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美国本特利大学经济学教授斯科特·萨姆纳(Scott Sumner)

 
 
 

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美国本特利大学经济学教授

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Did the Fed cause the crash? And what does ’cause’ mean?  

2009-05-20 09:11:28|  分类: 默认分类 |  标签: |举报 |字号 订阅

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Did the Fed cause the crash? And what does ’cause’ mean?

A few months back I argued that “if policy A would have prevented event B, then not doing policy A caused event B.”  This is what happens when you try to talk about concepts like “causation” without having studied philosophy.  I still haven’t studied philosophy, but at least I have thought about the issue a bit more.

I knew I was in trouble when I tried to apply my concept of causation to the Kennedy assassination.  If the driver of Kennedy’s car had decided to swerve a 1/2 second before the fatal shot was fired in Daley Plaza, would Kennedy still be alive?  (And for those starry-eyed folks who worship politicians, would we have avoided the Vietnam War as well?)  So did this driver’s “policy” of driving straight cause the assassination (and perhaps the war?)  If I’m going to argue the Fed caused the crash of 2008 through errors of omission, I need to come up with a much better notion of causality.  Fortunately, I think I can.

One approach to causality is to discuss necessary and sufficient conditions.  But what does the Fed actually do?  After all, there is no generally established definition of the term ‘monetary policy.’  And it isn’t just me taking my usual counter-intuitive view here; even among mainstream economists there is great disagreement over the term.  Some economists view the fed funds rate as “monetary policy” and thus see a change in the fed funds rate is as change in monetary policy.  Others view a 2% inflation target as the Fed’s monetary policy.  In the former case the Fed didn’t tighten policy in late 2008, in the latter case they did.  Yet without agreement on whether the Fed actually “did anything” or not, we can’t address the necessary and sufficient condition criteria.

Then there is the problem of “root causes” and “proximate causes.”  A government action or inaction may be a proximate cause, whereas there may be deeper political forces that cause those government decisions.  I finally ended up going back to the Rortian argument that “that which has no practical implications, has no philosophical implications.”  And I decided that with respect to monetary policy, the most logical “practical implications” would be policy implications.

More specifically, we need to ask whether there is some alternative policy that could have avoided the crash of 2008, and that also would have been a plausible policy choice at the time.  Thus a debate over “causes” is actually a disguised debate over future policy.  When Friedman and Schwartz argued that the Fed caused the Great Depression, they were implicitly arguing for something like a 4% monetary growth rule.  On the other hand no one would seriously argue for having a presidential car swerve every so often.  But they might argue for having presidents travel in non-convertible, bullet proof cars.

If we are going to look at causality from a “policy implications perspective,” then I see two distinct cases that need to be distinguished.  In one case we might decide that a problem was caused by a policy error that was easily avoidable given what people knew at the time.  A slightly different notion of causality would occur when policymakers did not have enough information to prevent a given problem, but we have learned enough from their error to devise future policies that could prevent similar problems in the future.  Unfortunately, many people (including me) have great difficulty distinguishing between these two cases.  I.e. someone might say “it was obviously stupid to drive the president around in an open car in 1963.”  But was it, or is it only obviously stupid in retrospect?  Why didn’t the president and his “best and brightest” staff see this obvious stupidity?

Niall Ferguson also seems to believe people are far too likely to claim that serious policy errors should have been obvious at the time:

Human beings are as good at devising ex post facto explanations for big disasters as they are bad at anticipating those disasters. It is indeed impressive how rapidly the economists who failed to predict this crisis — or predicted the wrong crisis (a dollar crash) — have been able to produce such a satisfying story about its origins.

This is a point I have been trying to make for months, I only wish I could have made it so succinctly.  The crisis was not obvious until it was obvious.  That is, until it exploded into the headlines.  That was when economists realized we had a problem.

This does not mean that we can’t learn lessons that would prevent a repeat, lessons that might not have been obvious before the crash.  But it does mean that we should be careful about blaming one group or another.  So I see two useful types of causality.  A causality that implies moral culpability; and one that merely implies there are lessons to be learned.  At times I have suggested that macroeconomists as a whole have a moral culpability for the crisis—the monetary policy literature (indeed even our textbooks) provides all the tools required for a policy regime that could have easily avoided the crash.  But that view seems difficult to maintain when examining the picture from a more detached perspective.  If almost everyone is to blame, doesn’t that mean almost no one is to blame?

[BTW, with any philosophical maxim you always want to do the "Nazi test."  If it is any good, the Nazi example should seem to violate the maxim---be the exception that proves the rule.  Sure enough, most people do blame the German people as a whole for supporting Hitler.  So there is the one exception to my argument that if everyone believed something they can't all be morally culpable.  I developed this test when I noticed that anytime someone brought up the Nazi example in an argument, it invariably led to the wrong conclusion.]

Why does establishing moral culpability have practical value?  Because people don’t like to be blamed.  So if our leaders know they will be held morally accountable, they will try harder to do the right thing.  Now let’s assume that I was wrong to imply that the Fed should have known better, that I was wrong to find the Fed morally culpable for their errors.  After all, most private economists made the same mistake.  Does that mean that all I am doing is the equivalent of blaming Kennedy’s driver for not swerving?  No, there is still a useful causality argument if we can devise a way of preventing future crises of this type, without requiring the Fed to predict better than the public.  Using the Kennedy analogy I am calling for a bullet-proof car—make that a bomb-proof car.

Even though the Fed did not foresee the sub-prime crisis, a forward-looking monetary policy would have done two things:

1.  It would have prevented the sub-prime crisis from reducing NGDP growth expectations.

2.  By stabilizing NGDP growth expectations, it would have prevented the sub-prime crisis from paralyzing the banking system in late 2008.

You guys can tell me whether this “policy implications” approach to causality is useful.  Let me end with three observations on what I see as flawed views of causality.  Then I will soon follow with another post putting meat on the bones–explaining exactly why all economists should view monetary policy as the cause of the 2008 crash.

1.  The butterfly effect: I am not interested in what would have happened if the Kennedy car had swerved, or if the German government had not released Hitler from prison, or if bankers had not made so many foolish sub-prime loans.  None of those counterfactuals have policy implications.  Regulators are not going to be able to identify and prohibit foolish loans.  (They might be able to produce useful regulations in other areas, such as capital requirements.)  So don’t tell me about some sort of deep root cause.  Indeed in my Great Depression study I was suspicious of any “root cause” that investors overlooked.  If investors didn’t see it, how could we expect policymakers to see it?  I now have to rewrite my manuscript (at the request of the editors) but I think I will stay with my earlier instinct.  Causal factors are factors that move asset prices.

2.  Moral culpability: I already indicated that this is one type of causality.  But some people seem to think that arguing policy caused a disaster is ipso facto a moral indictment.  I think the Fed did cause the crash, but I no longer believe members of the FOMC should be condemned.  In several earlier posts I discussed research findings by Joshua Knobe which suggested that peoples’ moral views get entangled in views about causation and intentionality.  People are more likely to see causation and intentionality where harm is being done, even if the case is logically no different from an act than does not do harm.

3.  Active vs. Passive: I originally entitled my paper on the crash “Errors of Omission:  How the Fed Caused the Crash of 2008.”  (By the way, any obscure journal out there that wants to publish a contrary take on the crisis?)  But that’s a terrible title, as it suggests the Fed was less morally culpable than if there had been errors of commission.  And because people link causality and culpability, they then dismiss my argument that monetary policy was the cause, or was “to blame,” using a term that conflates causality and culpability.  In fact, there is no such thing as an active or passive policy stance—every monetary policy stance is active.  Why, because every monetary policy stance will move at least some policy indicators.  And since people tend to define passivity as stable policy indicators (i, MB, M2, inflation expectations, etc.), there are no passive monetary policies.

Each period the Fed sets a policy instrument at a given setting.  Whether that setting is more or less than in the previous period is irrelevant.  All that matters is whether it is the right or wrong setting.  If it is the wrong setting (based on information publicly available at the time), then any resulting problems were caused by that policy error.

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