Why would it be deliberate? Whose career and/or personal financial situation would benefit from that? I'm not being sarcastic at all ... I'm genuinely curious when I hear these James Bond villan theories as to what the participants' motivations would be.
So why bother do do *anything* to fight inflation? Then just let it rip, renege on pension (and government bondholder) promises, and tell all those registered voter pensioners to eat cat food? If that's your angle, then perhaps you have a policy point ... but who wants to go down in history as someone who did that on purpose?
I still find it hard to understand central bankers leaving their house every day and saying "goodbye, kids, I'm off to impoverish everyone and crush society." I'm 60, and for my whole life I've heard about how we should all bury gold in our backyards and stock canned food due to high government deficits and "money printing". No one explains how you're supposed to buy goods and services with that ... "I'd like a tomato, pleaese, so let me slice a few shavings off of this gold bar to pay for it." Guy with a the tomato cart (and a gun) "how 'bout just hand me the whole bar!" Talk about inflation!
Agree with Joachim about MMT. It's like Marxism - empty but complicated enough for the unsophisticated to get lost in. For the rest, there is no easy answer, and it's more likely to get worse than get better in the short run. Keynes was right about one thing though, "In the long run we're all dead." Meantime hang on to at least some gold
Stocks are pieces of paper attached to ownership stakes in companies whose top and bottom lines can inflate right along with nominal price levels, so holding any bonds or cash in size appears to be suboptimal. As for gold, my point above stands ... if you're worried about the collapse of rule of law as to the enforcebility of property ownership and dividend rights to said pieces of equity paper, then I'd suggest you re-watch the "Mad Max" movies. I'm afraid that we all have Walter Mitty fantasies as to how we'll be the only properly-prepared survivors of a financial apocalypse... but remember, if you're the "prepper" laying in gold, canned food, firewood, diesel, and other self-sufficiency items, you're only hoarding supplies for whoever ends up being the best-armed bully on the block ;-)
There are no guarantees. But better to know what's coming than pretend the wizards are going to sort it all out and save everyone. It may well come to warlords - of one kind or another
'I distinctly remember that all those monetarists claimed in the early 2010s that all that money printing by the Fed would lead to massive inflation.'
They may have been wrong but exactly who else said back then 'Calm down, that money ends up as reserves on banks' balance sheets and won't enter the real economy. In fact, if you own something - assets, real estate etc - you're in for some real fun'.
Real power...
Danielle Dimartino Booth ('FED up'), working as an assistant to Dallas FED boss Richard Fisher, attends a FED meeting with all the regional presidents there. They're breaking their heads over inflation measuring.
One president asks 'Why don't we have a more realistic CPI basket similar to what some other countries have?' An analyst answers 'Sir, if we do that our models won't work anymore'.
Well, I am certainly not a fan of Paul Krugman but he and indeed all the Keynesian economists got that right. Keynesian economics predicted that at the zero lower bound you can print tons of money without creating any inflation or growth because the money never ends up in the real economy (it's the famous pushing on a string analogy).
Yes, you're right that he was right (though he also said that QE reduced inequality while right now he still seems to believe that the bottom 50% of Americans should be very happy with their financial situation)
I sometimes listen to David Beckworth's podcast Macro Musings because he has had some interesting guests. But you are right, I would not rely on policy advice from such people.
This is a very thought-provoking piece – but I do wonder if one piece of the puzzle may have been missed in the analysis of your third final bullet point.
You imply that printing more money under NGDPLT at the zero-lower bound would have the same effect (ie, be ineffective) as doing the same under the current inflation-targeting framework – which of course, as you noted, took place in the early 2010s.
I’m not sure this is quite the whole picture. To reintroduce Paul Krugman to the conversation, in his 1998 paper “Japan’s Trap” he memorably wrote “The way to make monetary policy effective, then, is for the central bank to credibly promise to be irresponsible - to make a persuasive case that it will permit inflation to occur.”
I would posit that printing money at the ZLB in an attempt to hit a 2% inflation target is NOT the same as printing money at the ZLB in an attempt to push nominal GDP up by say, 10% or 15% to return to trend (as could be necessary in the case of a severe recession). Surely attempting to hit such a large number on nominal GDP growth (rather than being mandated to stop at the typical 2% inflation) could credibly be considered to be “irresponsible” by much of the public?
An assessment which would, of course, be exactly what is needed to make the policy work.
Frankly, anything would be better than the current deliberate destruction and mismanagement, which anyone can see is headed for smash
Why would it be deliberate? Whose career and/or personal financial situation would benefit from that? I'm not being sarcastic at all ... I'm genuinely curious when I hear these James Bond villan theories as to what the participants' motivations would be.
If you think inflation is not a deliberate choice, and record debt is not a deliberate choice, that's your deliberate choice
So why bother do do *anything* to fight inflation? Then just let it rip, renege on pension (and government bondholder) promises, and tell all those registered voter pensioners to eat cat food? If that's your angle, then perhaps you have a policy point ... but who wants to go down in history as someone who did that on purpose?
If you're British, perhaps you're more experienced with currency devaluations than I https://en.wikipedia.org/wiki/1967_sterling_devaluation .
You've missed my point. That's exactly what they are doing https://open.substack.com/pub/charleshughsmith/p/the-rollercoaster-ride-ahead-15-years?r=5nug0&utm_campaign=post&utm_medium=email
Okay, at least now I understand your angle. This might get us into the realm of MMT, which I know Klement hates https://en.wikipedia.org/wiki/Modern_monetary_theory .
I still find it hard to understand central bankers leaving their house every day and saying "goodbye, kids, I'm off to impoverish everyone and crush society." I'm 60, and for my whole life I've heard about how we should all bury gold in our backyards and stock canned food due to high government deficits and "money printing". No one explains how you're supposed to buy goods and services with that ... "I'd like a tomato, pleaese, so let me slice a few shavings off of this gold bar to pay for it." Guy with a the tomato cart (and a gun) "how 'bout just hand me the whole bar!" Talk about inflation!
Agree with Joachim about MMT. It's like Marxism - empty but complicated enough for the unsophisticated to get lost in. For the rest, there is no easy answer, and it's more likely to get worse than get better in the short run. Keynes was right about one thing though, "In the long run we're all dead." Meantime hang on to at least some gold
Stocks are pieces of paper attached to ownership stakes in companies whose top and bottom lines can inflate right along with nominal price levels, so holding any bonds or cash in size appears to be suboptimal. As for gold, my point above stands ... if you're worried about the collapse of rule of law as to the enforcebility of property ownership and dividend rights to said pieces of equity paper, then I'd suggest you re-watch the "Mad Max" movies. I'm afraid that we all have Walter Mitty fantasies as to how we'll be the only properly-prepared survivors of a financial apocalypse... but remember, if you're the "prepper" laying in gold, canned food, firewood, diesel, and other self-sufficiency items, you're only hoarding supplies for whoever ends up being the best-armed bully on the block ;-)
There are no guarantees. But better to know what's coming than pretend the wizards are going to sort it all out and save everyone. It may well come to warlords - of one kind or another
I had a Summer job at the IEA once upon a time. Lots of free monographs…
'I distinctly remember that all those monetarists claimed in the early 2010s that all that money printing by the Fed would lead to massive inflation.'
They may have been wrong but exactly who else said back then 'Calm down, that money ends up as reserves on banks' balance sheets and won't enter the real economy. In fact, if you own something - assets, real estate etc - you're in for some real fun'.
Real power...
Danielle Dimartino Booth ('FED up'), working as an assistant to Dallas FED boss Richard Fisher, attends a FED meeting with all the regional presidents there. They're breaking their heads over inflation measuring.
One president asks 'Why don't we have a more realistic CPI basket similar to what some other countries have?' An analyst answers 'Sir, if we do that our models won't work anymore'.
Well, I am certainly not a fan of Paul Krugman but he and indeed all the Keynesian economists got that right. Keynesian economics predicted that at the zero lower bound you can print tons of money without creating any inflation or growth because the money never ends up in the real economy (it's the famous pushing on a string analogy).
Yes, you're right that he was right (though he also said that QE reduced inequality while right now he still seems to believe that the bottom 50% of Americans should be very happy with their financial situation)
https://archive.nytimes.com/krugman.blogs.nytimes.com/2015/02/26/quantitative-easing-and-monetary-aggregates/?_r=0
I sometimes listen to David Beckworth's podcast Macro Musings because he has had some interesting guests. But you are right, I would not rely on policy advice from such people.
This is a very thought-provoking piece – but I do wonder if one piece of the puzzle may have been missed in the analysis of your third final bullet point.
You imply that printing more money under NGDPLT at the zero-lower bound would have the same effect (ie, be ineffective) as doing the same under the current inflation-targeting framework – which of course, as you noted, took place in the early 2010s.
I’m not sure this is quite the whole picture. To reintroduce Paul Krugman to the conversation, in his 1998 paper “Japan’s Trap” he memorably wrote “The way to make monetary policy effective, then, is for the central bank to credibly promise to be irresponsible - to make a persuasive case that it will permit inflation to occur.”
I would posit that printing money at the ZLB in an attempt to hit a 2% inflation target is NOT the same as printing money at the ZLB in an attempt to push nominal GDP up by say, 10% or 15% to return to trend (as could be necessary in the case of a severe recession). Surely attempting to hit such a large number on nominal GDP growth (rather than being mandated to stop at the typical 2% inflation) could credibly be considered to be “irresponsible” by much of the public?
An assessment which would, of course, be exactly what is needed to make the policy work.