Greg Mankiw says we're almost out of the liquidity trap.
This graph also offers an opportunity to ask a question of tight money people: I am entirely willing to accept money was too loose in the 2000s. Not only am I "willing to accept it", I've said it. I'm not sure it's the primary explanation of what happened, but you can throw it on the pile of things to talk about. But how in the world can anyone look at the 2000s and say "monetary policy was too loose" and not look at monetary policy since 2007 and say "monetary policy was too tight". If you're anything like a Wicksellian, I don't know the mindset that produces that view. What conception of the natural rate of interest makes it higher than the actual rate of interest in both 2000-2007 and 2007-2012?
UPDATE: That is, of course, if there are any tight money people left. Somehow in the fall of 2011 it seems like every Austrian in the blogosphere turned into an avid supporter of maintaining nominal spending. I'm still not sure exactly how that happened. I'm still not even sure if it did happen or if it's just a way to diffuse blogosphere criticism.
Wednesday, January 11, 2012
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If the United States is almost out of the liquidity trap, Daniel, does it mean that the recovery in America will be more powerful in the coming months?
ReplyDeleteWhat about the situation in the European Union? Are you optimistic that it can be resolved in 2012?
in the fall of 2011 it seems like every Austrian in the blogosphere turned into an avid supporter of maintaining nominal spending.
ReplyDeleteWhat are you talking about? Seems like you're falling into the usual market monetarist mentality of seeing "Hey, $PERSON said that, if you're going to have a central bank, NGDP targeting is the last bad policy!" and thinking "$PERSON is an NGDP-targeting supporter who agrees with me!"
(to say nothing of confirmation bias)
And to answer your quesiton, money has been loose since the crisis in that
1) The money supply massively increased, and
2) The whole time, anyone with a non-crack-influenced business plan could get a loan. Numerous skeptics attempted exactly this and proved wrong the "liquidity crunch". It was a credit crunch, and no, people with shoddy business plans shouldn't get loans.
NGDP targeting with a lower target than Sumner?
ReplyDeletehttp://increasingmu.files.wordpress.com/2011/08/ngdp2.jpg?w=630
'Seems like you're falling into the usual market monetarist mentality of seeing "Hey, $PERSON said that, if you're going to have a central bank, NGDP targeting is the last bad policy!" and thinking "$PERSON is an NGDP-targeting supporter who agrees with me!"'
ReplyDeleteSilas, the free bankers generally argue something along the lines of, "Free banking would do automatic NGDP targeting" (although until recently they may not have used the term "NGDP"), so that is not a bad characterization of their position regardless of whether there is a central bank.
@Gene_Callahan: "People would do X" does not, in the minds of the libertarian-leaning, imply "A central government agency should do X." Indeed, they generally make a point of separating these issues and having different positions on them.
ReplyDeleteFWIW, you may be right about free-bankers in general, but I've never understood that argument, and no, not for lack of trying. Why does a bank care about NGDP to the point of using its lending policy to target it?
@David Kuehn:
ReplyDeleteScott Sumner happened, that's what happened. The guy actually made a really good argument for NGDP targeting and we all fell in love with him.
That said as I understand it, what Mankiw is trying to do is divine the inner-workings of the Fed. That doesn't really tell us anything about liquidity traps or how tight money is. It just tells us what we might expect from the Fed. Maybe the Fed was wrong both in the 2000s AND in the 1990s...