Tuesday, June 19, 2012

It's not Hayek that I have trouble taking seriously...

...Greg Ransom weighs in on the question that Bob Murphy raised earlier.

I have some comments - read them now before they're purged (it must be the new IP address from the move that is letting me get through. I had been banned for... well... for disagreeing with Greg Ransom about Hayek).

Something to remind people: Bob initially raised the question of whether Hayek and Sumner are on the same wavelength. I think he's right in answering "no". "NGDP targeting" has taken on the definition assigned to it by market monetarists - some steady growth in the level of NGDP. If you want to argue that beause Hayek variously wanted a constant MV and an MV that adjusts with productivity to maintain a stable price level, I'd agree with you on that. But it's a little disingenuous to call that "support for NGDP targeting" just because it's (1.) a target, and (2.) talking about NGDP.

I could say I want NGDP to fall 15% a quarter... is that support for NGDP targeting?

I think not.


  1. I question comes down to what difference you think a ~0% trend rate versus a 5% trend rate will have.

    Lots of people think the answer in the long-run is that it won't make much difference, and when a recession occurs it won't affect liquidity preference that much. To them there is little difference between 0% and 5% in the long run.

  2. Getting prickly over whether a 0% target still constitutes a target is debating semantics, which is pointless. And the modern version of the argument said, "hey, what about population growth!" and in practice it is *probably* no longer the case people would actually want the 0% (still less than Sumner, but probably something to the effect of 2%). That isn't literally what Hayek said, but there is nothing different in the analysis.

    I don't know why you think you've got anyone in being disingenuous or in a logical trap for thinking of 0% as a target. I would call (and have called) those arguing for price-level stability as arguments for inflation targeting. The economics behind a 0% (or in reality, 2%) target versus a 5% target is basically the same. The actual value of the target is just a parameter.

    And yes, if you target NGDP to fall 15% next year, you are targeting NGDP.

    1. You have completely missed my point. I said that he could very well say that 0% is an "NGDP target". My point is that he's wrong to give Bob grief over drawing a sharp distinction between Sumner and Hayek.

      If you want to play the semantic game and check off the fact that a 0% target is a target, that's perfectly fine with me. But don't pretend that Hayek was under the impression that Sumner's built in inflation was negligible. He absolutely didn't think that.

      re: "The economics behind a 0% (or in reality, 2%) target versus a 5% target is basically the same."

      Hayek, I think, would disagree with you.

    2. "Scott Sumner's general views on macroeconomics are so much in harmony with my own that, in commenting on the present essay, I'm hard pressed to steer clear of the Scylla of fulsomeness without being drawn into a Charybdis of pettifoggery."

      -George Selgin


    3. "So my one substantial disagreement with Sumner is that I think five percent an unnecessarily and perhaps dangerously high figure — one that is less likely than lower rates to maximize welfare in the long run, yet more likely to perpetuate boom-bust cycles."

      - George Selgin, further down.

      Very interesting piece - thanks for sharing it.

      I do think there is a really stark difference here over the inflation implied by the market monetarist position. It's not accident that Bob Murphy is as much a mortal foe of Sumner as he is of Krugman. And this is why, as I've impressed on my market monetarists friends, it seems nuts to me that they try to make enemies of Keynesians and friends of Austrians.

      Anyway - thanks for a very interesting link.

    4. That a great post by Selgin - I recommend everyone read it before commenting further on this thread.

    5. "It's not accident that Bob Murphy is as much a mortal foe of Sumner as he is of Krugman. And this is why, as I've impressed on my market monetarists friends, it seems nuts to me that they try to make enemies of Keynesians and friends of Austrians."

      Selgin (while not self-identifying as an Austrian) is very close to Horowitz and White branch of Austrianism in most areas of economic theory. This branch of Austrianism agrees with Market Monetarists on both the need for stabilizing the value of money in the face of changing demand (Which Bob would disagree with) and the overall optimal results derived from free market solutions (which I suspect many Keynesian would disagree with).

      The alliance between MMist and "monetary dis-equilibrium" Austrians seems solid - though your quote from Selgin perhaps shows the potential for a future falling-out is these ideas ever get taken seriously by policy-makers.

    6. "it seems nuts to me that they try to make enemies of Keynesians and friends of Austrians."

      It seems quite clear to me that it's because of ideology.

    7. rob -
      re: "This branch of Austrianism agrees with Market Monetarists on both the need for stabilizing the value of money in the face of changing demand"

      Right - we all agree Hayek and these Austrians think that. There's no challenge of that point that I'm aware of. But keep in mind the discussion is also about Hayek, not Selgin, Horwitz and White. He talked most often (when he was in the mood to advocate a stable MV) about 0% MV growth. That's very different from what Sumner would want to see.

    8. The logic of the 5% v 0% is to prevent prices having to fall as productivity rises plus to have a bit of inflation to allow relative prices to adjust without any actual prices falls being necessary.

      By the time of "denationalization of money" Hayek seems to have accepted the first part of this argument as he favors Prices Level Stability, which would involve increasing the money supply to match productivity growth.

      I think the second part, increasing the money supply in order to have planned inflation , is more controversial. Using inflation to allow relative prices to adjust is very un-Austrian and I'm surprised that Selgin and Horowitz etc don't take a stronger stance on that point.

    9. I agree completely. This is what I've been trying to say (and apparently I'm not communicating it clearly to some people).

      Not only am I surprised Selgin and Horwitz don't take a stronger stance on that point, I'm surprised Sumner doesn't take a stronger stance on Hayek on that point.

      For reasons that are completely beyond me, Sumner is trying to make friends with a dead guy (Hayek) whose followers are never going to be completely on board with him and enemies with another dead guy (Keynes) whose followers are. (He's taken a somewhat lighter tone in more recent posts on Keynesians, but he's been pretty critical lately... and for silly things like allegedly obsessing over interest rates which Keynesians haven't been doing).

    10. I'm currently on Holiday in Frankfurt in the Starbucks near the European Central Bank. Which seems an appropriate place to talk about this, though I have to be quick.

      To a degree Unlearningecon is right. Sumner and the other market monetarists share a great deal in common with Austrians in subjects outside of macroeconomics. That's why Sumner seeks to make a common cause with them, making a common cause with Keynesians like Krugman who are fierce defenders to the Big State and of redistribution would be much harder. Unlearningecon can label this simply "ideology" if he likes, his own relationship to other schools of thought is little different.

      Daniel, what you must understand is that in the long run the MMist and monetary-disequilibrium Austrians don't see short-run liquidity preference arguments to be anything like as important as you do. I agree with them here too. Years ago there was a debate between Sumner, Selgin and Woolsey in Sumner's comments, I commented too a fair few times. Sumner said that he wouldn't really be averse to a lower percentage NGDP increase in the long run, he just doesn't want the trend change to happen during a recession.

  3. Looking at the question from a slightly different perspective, I think the specific timeline for having a target is also important to the discussion. Ransom offered a quote from Hayek stating that "I am not only against inflation but I am also against deflation." IMO, this only suggests that Hayek held a 0% target for any given year. It is not apparent from any of the quotes that witnessing an absolute decline in income, Hayek would have suggested a higher target for the following years in order to make up for past transgressions.

  4. Daniel, there you go again.

    The problem is that you falsely report my words & statements, repeatedly, even when directly corrected.

    And you've just done it again. The problem wasn't disagreement, it was putting false words and thoughts in my mouth. Which you've done once again.

    But as for Hayek, yes, you constantly make up whatever you please and 'report' your fantasies as the views & statements of Hayek.

    That is a problem

    1. Tell me what I've misrepresented and I'm happy to correct the post (an offer that always stands for anyone I ever talk about on here).

      I just said here that you weighed in on Bob's question and that you banned my old IP address... certainly those two things are true.

    2. What in the hell is Greg Ransom's problem? The perceived sleights, the instant resort to ad hominem attacks... one pictures an elderly curmudgeon, shaking his cane and yelling at hapless kids who have entered his driveway in pursuit of a ball.

      I find it puzzling. He seems to give priority to presenting Hayek as laudable and hip, over presenting an accurate interpretation. Hayek can speak for himself.

  5. Is the V in Hayek's MV income velocity or transactions velocity?

    1. There's no clarification of that point in the passage that's often cited in Monetary Nationalism. White says it's not stated, but he thinks it's clear he's talking about transactions velocity. I could see it either way (he talks about circulation, which implies transactions, but he also makes statements about a productivity norm that make it sound more like income). I'm not sure how much it really matters.

    2. I'd love to have a clear answer to this problem. I've read quite a lot of Hayek's writing on monetary economics, he always seems too vague about it for me to tell which one he's talking about.

  6. If Hayek's V is transactions velocity then don't all kinds of horrible double-counting issues arise? Or am I missing something.

    PS- could Greg Ransom guest blog here? Just kidding!!!!

    1. What do you mean by double counting?

      If you try to act like nominal transactions are the same as nominal income, then yes you'd be double counting a great deal! But there are good reasons to think about transactions, since those are the prices we actually face and spend money on. Plus when we talk about monetary policy it's always important to keep in mind the role of asset sales (as if the recent housing crisis wasn't reminder enough). Asset sales are transactions, after all.

      I personally think it's more important to keep what you're talking about straight... I'm not sure either would lead to wholly different conclusions.

  7. Dan,

    Have you noticed that Greg Ranson has removed all references to you or any other criticisms from his blog?

    Don't you think you should have anticipated his reaction?


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