Back On Forward Guidance

I ran into a couple of interesting articles, and wanted to comment on them. The first is about forward guidance, the second is about a potential American diesel export ban.

The first article is “When central banks say nothing at all” by Stefan Gerlach. I will discuss the article after I do a review on forward guidance. I have written multiple times about this topic, but I was trying to be brief and skipped over the background.

Random Observations

I have mainly been looking at my inflation manuscript. It seems to be in good shape, not entirely sure when I will pull the trigger on it. I updated the figures, and I will need to make sure that comments remain in sync with what is shown. (I started cutting down time ranges to historical periods to avoid issues with what is happening at the end of the chart.)

UK MMT Wrangling

There’s been a rise of Modern Monetary Theory (MMT) wrangling on my Bluesky timeline, largely the result of intra-left mudslinging. I just want to stick my nose into the discussion, although I do not really spend much time thinking about U.K. policy options (I tend to either shake my head or snort in derision whenever U.K. economic debates surface). (The last piece of my EU5 series has been delayed.)

Grace Blakely recent wrote “On MMT” in which she discusses an argument with Richard Murphy. Meanwhile, a few of the anti-MMT conventional Labour economists started up their usual attacks on MMT.

Sigh, Another UBI Study (Rant)

I have a need to rant as a result of recent discussion of yet another Universal Basic Income (UBI) study on Twitter. Rather than deal with the ugly political realities of a UBI, UBI proponents insist on doing studies on a tangential topic (how do people spend regular cash grants?).

I use a standard definition of a UBI where all living adult citizens receive a fixed monthly payment from the government. The idea is that the fixed monthly payment provides a guaranteed minimal standard of living without any other income sources needed.

Waller Comments

Nick Timiroas highlighted an exchange from Fed Governor Waller (link to speech/interview transcript) on Twitter. This article consists of two rants based on the transcript, plus a bonus rant in the appendix based on what somebody else said.

Money Multiplier Mudslinging

https://twitter.com/IrvingSwisher/status/1657812041812303876?s=20

There was a small kerfuffle on Twitter created by Olivier Blanchard regarding the money multiplier in the next version of his textbook.

Skanda Amarnath gave a reaction which matches my view, but I just want to add a couple of extra comments.

Silly "MMT" Drama

If I were smart, I would skip mentioning this, but there has been some drama between “Richard J. Murphy” and MMT proponents. Since I mentioned him recently, I blundered into creating a moral obligation to dip further into this mess. I do not really know who Richard J. Murphy is, but he apparently is high profile among some section of British progressives, which is the source of the drama. As a crotchety old school Canadian Prairie Populist (who is inexplicably stuck in Montreal), intra-left drama is not something I find surprising nor interesting. The issue here from my perspective is that Murphy is attempting to commandeer “MMT.”

Random Comments 2022-11-11

A set of largely unconnected comments on recent events. None of them necessitate long form treatment.

Almost Agreeing With Larry Summers (And Why That's Bad...)

Larry Summers has struck again with yet another missive agonising about inflation risks. What is somewhat interesting about this latest piece is that parts of it could have been written by myself. Unfortunately for Summers, that is not exactly complimentary for his world view, for reasons that I will explain.

Reading The Classics: Mathematics Vs. Economics

There’s been a fun (but silly) long-running debate on Twitter whether economists need to read canonical texts: Smith, Marx, Ricardo, Keynes, etc. What caught my eye is that a mainstream economist compared economics to mathematics — why don’t we learn calculus by studying the history of calculus? Why this is interesting is that is showed a lack of understanding of the situation in both mathematics and economics.

Please note that this article is a discussion of the philosophy of teaching at the university level, so do not expect any conclusions that will help make analysing bond markets easier. That said, there is an outline of a critique of the core methodological principles of neoclassical macro.

Cryptocurrency Short Comment

Although I had written a couple of theoretical articles some time ago, I have largely ignored cryptocurrencies. However, there has been enough newsflow about them that I decided I could do a drive-by comment. In case one wants an investment recommendation, all I can say is that the underlying problems they face are straightforward, I have no way of knowing the timing.

A Rant About Mainstream MMT Critics

I ran across a text written by an anonymous author who gives the air of being a neoclassical academic. I prefer not to link the article, as I do not want to draw attention to it. However, I just want to point out some salient features that seem to have become the stock response to Modern Monetary Theory (MMT) by at least some neoclassicals. From the perspective of the philosophy of science, this is perhaps interesting.

Yet Another Strawman Attack On MMT

The number of bad takes on MMT have slowed down, but they are still arriving. I have a section on MMT critiques in my manuscript (the formatting of which I am supposed to be finishing off instead of ranting), but we have yet another data point to back my assertion that it is not worth responding to most MMT critiques, since they are terrible.

The Implausibility Of The Chapwood Index

The Chapwood Index has become a popular source to cite by hard money proponents who are pushing the line that inflation is really much higher than what government statisticians suggest. It has taken over the limelight from Shadowstats, which pioneered pushing that particular line. Although it is entirely expected that individuals can face cost of living increases that rise faster than official the CPI inflation rate, the levels of inflation suggested by the Chapwood Index do not appear to offer any plausible information about the price level as the concept is used into macroeconomics.

Update 2021-02-21: If one searches for “Chapwood Index” on a few search engines, this article shows up, but not the Chapwood Index itself. My link is broken. I think what has happened is that they have attempted to pivot to chapwoodindex.org. There’s a site at that URL, but in terrible shape. The text quoted here may not appear on that site.

Observations On The North American Fiscal Outlook

I am doing another editing pass, and do not have time for a full article. I just want to make some observations on the political/fiscal outlook in the United States and Canada.

The first Presidential debate was last night (which I skipped). From my perspective, the main hot button issues in the U.S. election are not about macro policy, at least from a high-level perspective. Obviously, economic outcomes for American households will be different, but from the vantage point of a foreigner owning U.S. Treasurys, direct impacts are harder to see.

Computers, Productivity And Long-Term Growth

I ran into an attempted slam on Paul Krugman's 1998 argument that "the internet" would not be a big deal economically. Sadly for the anonymous account who dredged the argument up, Krugman was closer to the truth than the people he was arguing with at the time. This was part of a debate when I started in finance, and related to long-term growth. The linkage to fixed income is via the dreaded r>g fiscal sustainability debate -- what is the long-term real growth rate? 

At the time, I was largely unimpressed with economists' grasp of the technological issues. My academic background was in control systems engineering, which was the discipline tied to harnessing the power of electronics to better operate mechanical and chemical systems. My view is that there is a certain amount of economic folklore around the subject, and the correct answer is that long-term real growth projections are almost entirely garbage in-garbage out exercises. 

Yet Another Example Of Mainstream Handwringing About Debt

John Cochrane has given us yet another example of how neoclassical economics differs from MMT on the question of fiscal policy. Arguing that there is "nothing new to MMT" is not paying attention.

Yes, It's Not $1.5 Trillion Of Spending

There's been some complaining to-and-fro on Twitter about the $1.5 trillion repurchase agreement ("repo") facilities by the Fed. On the chance that any of my readers have run into this, just want to say a few words.

1. It is a loan, not the same thing as new spending.
2. Giving entities loans is commercially advantageous, and so it quite reasonably can be described as a "bailout." The trick is understanding that the magnitude of the bailout is not the same size as the dollar amount of the loan.
3. This action underlines that the central government is the monopoly supplier of government money, and so this shows the firepower that alleged "bond vigilantes" actually face.

A Skeptics Guide To Mankiw's Skeptic's Guide To MMT

N. Gregory Mankiw (writer of one of the best-selling economics textbooks) has recently written "A Skeptic's Guide to Modern Monetary Theory" (MMT). He discussed several assertions made in the textbook Macroeconomics, by William Mitchell, L. Randall Wray, and Martin Watts (link to article with my initial comments on that text). His conclusion was "In the end, my study of MMT led me to find some common ground with its proponents without drawing all the radical inferences they do."

Yes, Banks Create Money Out Of Thin Air

Unfortunately, money has not yet been abolished from economic theory, and we are stuck with pointless debates about banks and money creation. The latest salvo is "Banks do not create money out of thin air" by Pontus Rendahl, and Lukas B. Freund. As the title of this article suggests, Rendahl and Freund are incorrect in their assessment.

I assume that the Rendahl/Freund article is a followup to previous arguments, such as a Thomas Hale article I discussed recently. Since I just addressed the topic, I will keep my comments here as short as possible. (I am responding to the article since it is likely that I will do a book on fractional reserve banking, which will be an overview of incorrect theories that keep popping up. Very similar in style to Abolish Money (From Economics)!)