from Malaysia (1985-2000)
Bala Shanmugam, Mahendhiran Nair and Ong Wee Li
Journal of Post Keynesian Economics
Vol. 25, No. 4 (Summer, 2003), pp. 599-611
If I had to identify the different schools of endogenous money with a particular economist I would say Accomodative Endogeneity is represented by Basil Moore, Structural Endogeneity by Robert Pollin and Thomas Palley, and Liquidity preference by Peter Howell.
Hmmm. Neat. Different versions of the same comment.
[Mark: I had to fish one out of the spam filter (which has been playing up a lot recently). It’s OK if it’s a bit of a duplicate. But I can’t leave it in spam, because it would then think all your comments belong in spam, and on all Typepad blogs. Which they most certainly don’t, because you are the best econoblog commenter out there. NR]
Mark,
As I recall it, the issue Kaldor was addressing was the direction of causation in the quantity theory. His claim was that rather than M causing PY, both were caused by credit.
Now it seems that there are people who claim to believe in “endogenous money” who understand it to mean simply the idea that the money supply is determined principally by bank lending and are quite happy then with the causal direction of M to PY. They certainly seem to me to be attacking a straw man. But in the 70s and 80s, I’m pretty sure everyone understood the relationship between loans and money, so it wasn’t really an issue. I studied my economics in the early 80s and I remember learning it as part of the practicalities of monetarism. Endogenous money, as I understood it, was purely to do with whether it was correct to see money as the independent variable in the quantity theory.
Also, I have to agree with Tom’s earlier comment. I was quite surprised to hear of endogenous money advocates claiming that QE would not increase broad money. I’m sure there are some that don’t really understand it, but I thought the issue was about the impact on lending not money.
Nick Edmonds,
“Endogenous money, as I understood it, was purely to do with whether it was correct to see money as the independent variable in the quantity theory.”
As put forth originally by Nicholas Kaldor, endogenous money went further than that. It claimed that the level of economic activity (as well as the exchange rate) could be much more reliably and predictably determined by fiscal policy than monetary policy.
“I was quite surprised to hear of endogenous money advocates claiming that QE would not increase broad money. I’m sure there are some that don’t really understand it, but I thought the issue was about the impact on lending not money.”
I’ve been unequivocably told numerous times by endogenous money advocates that QE cannot affect the quantity of broad money. In fact I was more or less told precisely this only about three weeks ago by Unlearning Economics who apparently claims to be something of an expert on endogenous money. Moreover this is completely consistent with Accomodationist Endogeneity which claims the direction of causality is strictly from credit to the monetary base.
Mark,
Re the Unlearning Economics comment, was that on the “Market Monetarism Jumps the Shark” thread? I had a look through, but I couldn’t see where that was discussed. Do you have a comment reference number? I’m not interested in defending one camp against another, but I’m intrigued as to what the reasoning was there. Thanks.
Nick Edmonds,
“Do you have a comment reference number?”
Peter P. first brought up the issue of endogeneity in comment #37 and that thread is strictly a conversation between me and Peter P.
Then at comment #67 Unleaarning Economics chimes in:
“In any case, even with a clear correlation I would have this down as an issue of reverse causality, which PeterP has pointed out. I adhere to endogenous money theory, where high income results in loan expansions, and the central bank accommodates the growth in the money base. This means that income and reserves will soar at the same time, but not that the latter is causing the former. Further, it is not inconsistent with the idea that the central bank or government placing restrictions on the issuance of bank reserves will cause problems, as happened in the US in 1937, in Japan and so forth.”
And that thread is a conversation strictly between me and UE (although I now see Philippe threw in some unnecessary snark at a later date).
Then at comment #86 Unlearning Economics made his/her “last comment” to which I did not respond:
“This causality issue is really the crux of what’s going on. I actually don’t know of any studies that found causality from the money base to the broader money supply; only Kaldor, Kydland & Prescott and numerous endogenous money papers which find it the other way. As I’ve said: the endogenous money story is not inconsistent with there being some effect on the economy from a large MB expansion, as this will make the interbank market more liquid. However, there is a saturation point.”
This last point seems to concede that monetary base expansion may somehow have an effect on the economy and hence on broad money through bank lending. But UE also seems to be asserting that QE only has direct influence on reserve balances, and no direct influence at all on deposits.
I would like to continue that conversation at a future point because:
1) I’ve done much further econometric analysis on the US QEs that in my opinion conclusively refutes the idea that QE has no effect on broad money and bank lending.
2) I’ve done considerable reading on the issue since, and the Kaldor and Kydland & Prescott papers that he cites need addressing. Kaldor presents no econometric evidence whatsoever in any of his papers/books. And the 1990 Kydland & Prescott paper used an econometric technique on money that has been used this way five times since, twice by Kydland and Gavin (1995 & 2000), twice by Cooley and Hansen (1995 & 1997) and once by Bergman, Bordo and Jonung (1998). In particular Kydland’s later papers reach far less extreme conclusions, and Bordo and Jonung are old school Monetarists who obviously don’t agree with the central premise of endogenous money theory.
3) From my conversations with Cullen Roche it appears that the Monetary Realists at least acknowledge that QE can increase broad money. So there is clear disagreement within the endogenous money camp.
Mark,
Thanks
I can’t really speak for them, but one point I would make is that the increase in broad money that definitely does occur with QE (being the money that is paid to the non-bank sellers of bonds) isn’t really caused by the increase in reserves – there really both caused by the same thing, i.e. the sale of bonds. So understanding that QE increases broad money doesn’t imply any views about the causal direction between reserves and broad money.
Nick Edmonds,
“So understanding that QE increases broad money doesn’t imply any views about the causal direction between reserves and broad money.”
That’s true, although I have checked the very same links that the Post Keynesian endogenous money research typically does in their Granger causality analysis, namely those between monetary base and bank credit, between bank credit and money supply, and between bank credit and the money multiplier. What I find is that, since December 2008, the monetary base Granger causes loans and leases at commercial banks and that the M1, M2 and MZM money multiplier each Granger cause loans and leases. Furthermore neither of these things is the other way around, which is exactly the opposite of what Accomodative Endogeneity predicts.
The monetary base is obviously not the same as reserve balances, but changes in currency in circulation are generally very gradual, so almost all of the between month changes in the monetary base during the QEs are reflected in changes in reserve balances. Thus I’m confident that were I to check, I would find that (since December 2008) reserve balances also Granger causes loans and leases at commercial banks.
P.S. In my Granger causality analysis I am using the technique developed by Toda and Yamamato.
Mark, thanks for the explanation of your statement regarding agency debt and the different schools of thought on endogeneity.
“implicitly the whole point of the endogenous money project is to somehow prove that monetary policy is completely and utterly impotent. If you truly believe in endogenous money you believe that monetary policy is an effect and not a cause (hence it is “endogenous”).”
As a frequent reader of Roche’s blog, I have to say I’ve never seen him claim that “monetary policy is completely and utterly impotent.” Lol
I can’t speak for the others. I don’t really see a conflict in fact between (what I understand of) the Rowe/Sumner view and the Roche view: Rowe/Sumner seem to indicate that when the CB is targeting something, like inflation, for example, that that puts the actions of the CB in a feedback loop (did’t Milton Friedman claim the CB’s decisions could be made by a computer?). With feedback loops it’s hard to say what’s a cause and what’s an effect (to my understanding anyway… sorry, but I come from a feedback control systems engineering perspective here… not econ, so I admit I’m out of my element!). Now I’ll have to go look up what Granger causality is… 😀
Mark A. Sadowski,
I’m not surprised that Kaldor doesn’t offer econometric evidence for his (very unrealistic) endogenous money theory. Tim Congdon (in “Keynes, the Keynesians and Monetarism”) does a simple statistical test that proves that Kaldorian endogenous money doesn’t pass the first hurdle of stylized facts.
@Tom Brown,
If you read my comments in this thread I’ve already covered most of these issues. It’s important to separate endogenous money as a simple statement about which variables are endogenous or exogenous depending on what central banks are doing, from Endogenous Money as an economic ideology with a political agenda. That’s why I phrased it as extremely as I did, so it’s memorable.
My biggest beef against Cullen Roche is his blatant use of half truths and outright lies. For example there is his regular as clockwork references to the failure of QE in the eurozone. The ECB has never done QE, nor does it have any plans to do QE, and he knows this. That’s just a sample.
I also have noticed that a handful of his regular commenters are what I would describe as habitual liars, propagandists and libelists. They make Morgan Warstler look like an innocent naive.
@W. Peden,
Is the “simple statistical test” anything like this?
Click to access article68.pdf
I am also intrigued by Congdon’s discussion of Keynes’ followers betrayal of Keynes in the immediate postwar period, and Congdon’s takedown of the “Keynesian Revolution” myth. It looks very interesting.
“I also have noticed that a handful of his regular commenters are what I would describe as habitual liars, propagandists and libelists.”
Shoot! I hope you’re not including me in that!… if you are, I hope you’d let me know. Of course you can’t hold people’s commentators against them. Sumner has some crackpots himself.
Regarding failure of QE in the Eurozone… …I guess I only read the articles that interest me (and maybe those didn’t!), but I have to say I can’t remember ever reading a single article on that. Do you have examples? I searched for “Eurozone QE” in his search box but didn’t come up with much. When you say “clockwork” just how frequently are you talking about? He does ones on rail traffic like clockwork! Those are a weekly or bi-weekly subject matter.
Tom Brown,
“I hope you’re not including me in that!”
On the contrary, everything I’ve read written by you has been true and fair.
“Of course you can’t hold people’s commentators against them.”
True, but it’s often revealing.
“Sumner has some crackpots himself.”
Yes, but they don’t usually agree with him. Geoff (aka “Major Freedom”) is clearly Sumner’s most crazy regular commenter and he’s rabidly anti-MM. And although Morgan Warstler may agree with Sumner on many things, he clearly has his own truly bizarre agenda, and in my opinion he has actually done more to hurt Sumner’s cause than any other single crackpot.
“Do you have examples?”
Sure, here’s a couple of recent ones:
1) Chart of the Day: Corporate Profits vs the S&P 500 – April 11,2013
“I’ve made a big fuss over QE in recent years and yet the market continues to plough higher. I often have people ask me:
“Why does QE make stock prices go higher if there’s no fundamental impact?”
My answer is always the same. First, look at Europe where QE has also been implemented and stock markets like Greece, Italy and Spain have been decimated. Then look at a country like the USA where QE has been implemented and yet stocks soar. Then ask yourself what the big difference is between these countries? The answer: austerity versus massive deficit spending…”
I commented there and at that time it still wasn’t clear to me that the ECB hadn’t done any QE as I was still getting a handle on ECB monetary policy, so I made no issue of it. But that claim is still outright nonsense if you read my response.
2) Quite the QE Conundrum…. – August 13, 2013
“One thing I’ve continually cited throughout Quantitative Easing is how the evidence between stock prices and QE is actually much less reliable than most presume. The case I keep pointing to is Europe where the ECB’s balance sheet expansion has coincided with many markets crashing (like the periphery stock markets)…”
In that one I actually laid out the evidence that the ECB has done no QE. The only response was from “anonymous” who makes a claim I had already addressed in my comment and that is flatly false.
As Cullen himself says, “My answer is always the same. First, look at Europe where QE has also been implemented…”
So, feel free to google for more.
Mark, thanks for your response. I’ll check into it. I saw one of those articles but missed the QE part (except for in the title). I’m glad you don’t put me on that list. As for Geoff being “Major Freedom”… Wow! I should have guessed… I was going to specify Geoff by name, but refrained. OK, thanks for the good conversation. But quite honestly I’ve always found Cullen to be open to changing his view should new info come to light. Thanks again!
“True and fair” … now I’m sure I haven’t lived up to those standards… maybe fair.. I always strive for that, but I’m quite sure I’ve written some things that weren’t true (that I learned were not true later). I’m glad you didn’t see them! 😀
As for crackpots… there certainly are some deranged people out there! But not just madness… I think there are problems with memory and learning disabilities… maybe a few sociopaths and psychotics. Bipolar too. Or maybe it’s just the bathsalts!
… BTW, a couple of years ago, Scott did seem to be in an “exogenous camp” in opposition to Tobin here:
“Nick, I don’t see where you and Glasner disagree. The supply of base money is exogenous and the supply of bank money (i.e. deposits) is endogenous. Don’t you both agree with that?
We all agree Tobin was wrong about base money.”
http://worthwhile.typepad.com/worthwhile_canadian_initi/2011/09/all-money-is-helicopter-money.html?cid=6a00d83451688169e2015435ac805e970c#comment-6a00d83451688169e2015435ac805e970c
But Nick soon sets him straight (IMO) here:
“Whether one or the other is “endogenous” is a separate question. How much money central and commercial banks choose to create may depend on many things, which makes it endogenous if there’s a feedback loop from the amount they create to the amount they choose to create.”
Yes! “feedback loop” … my favorite argument! Lol
http://worthwhile.typepad.com/worthwhile_canadian_initi/2011/09/all-money-is-helicopter-money.html?cid=6a00d83451688169e2014e8bcf30cd970d#comment-6a00d83451688169e2014e8bcf30cd970d
:^)