Paging Bob Murphy: time to resurrect your incredulity at the claim by Sumner that Hayek is on his side.
I can't think of a much more un-Hayekian statement than "it doesn't matter where the money is injected". For some reason Greg Ransom is retweeting this.
I am able to go to sleep at night by telling myself that it does matter where the money is injected, but we inject it in pretty reasonable places and to the extent that the injection does cause real distortions that problem is completely swamped by the aggregate demand benefits of doing the injection.
Friday, November 9, 2012
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Smartass comment deployed. Thanks for the tip.
ReplyDeleteFalse alert. Hayek can go back to sleep. Sumner meant that it doesn't matter who you buy the bonds from while it does matter what you buy. Also, it sounds like he was talking about the effect on interest rates.
ReplyDeleteI think Hayek would still have trouble with the second sentence, though. And for that reason he may not even agree on the third sentence. Even if he did agree he wouldn't be as sanguine about it as Scott.
DeleteThe third sentence, I think, is likely right. I am more practically on Scott's side on this, rather than Bob's. But I am aware to that extent I am being un-Hayekian.
Karen Vaughn had a nice way of summing up Hayekian macro that went something like "it's about the real consequences of nominal policy".
What's the Hayekian position though?
DeleteThe way I see it, all that Sumner is saying is that the market for treasuries clears. Assuming you and I both want to buy 1 bond. The Fed wants to sell 1 bond and so does Bob. It doesn't matter whether the Fed sells to me and Bob to you or Bob to me and the Fed to you.
I have a hard time believing Hayek wouldn't reach that conclusion.
Am I missing something?
Yes you're missing something. The Richmond Fed was saying low interest rates hurt savers. I don't know how Scott was trying to jujitsu out of that one, but he's not responding to their claim.
DeleteOn issues like this you can quote both Hayek and Mises for both sides....
ReplyDeleteIt depends on the Cantillon Effect and Account Falsification.... In some descriptions of that the important thing is the flow of new money. In other descriptions its how the flow of new money affects expectations. Some depend on the supply of money, others on the supply of money relative to demand. It also depends on whether the direct effect of interest rates on long-term investment is taken to be small or large.