Sunday, February 10, 2013

I want to bury the hatchet and encourage John Papola to do a new project

I sent him this message, after reading his discussion of Mill in this post:
"So do you have any plans, ever to make a video about how depressions are caused by excess demand for money and the solution is to supply more money? I've asked you this several times now.

- Would Russ even work with you on that?
- How do you think your audience would react?
- Do you think your audience would be confused if you said this was the Say-Mill-Hayek position but not the Malthus-Keynes-Krugman position?

If you really think an excess demand for money is the cause of a depression (not that real shocks, etc. couldn't cause problems for economies - just that that's not "the" cause of modern business cycles), I would think this project would be a priority.

If you asked your average viewer of your three videos if you held this position, I do not think many would guess that you do. I certainly wouldn't know it without your convoluted explanations in your emails about what you were really saying in your Macro Follies video. It might be wise to set the record straight and simply help out the prospects for good policy if you were to make a video like this. If you did, I'd even consult on it for free.

Whatever our disagreements on Keynes and Malthus we agree that Mill was saying that excess demand for money could cause depressions and we both like Mill for that. You say this was the inspiration for your Macro Follies video. I would guess that almost none of the viewers of that video would have guessed it came from an essay that argued that excess demand for money can reduce the demand for all goods (since money trades for all goods) and causes depressions."
OK, so "convoluted explanation" might not be burying the hatchet... but from now on I'll try to.

Many of you are probably friends with John on facebook. If not, his page is open. There's also probably an Econstories email address somewhere.

I encourage everyone to email him or post messages saying that we need a video making it clear that (1.) excess demand for money causes a decline in demand for the goods that money trades for (not "goods in general" he's very insistent on that one!), (2.) which causes depressions, and that (3.) the right response is (quoting John now) "the solution is to increase the supply of money".

If he made a video that made these three points, it would be something Keynesians, monetarists, and (he alleges) Hayekians would all get behind. Wouldn't that be a great statement for good economic policy?

Now that I think about it, I'm a little surprised he didn't start with this one.

But let's put the pressure on - make the video!


  1. His twitter handle is @JohnPapola if you want to tell him to do this over twitter.

  2. First, let me accept your effort to bury the hatchet. But I'm curious about this request.

    I've written about the problems with unmet demand for money many times (not that anyone should care what I write in Forbes).

    Here's one case. I put WEEKS into researching and writing this article. Easily as much time as was put into the writing of Macro Follies.

    Also, I HAVE produced a video which includes the nominal stability message, as I have explained to you many times. It's right here:

    Go to 5mins.

    Larry cover's Hayek's nominal stability policy norm. This video has 48,000 views. That's probably pretty competitive in terms of reach with any whitepaper ever written on nominal income stability (though this is just conjecture).

    This is the best context, in my opinion, to explore the idea.


    I do NOT believe that depressions are "caused" by increases in the demand for money. I have yet to uncover a single depression which was caused by a sudden increase the demand for money alone. Rather, there are structural imbalances that turn the booms to bust and "cause" the recession, and unmet increases in the demand for money make a bad situation worse.

    Here's Hayek making this exact point in part 2 of "Reflections on the Pure Theory of Money of Mr. J. M. Keynes":

    "In so far as deflation is brought about — as it may well — by this change in the prospects of investment, it is a secondary or induced phenomenon caused by the more fundamental, real, disequilibrium which cannot be removed by new inflation, but only by the slow and painful process of readjustment of the structure of production."

    Secondary. Not causal.

    If you have diabetes that causes an infection in your feet which causes them to lose sensation, it is not a full telling of the story to claim that the loss of sensation is due SOLELY to the infection. The infection is a SECONDARY effect of the PRIMARY cause, which is diabetes.

    So I made a video about the primary cause in my view (and in Mill's view): Excessive credit expansion causes unsustainable structural imbalances. That video is "Fear the Boom and Bust".

    I then put about 80 hours of work at least into personally editing Larry White and Robert Skidelsky to help support that video. In that support, I cover the secondary issue of excess demand for money linked above.

    I do not believe that we are currently in a situation where there is an excess demand for money. Whatever the old path of NGDP was, I think we are safely on a new path now and I see no reason to believe that labor contracts have yet to adjust. Our current unemployment in my view is almost entirely structural.

    In short, I have probably put more energy into the construction of a video in support of nominal income stability than anyone else on earth (unless I'm missing some amazing NGDP video out there). I'm not going to produce a video which claims that depressions are "caused" by people suddenly hoarding cash for no reason at all. That story is false, even if it is theoretically possible.

    Moreover, I do not believe that central banking is a good institution. We will never get the ideal nominal stability norm from a central bank. And the channels through which the Fed may change its policy target to NGDPLT is not through rap videos or voter interest. Those information channels are far too crude and indeterminate to expect such a technocratic message to survive. Rather, I want the public primarily to understand that the Fed is a largely corrupting, big-bank-protecting cartelization scheme with powers that are unfit for a liberal democracy. So expect to see more on that front.

    If you think my efforts on support nominal income targeting are insufficient, please point me some other video production which does a better job than I already have.

    1. Can't read all this now -

      I know you've mentioned this before. That's why I'm citing this as something I've encouraged you to do many times before! If you hadn't said things to this effect I wouldn't have bothered suggesting it now and in the past.

      The concern is that your three defining videos give the opposite message.

      I would be very surprised if any appreciable fraction of your viewers is:

      "(1.) excess demand for money causes a decline in demand for the goods that money trades for (not "goods in general" he's very insistent on that one!), (2.) which causes depressions, and that (3.) the right response is (quoting John now) "the solution is to increase the supply of money"."

      Do you disagree?

      I doubt Russ Roberts even thinks that's the point of your videos. In fact I think it's exactly the opposite. Hayek doesn't criticize your dad for not creating enough money or for paying interest on reserves. The whole message of macro follies is that demand-side diagnoses are wrong.

    2. Wait, so you don't think NGDP is off trend because there isn't enough money or demand? You think that the economy is simply not able to produce at the old NGDP trend?

      Could you give me a clear yes or no answer to both of those questions?

    3. 1. The point of Fear the Boom and Bust was to introduce the world to Hayek's explanation of the boom and bust in comparison to the popular mainstream Keynesian story. It did that. The point of Fight of the Century was to play out the debate of fiscal stimulus as Russ and I saw it after two years of failed results and dig deeper into the political economy of Keynes and Hayek. Neither video's goal was to assert some policy goals for Federal Reserve policy. These are videos aimed at the general public with an emphasis on core political philosophy and economics.

      Nominal income targeting is a very complex idea that rests on a whole foundation of understanding about monetary economics. Central banks aren't the ideal regime regardless, and in practice the Fed has been an engine for bailouts and moral hazard even as it's failed to stabilize nominal income. I have no interest in producing a video which could result in the general public thinking that the Fed should "do more". They shouldn't. They should "do different" and ideally, go away and let free enterprise produce our money.

      2. NGDP growth is clearly off the trend line it was tracking from the mid 1980s through 2008. But since that trend growth produced waves of cumulating boom and bust, I see no reason at this point to attempt to return to that line nor continue from where we are at that growth rate.These beliefs are not in conflict with the idea that the ideal monetary regime stabilizes nominal income. Read "Less than Zero" or William White's 2006 paper "Is Price Stability Enough". I don't think 5% nominal growth is a good ideal. I think it produced cumulative imbalances of an Austrian sort.

      I'm also not certain that NGDP as measured is the right nominal income target since NGDP excludes intermediate goods spending and asset spending and is thus blind to asset bubbles the Fed may be inflating and production structure imbalances towards early-stage buildup (like excessive housing production relative to income). I think the ideal nominal spending target likely a broader measure of total spending in the economy and that the ideal growth rate is between zero (where all productivity gains produce supply-side deflation equal to real economic growth) and the rate of population growth. George Selgin suggests total factor productivity as a target, I think. I'm not sure if I understand the implications of that relative to zero, which is Larry White's preference.

      see this analysis:

      Still, it appears that NGDP level targets would be MUCH better than the current regime, which is why I wrote about it in Forbes and in all comments for the past 4 years. I know that Sumner also advocates a futures market to take the Fed and its central planners out of the process all together. This would also be a step in the right direction relative to the mess we're in now.

      Again, none of this is contradictory nor is it without precedent. In a sense, I'm just aping my favorite economists to the extent I think I understand their theory/policy ideals.

  3. 3. Now that we're 5 years out from the collapse in nominal income, which quickly began growing again and has grown at a fairly stable rate since the sharp collapse, I believe it's very likely that any cyclical wage rate issues are behind us and we are now living in the structural world from a labor market standpoint.

    4. There is never any barrier to achieving rapid NGDP growth. The Fed can print as much money as it wants. It can buy every outstanding treasury bill. It can stop paying interest on reserves. Scott Sumner has written about this fact at length and he's right. There is no constraint on "the economy" (whatever that really means) regarding a nominal spending target. If the Fed expanded its balance sheet to 16 trillion, even if the real economy contracted by 50% I bet we'd still see nominal spending levels that exceed the old trend line. We could have hyperinflation tomorrow if the Fed wanted us to.

    5. "The whole message of macro follies is that demand-side diagnoses are wrong".

    I don't know why you keep repeated this nonsense. The "whole message" of Macro Follies is utterly explicit: savings and invest grow the economy, NOT consumption. Period. The video has heavy-handed voice over for crying out loud and that voice over makes no mention of "demand-side" anything. It's ALL about consumption. Who, exactly, do you think Macro Follies was intended for? Do you think my goal was to convince macro-economists or even talk to them? No. If I wanted to get their attention, I'd write a whitepaper. Macro Follies is aimed at the general audience who gets an earful of nonsense about how consumption spending grows the economy.

    You aren't doing a very good job of putting you head in the non-economist, general public space and imagining how normal non-economists hear and understand these things, Daniel. Nobody knows what the heck "demand-side" means. Nobody but economists. I've made this point before but you seem to be stuck on reading past the absolutely inescapable purpose of Macro Follies. The producers at PBS Newshour didn't misunderstand, though.

    Again, though, the only "demand-side" story I have any interest in supporting is one which every Keynesian economist I could find was rejecting right at the moment where is was most important, in 2008 and 2009. They were all singing the "pushing on a string" song and advocating ditching digging or anything that raises the deficit. "anything at all."

    Review this link. Read the comments.

    If you want to bark up someone's nominal tree about income stabilization policies in the face of excess money-demand, please don't look at me. I had about as much impact on Fed policy as Hayek did in the 1930s. Today, the real "liquidationists" were the confused Keynesians who took their eye off the nominal ball. But that's because classical monetary policy isn't "Keynesian". What IS "Keynesian" is to head for government deficit spending as fast as you can.

    My work is designed to bring these ideas to a BROAD audience. It's still a sophisticated audience, but it's not so sophisticated a target that I can go fully into the weeds of nominal income targeting monetary policy. I appreciate your faith in my ability to translate econ into popular video, but I'm not sure I'm THAT good.

    1. re: "Again, though, the only "demand-side" story I have any interest in supporting is one which every Keynesian economist I could find was rejecting right at the moment where is was most important, in 2008 and 2009. They were all singing the "pushing on a string" song and advocating ditching digging or anything that raises the deficit. "anything at all."

      As I said before - if you honestly think this you've got to read all the pushback Sumner got over that post and repeated related assertions. He's simply wrong.

    2. It wasn't a demand side story?

      I never said it wasn't also about savings and investment (although you do this weird move of putting those lines in Hayek's mouth but not Keynes's). But it was also about knocking down demand side "fallacies" (and that was certainly Say's position against Malthus - NOT for the long run, but for the short run):

      "Hark I hear a fallacy
      Demand can growth the economy
      We produce so we can buy
      Demand is enabled by supply
      If our goal is more consumption
      We must first increase production
      Rising productivity
      Is the path to prosperity
      The law of markets tells us why
      Growth is driven by supply"

    3. Jeez. The video has clear, editorializing voice over, man. Yes, the JB Say lines accurately reflect his attack on the Malthusian treatment of demand as key to economic growth. But if you're going to pull this kind of selective quoting, why not just quote the Keynes lyrics and claim that the video is all about how consumption really does drive the economy? Oh... you can't do that because the editorial voice over explains that this is a fallacy. The lyrics make their case for each thinker. The voice over editorializes.

      I'm through repeating this. You are misrepresenting the point of the video when you claim that it is an attack on all so-called "demand-side stories". The video does NOT attack monetary equilibrium or market monetarist theory. Every normal person that hears "demand" thinks people buying stuff. No normal person hears demand and thinks "the monetary authority or banking system accommodating an increased demand for money such that nominal stability is maintained".

      The message of the video is clear. It's written in unequivocal language and delivered by the authority of the omniscient voice over. If you were a film student instead of an econ student, you might get this. But since this is the umpteenth time I've explained it, I must conclude that you are CHOOSING not to get it so that you can continue making a dubious argument in the hopes of... well... I don't know. I guess you want to prove that I don't really believe in nominal income stability as a monetary theory ideal? I really have no idea why you keep harping on this ridiculous point about Macro Follies.

  4. re: "You aren't doing a very good job of putting you head in the non-economist, general public space and imagining how normal non-economists hear and understand these things, Daniel."

    This is not what many non-economists have told me in the past. My job before coming to grad school was precisely to communicate economics to the non-economist public. Thinking you do a bad job at it isn't evidence that I do.

    The blog here is mixed of course - some posts for more general consumption, some not.

    1. "these things" is referring to my videos, Daniel.

      If there's one thing I have spent over a decade doing, it's communicating through the medium of video and entertainment. I don't think there's any way to produce a video today, in 2013, that has the broad potential of our rap videos but whose core mission is to convince a general audience that the Federal Reserve should switch to a NGDPLT target. Part of the reason Macro Follies features as much editorializing voice over as it does is because the early versions universally got feedback that viewers couldn't tell any of the arguments among the four economists apart! Think about that. What you see as radical differences and stinging rebukes of "demand-side" this or that, nobody I screened the early versions for could even tell that Malthus, Keynes, Say and Hayek were saying different things!

      And who, again, is the audience for an NGDPLT video? Which viewership will benefit from that message relative to the NGDPLT conversation which is already happening in the profession and on the pages of various blogs and publications? Do you really believe that it's a good idea to convince my mom that the Fed should switch to NGDPLT? To you honestly believe that this would be remotely possible in a rap video?

      Look, my videos contain a great deal of detail and jargon. But for a broad audience, their primary stories are quite clear and their objectives are very simple. The jargon brings a unique geekery to them and makes them useful tools for teachers (who I hear from every week all around the world, thanking me for the tool). But the jargon isn't the story. The story is simple:

      Fear the Boom and Bust story points:
      1. Keynes is popular, Hayek is an underdog

      2. Keynes thinks the problem is all about a lack of spending and that government stimulus is the cure. A hair of the dog can cure the hangover.

      3. Hayek thinks government causes the problem in the first place with easy money and we should stop that from happening again.

      4. This guy "Hayek" exists and is a legitimate counter to the Keynesian mainstream you hear every single day, even though you've never heard of him, never been taught his ideas in your econ class or seen his views accurately presented in popular media (as of 2009).

      That's it. Virtually nobody comes away from Fear the Boom and Bust thinking "the whole key to Keynes critique of conventional monetary policy is the liquidity trap!!!!". Even though that point is in there. It's texture. You clearly don't get the distinctions of primary story vs. secondary details and texture by the nature of your requests. You watch these as an econ grad student, steeped in the details. Someone with your understanding of the details is the tiny minority of the viewers for these videos, given their current combined 7 million views.

    2. John, first, great fan of your videos. I appreciate the careful research and amazing production.

      Perhaps you might do a video on Free Banking someday (not necessarily a rap video, although Selgin has some wicked diction at times)?

      What do you think of Bitcoin? I sometimes feel that advocating for Free Banking is a dead end road w/economists, who can't resist the temptation to manage. If we can't reform the system, maybe we can escape it. (Kind of like homeschooling wrt to public school system).

  5. I'm a little surprised he didn't start with this one.

    John's position--support for White/Selgin Free Banking--makes it quite clear, imo, that he sees NGDP-targeting/Market Monetarism at best as a palliative, 2nd best solution (and now, not even a solution if unemployment is structural). So it makes complete sense that he would rather target the Fed's existence itself as the ultimate source of boom/bust cycles. (Not to mention that this stuff is hard, even after reading a few articles by Yeager and sections of Horwitz's book. No way can monetary disequilibrium be communicated in a rap video).

    Thinking you do a bad job at it isn't evidence that I do.

    I've been following this blog off and on for a couple of months, and the this is the first time I have noticed that you endorse aspects of market monetarism (and perhaps parts of Yeager monetary disequilibrium theory). I honestly don't know a fraction of the economic theory you do, but I would say confidently that I know a fair bit more than the average guy on the street. If I haven't yet picked up on these themes (and maybe I'm just a poor reader), then I would have to agree that you're not doing the greatest job of explaining your economic views to "normal folks" (or even slightly educated laymen like myself).

    (I truly don't intend to trash you by saying this, it's just my honest assessment. Perhaps you put up slightly too many updates on too wide a variety of topics, which buries your message within a lot of noise).

    Just want to close by saying that I have a lot of respect you and your work on this blog.


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