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TheMoneyIllusion货币幻觉

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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Would you have blamed the Fed for this policy?  

2009-05-20 09:12:50|  分类: 默认分类 |  标签: |举报 |字号 订阅

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Even people who are sympathetic to my policy views often have trouble swallowing my thesis that the Fed caused the crash of 2008.  In my previous post (which you should read first) I argued that people make unjustified distinctions between “active” and “passive” monetary policy stances.  The argument is often that the Fed did not “do anything” that might have caused the crash of 2008.  Here I will reprise and extend an argument I used in response to Josh over in Nick’s blog.

I would like everyone to consider the following counterfactual.  Instead of keeping the fed funds target fixed at 2% between April and October 2008, suppose the Fed had increased it from 2% to 8%.  Also assume the following seven indicators had responded to this hypothetical policy in exactly the same way as they did in late 2008:

1.  Real interest rates rose sharply.

2.  Inflation expectations plummeted into negative territory.

3.  Commodity prices crashed.

4.  Stocks crashed.

5.  The real estate crash spread nationwide.

6.  Industrial production suddenly plunged sharply.

7.  The dollar soared in value against most currencies.

Let’s see a show of hands as to how many people would have blamed the Fed for this crash.  OK, I can’t see your hands, but I assume everyone is raising them.  Now do the exact same thought experiment, but assume the fed funds rate had stayed at 2% the entire time.  How many still blame tight money by the Fed?  I don’t see many hands (maybe Earl T. and JimP.)

Let’s say I am right in my presumptuous assumption that I know how you guys would respond.  (And if I am wrong about my readers, then I would still argue that most mainstream economists would have responded exactly as I assumed.)  So it all comes down to the fed funds rate.  Doesn’t this imply that most people assume the fed funds rate is a pretty good indicator of the stance of monetary policy?

Now I can see several ways that economists could wiggle out of the box I put them in, but I will argue that in each case they would do so at the expense of ending up in an even more untenable position.  Let’s start with the obvious argument that not only did the Fed keep rates low in 2008, but they also increased the monetary base sharply once things got really bad.  But is the monetary base any better a policy indicator than the fed funds rate?  The Fed cut rates to below 2% and raised the base sharply in the 1930s.  Are most economists prepared to argue that money was “easy” during the early 1930s?  I don’t think so.

Another argument might go as follows:  Yes, both the short term interest rate and the base signaled easy money in the 1930s, and both signals can be misleading, but we know that money was actually tight because Friedman and Schwartz showed that M1 and M2 fell sharply during this period.  It’s certainly convenient to revive outdated monetarist theories when they come in handy.  Let’s review why this aspect of monetarism was discredited.  During the 1980s the monetary aggregates soared as inflation fell to low levels.  Friedman famously made some erroneous predictions that inflation was just around the corner.  Why were the monetary aggregates so unreliable?  Because as inflation falls the demand for money rises.  Does this sound familiar?

During the 1930s people took money out of banks and hoarded cash and gold.  Why?  Because 1000s of banks were failing.  Today people are pouring money into FDIC-insured bank accounts (and gold) because they see increased risk in the stock and (non-Treasury) bond markets.  All the monetary aggregates tell us is what is happening to the public’s demand for one specific financial asset; they tell us nothing about whether money is easy or tight.

For me, the 1990s were the 1930s.  I spent the 10 years reading virtually every single New York Times from the Great Depression.  I began to feel like the 1930s were the real world.  I saw things as they appeared at the time.  (Or at the Times.)  And everything I read today reminds me of how people saw things in the 1930s.  “This isn’t an ordinary recession; it’s the end of laissez-faire capitalism.”  “The problem wasn’t caused by the Fed; rather the international financial system is to blame.”  “The greedy bankers are at fault.”  “The stock market was a bubble.”  “The 1920s were a false prosperity.”  “Even though we have deflation, hyperinflation is the real danger.”  “The Fed is pushing on a string.”  It’s all there, and when I first read those newspapers I wondered how people could be so stupid.  Hadn’t they read Friedman and Schwartz?  No, because the Monetary History wouldn’t be published for another 40 years.  The people weren’t stupid, monetary policy is just incredibly counterintuitive.

But stupid or not, they were wrong about everything back then—sharply falling NGDP is simply a monetary policy failure.  As Krugman would say “Period. End of story.”  That was true then, and it is true today.

We do not have any regulatory fixes that we can be confident would prevent another financial crisis.  We do have a potential monetary regime that can prevent sudden collapses in NGDP growth expectations.  It is called NGDP futures targeting.  That is the sense that the Fed caused the crash of 2008.  If the Fed had been doing what it should be doing (targeting the forecast) the crash never would have happened.  That is the “practical implication” of my causality argument.

http://blogsandwikis.bentley.edu/themoneyillusion/?p=1307

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