central banks, inflation and the value of money

Neo-Fisherism and All That by David Glasner

But the problem for monetary theory is that without a real-value equivalent to assign to money, the value of money in our macroeconomic models became theoretically indeterminate. If the value of money is theoretically indeterminate, so, too, is the rate of inflation. The value of money and the rate of inflation are simply, as Fischer Black understood, whatever people in the aggregate expect them to be. Nevertheless, our basic mental processes for understanding how central banks can use an interest-rate instrument to control the value of money are carryovers from an earlier epoch when the value of money was determined, most of the time and in most places, by convertibility, either actual or expected, into gold or silver. The interest-rate instrument of central banks was not primarily designed as a method for controlling the value of money; it was the mechanism by which the central bank could control the amount of reserves on its balance sheet and the amount of gold or silver in its vaults. There was only an indirect connection – at least until the 1920s — between a central bank setting its interest-rate instrument to control its balance sheet and the effect on prices and inflation. The rules of monetary policy developed under a gold standard are not necessarily applicable to an economic system in which the value of money is fundamentally indeterminate.

Viewed from this perspective, the Neo-Fisherian Revolution appears as a kind of reductio ad absurdum of the present confused state of monetary theory in which the price level and the rate of inflation are entirely subjective and determined totally by expectations.

Germany and Europe

The Return of the Ugly German by Joschka Fischer

Depression’s Advocates by J. Bradford DeLong

Humans

AV Club reviews Humans: “Episode 4”

Greece

Greece, Europe, and the United States by James K. Galbraith

Draghi, Greece, Marx, Lenin and Spain

Draghi Makes His Case by J.W. Mason

Greece’s Surrender: A Return to 1919, or to 1905? by John Cassidy

In the Marxist intellectual tradition, from which many senior members of Syriza hail, progress comes about gradually. To overthrow the existing order, you have to first mobilize the masses by stripping back the democratic veil and showing the real workings of the system: only then will the “objective conditions” be ripe for revolutionary change. Tsipras and Syriza didn’t create the conditions for change. But in bringing Greece to the brink, and demonstrating that its creditors were willing to see it collapse if it didn’t buckle to their demands, they did, arguably, succeed in showing up the eurozone as a deflationary straightjacket dominated by creditors. And they did this with all of the world watching. “One must know who the enemy is, in order to fight the enemy,” Alex Andreou, a Greek blogger who is sympathetic to Tsipras, wrote last week. “Syriza has achieved that. Now, it is over to you, Spain. Take what we’ve learned and apply it wisely.” 

Under this analysis, Syriza’s surrender wasn’t necessarily an ignominious one. As Lenin commented of the failed 1905 revolution in Russia, it was a retreat for a new attack, which ultimately proved successful. “I’m not going to sugarcoat this and pass it off as a success story,” Tsipras said to parliament on Wednesday, prior to the vote, acknowledging that the spending cuts and tax increases contained in the agreement would deal another blow to the Greek economy. However, that wasn’t the full story, Tsipras insisted. “We have left a heritage of dignity and democracy to Europe,” he said. “This fight will bear fruit.” 

Only time will tell if that was wishful thinking.

The Stanford Prison Experiment

Germany and Greece.

The trailer.

Greece

Lessons from the Greek Crisis by JW Mason

Exclusive: Yanis Varoufakis opens up about his five month battle to save Greece

hashtag ThisIsACoup

This is a map of the #ThisIsACoup hashtag last night. The world lit up with solidarity. We thank you so much.

Varoufakis on Grexit

Weisbrot and Krugman are Wrong: Greece cannot pull off an Argentina by Yanis Varoufakis

Jon Snow and Stannis are dead, an inquiring Obama is told

A Game of Thrones director told President Obama, "[Someone] is deader than dead."

Greece, competitiveness, adjustment and excess unemployment

Austerity is an integral part of the Greek tragedy by Simon Wren-Lewis

Under flexible exchange rates this competitiveness adjustment could happen immediately. Things are not quite so simple in a monetary union: competitiveness cannot immediately adjust because of wage and price rigidities. A period of ‘excess unemployment’ will be required to push wages and prices down if the country is uncompetitive in relation to required primary surpluses. However the excess unemployment can be relatively modest. In fact, because of the structure of the standard Phillips curve, it is much more efficient to achieve gains in competitiveness gradually through a measured increase in unemployment than quickly through a rapid rise in unemployment, for reasons I outlined here when talking about Latvia. 

To achieve this efficient outcome may well require the government to reduce its primary deficits gradually, because without this fiscal support while competitiveness adjusts output could fall rapidly. This in turn will require more government borrowing, and if the government cannot do this from the markets, the IMF or other governments should step in to ensure this efficient adjustment can take place and avoid the waste and suffering of unnecessary unemployment. 

This is what failed to happen in the case of Greece.

Needed: Large Greek Devaluation or Large-Scale Transfers to Greece. With Bonus Godwin's Law Violation! by Brad DeLong

Austerity and the Greek Depression by Paul Krugman

humans and synths

AV Club reviews Humans: “Episode 2”

Greece and Mason

More of 

What Greece Could Do by JW Mason

I liked these bits:

"And with respect to the external balance, the evidence, both historical and contemporary, suggests that financial markets do not in fact punish defaulters. (And why should they? — the extinction of unserviceable debt almost by definition makes a government a better credit risk post-default, and capitalists are no more capable of putting principle ahead of profit in this case than in others). The costs of default, rather, are the punishment imposed by the creditors, in this case by the ECB. The actual cost of default is being paid already — in the form of shuttered Greek banks, the result of the refusal of the Bank of Greece to extend them the liquidity they need to honor depositors’ withdrawal requests."

and

"1. The Greek government takes control of the Bank of Greece. It replaces the BoG’s current leadership — holdovers from the old conservative government, appointed at the 11th hour when Syriza was on the brink of power — with suitably qualified people who support the program of Greece’s elected government. The argument is made that the central bank has abused its mandate, and failed in its fundamental duty to maintain the integrity of the banking system, in order to advance a political agenda. 

Either legislation could be passed explicitly subordinating the BoG to the elected government, or use could be made of existing provisions for removal of central bank officials for cause. The latter may not be feasible and we don’t want to get bogged down in formalities. Central bankers have critical public function and if they won’t do it, they must be replaced with others who will. Whatever the law may say.

2. The new Bank of Greece leadership commit publicly to maintain the integrity of the Greek payments system, to protect deposits in Greek banks and to prevent bank runs — the same commitment the ECB has repeatedly made for banks elsewhere in Europe. The Greek government asserts its rights to license banks and resolve bank failures. Capital controls are imposed. Greek banks reopen.

3. If necessary, the BoG resumes Emergency Liquidity Assistance (ELA) or equivalent loans to Greek banks. While the promise to do this is important, it probably won’t be necessary to actually resume ELA on any significant scale because: 

– removing the previous threats to withdraw support from Greek banks will end the bank run and probably lead to the voluntary return of deposits to Greek banks.
– capital controls and, if necessary, continued limits on cash withdrawals, block any channels for deposits to leave the Greek banking system.
– resumption of Greek payments to public employees, pensioners, etc., to be soon followed by resumed economic growth, will automatically increase the deposit base of Greek banks."

Oxi: Mason and Waldman on Greece

What Greece Could Do by J.W. Mason

Waldman and I were born the same year.

Greece by Steve Randy Waldman

post-work

The Hard Work of Taking Apart Post-Work Fantasy by Mike Konczal

AV Club reviews Humans: Episode I

Greece and Oxi

Washington Post and New York Times on the Greek Crisis by Robert Waldmann

Obama on Marc Maron's podcast

Obama on WTF with Marc Maron

I'm a longtime fan. (Same with Galifiainakis.)

Blogpost about Maron from back in 2008.

Great how Obama said he liked Pryor, Gregory, Seinfeld and talked about Louis CK.

No Dave Chapelle? George Carlin? Lenny Bruce? Bill Hicks? That would be too comedy nerdish.

Duda and Market-guided NGDPLT

Kenneth Duda's comment at Jason Smith's blog.

Jason, my name is Ken Duda. I'm a computer programmer who supports Sumner's program at Mercatus.

I am not going to defend Sumner's specific analysis. However I would ask you to think carefully about whether it's possible for a central bank to increase economic activity when there's rising unemployment, falling NGDP (or at least falling NGDP growth), low inflation, and the short-term risk-free nominal interest rate is zero. Krugman, Delong, and Wren-Lewis basically say no, or probably not, maybe the central bank should try, but there's not much it can do. I think they're wrong and the market monetarists are right. The idea that the monopoly issuer of a fiat currency can't induce more nominal spending seems nuts. Sure, the interest rate channel may be dead, but what about the expectations channel? If the central bank tells the market that it will hit its NGDP target come hell or high water, it's just a matter of time, and by the way, the target is rising constantly at say 5% a year, and all this money we're creating will absolutely not be sucked right back out of the economy until NGDP hits that target (or, more precisely, until a prediction market tells us that we'll overshoot our target if we fail to suck the money back out of the economy), then people expect more spending in the future, and that expectation of future spending stimulates spending today, either investment spending to build in anticipation of the future spending, or simply "getting while the getting is good", i.e., buying before prices rise significantly (inflation). 

Again, I am not here to defend Sumner and Sadowski's analysis in this case. However, it breaks my heart to see good intelligent people arguing about style or argument types etc when we just went through 8 years of 10 million people needlessly unemployed, lives shattered, savings lost, when the whole thing could have been averted with better monetary policy. Why can't you, me, Scott, Paul, Simon, Brad all get together, set aside the debate over fiscal stimulus, and demand better monetary policy? Market-guided NGDPLT seems like such a dramatic improvement over high-priest-guided inflation targeting, let's make it happen.

Thanks,
-Ken

Kenneth Duda
Menlo Park, CA
kjd@duda.org

SyFy goes SciFi

Hyperion comes on the heels of several high-profile scripted projects announced by Syfy, including the series pickup of The Magicians, based on Lev Grossman’s best-selling books; the 10-part series The Expanse, airing December 2015 and starring Thomas Jane; Arthur C. Clarke’s epic mini-series Childhood’s End, also set to premiere this December; Aldous Huxley’s classic novel Brave New World with Amblin Television; Gale Anne Hurd’s 13-episode thriller Hunters; David Goyer’s Superman prequel, Krypton; and Incorporated, a futuristic espionage drama from Matt Damon and Ben Affleck.

"Any advice for an old comrade?" - Game of Thrones