Monetary Policy

[J. Barron DeJong]

Economists are good at explaining what happened, lousy at predicting it, and really lousy at influencing it.
While politicians and central bankers setting policy based on one economic theory or another do make some difference in the outcome, by far the biggest influences on the economy are external events--the oil embargo, the pandemic, war.

I don’t really disagree with any of that. There’s just limitations to what ‘monetary policy’ can do. But if you’re going to have ‘money’ then you’ll need to choose a monetary policy, so might as well try to have the best one you can, learn from your mistakes, and improve as you go. I think that’s led to our current system of fiat currency, not tied to gold, low-but-positive inflation target, etc.

Which is certainly not to say that there’s no room for further understanding/improvement.

[dunfree]

Economists are good at explaining what happened, lousy at predicting it, and really lousy at influencing it.
While politicians and central bankers setting policy based on one economic theory or another do make some difference in the outcome, by far the biggest influences on the economy are external events--the oil embargo, the pandemic, war.

Marx and Keynes made lots of money investing, which suggests their short term predictions were rather good. Keynes art collection value was matching the total investment return ~70 years after his death - which if you buy a cezanne for £370 is possible. What people say & do ain’t the same either way

[byates1]

I prefer to hold black African children at gunpoint forcing them to dig up my shiny gold rocks for me.

[Adolf Allerbush]

Bullshit. It’s okay here.

Not butthurt, just pointing it out. Have at it

i"m fine with any discussions happening in the PR, so go for it...but to act like there aren't politics in the US monetary policy is pretty naive and maybe shows you have no business discussing the topic.

[J. Barron DeJong]

i"m fine with any discussions happening in the PR, so go for it...but to act like there aren't politics in the US monetary policy is pretty naive and maybe shows you have no business discussing the topic.

I don’t think anyone is claiming there’s ‘no politics’ in monetary policy, but there is a lot of technical theory involved. Maybe you’d care to help us broaden our understanding of the subject, since we have no business ourselves?

Should discussions about, say, medical research in the US be exiled to poly-ass because funding for the NIH is somewhat political?

I don’t think discussing the costs/benefits of a 0% inflation target vs. a 2% or 4% target, or even discussing those of a gold standard are primarily a political endeavor.

[Core Shot]

I don’t really disagree with any of that. There’s just limitations to what ‘monetary policy’ can do. But if you’re going to have ‘money’ then you’ll need to choose a monetary policy, so might as well try to have the best one you can, learn from your mistakes, and improve as you go. I think that’s led to our current system of fiat currency, not tied to gold, low-but-positive inflation target, etc.

Which is certainly not to say that there’s no room for further understanding/improvement.

Gold standard is interesting. Hasn’t happened in a century

But young kids love crypto. Why does Bitcoin have value? Limited supply.

What happens when the fed does crypto and outlaws bitcoin?

[J. Barron DeJong]

Gold standard is interesting. Hasn’t happened in a century

But young kids love crypto. Why does Bitcoin have value? Limited supply.

What happens when the fed does crypto and outlaws bitcoin?

Well, there’s a whole other thread to discuss crypto, but there is a lot of overlap between people who think a gold standard would be good and think Bitcoin is good.

Gold standard handcuffs policy makers. Good if you’re concerned about the policy makers being irresponsible, but now your monetary policy is decided by the whims of the gold market, and you have no ability to adjust your money to address current economic conditions, which is not always so good:



https://delong.typepad.com/delong_lo...epression.html

ETA: A gold standard may prevent hyper-inflation, but it doesn’t achieve ‘stable’ inflation. Can have high/low inflation/deflation with a gold standard.

[mattig]

There is in fact little, if any, politics in MoPo. People who argue otherwise tend to have very strong political opinions and a strong inclination to argue those opinions. Either that or they're very anti-politics in general and simply don't understand how independent the Fed truly is.

All that having been said, what's the point of this thread? What's the question? If it has to do with the current stance of policy and its impact on the market, I'm happy to answer it if people are actually willing to listen.

[J. Barron DeJong]

There is in fact little, if any, politics in MoPo. People who argue otherwise tend to have very strong political opinions and a strong inclination to argue those opinions. Either that or they're very anti-politics in general and simply don't understand how independent the Fed truly is.

All that having been said, what's the point of this thread? What's the question? If it has to do with the current stance of policy and its impact on the market, I'm happy to answer it if people are actually willing to listen.

It started from a tangent in the college loan forgiveness thread yesterday, so best to head over there if you want the full background, but this is basically the start of it:



It started with a complaint about inflation under Biden, but then evolved into why monetary policy aims for a low-but-positive inflation target instead of zero inflation.

[mattig]

It started from a tangent in the college loan forgiveness thread yesterday, so best to head over there if you want the full background, but this is basically the start of it:



It started with a complaint about inflation under Biden, but then evolved into why monetary policy aims for a low-but-positive inflation target instead of zero inflation.

Gotcha. Thank you. Based on that snippet and your last few in this thread, your comments are on point. People should listen.

I'm happy to jump in on nitty gritty nuts and bolts if needed. Like which speaker said what on which day and why, and what was the reaction. Or even how the Fed's long-awaited framework update came at just the wrong time and applied an old lesson to a new problem, thus setting the stage for them to look much dumber and less credible than they actually are.

[Adolf Allerbush]

There is in fact little, if any, politics in MoPo. People who argue otherwise tend to have very strong political opinions and a strong inclination to argue those opinions. Either that or they're very anti-politics in general and simply don't understand how independent the Fed truly is.

All that having been said, what's the point of this thread? What's the question? If it has to do with the current stance of policy and its impact on the market, I'm happy to answer it if people are actually willing to listen.

Oh really professor? Who appoints the head of the FED? Who appoints the board of governors? How did the FED come into existence? Yeah, zero politics involved.

Like I said, let's discuss it here, but to act like politics are not involved is pretty ridiculous.

[J. Barron DeJong]

Oh really professor? Who appoints the head of the FED? Who appoints the board of governors? How did the FED come into existence? Yeah, zero politics involved.

Like I said, let's discuss it here, but to act like politics are not involved is pretty ridiculous.

Great. So if you want to discuss the politics behind the choice of Fed governor, or some such, just head over to Poly-Ass and start a thread there. We’ll try and keep things over here grounded in the technical/theory side of things.

[Truckee Joe]

It doesn’t matter how much money is created. It can’t create more commodities. But it can make your house worth more in fiat.


Sent from my iPhone using TGR Forums

[Core Shot]

Oh really professor? Who appoints the head of the FED? Who appoints the board of governors? How did the FED come into existence? Yeah, zero politics involved.

Like I said, let's discuss it here, but to act like politics are not involved is pretty ridiculous.

No question it’s ultimately political.

But it’s an interesting discussion that can happen without going all polyass.

Needless to say, I’m more libertarian and misian (is that a word)
Keynes annoys me.

So does the pit of vipers that Jefferson railed against.
And yet Hamilton is celebrated today. He’s on broadway.

From Wikipedia
=====

Ludwig von Mises had earlier applied the concept of marginal utility to the value of money in his Theory of Money and Credit (1912) in which he also proposed an explanation for "industrial fluctuations" based on the ideas of the old British Currency School and of Swedish economist Knut Wicksell.[121] Hayek used this body of work as a starting point for his own interpretation of the business cycle, elaborating what later became known as the Austrian theory of the business cycle.[122] Hayek spelled out the Austrian approach in more detail in his book, published in 1929, an English translation of which appeared in 1933 as Monetary Theory and the Trade Cycle. There, Hayek argued for a monetary approach to the origins of the cycle. In his Prices and Production (1931), Hayek argued that the business cycle resulted from the central bank's inflationary credit expansion and its transmission over time, leading to a capital misallocation caused by the artificially low interest rates.[123] Hayek claimed that "the past instability of the market economy is the consequence of the exclusion of the most important regulator of the market mechanism, money, from itself being regulated by the market process".[124]

Hayek's analysis was based on Eugen Böhm von Bawerk's concept of the "average period of production" and on the effects that monetary policy could have upon it.[125] In accordance with the reasoning later outlined in his essay "The Use of Knowledge in Society" (1945), Hayek argued that a monopolistic governmental agency like a central bank can neither possess the relevant information which should govern supply of money, nor have the ability to use it correctly.[126]

In 1929, Lionel Robbins assumed the helm of the London School of Economics (LSE).[55] Eager to promote alternatives to what he regarded as the narrow approach of the school of economic thought that then dominated the English-speaking academic world (centered at the University of Cambridge and deriving largely from the work of Alfred Marshall), Robbins invited Hayek to join the faculty at LSE, which he did in 1931.[127] According to Nicholas Kaldor, Hayek's theory of the time-structure of capital and of the business cycle initially "fascinated the academic world" and appeared to offer a less "facile and superficial" understanding of macroeconomics than the Cambridge school's.[128]

Also in 1931, Hayek crititicized John Maynard Keynes's Treatise on Money (1930) in his "Reflections on the pure theory of Mr. J.M. Keynes"[129] and published his lectures at the LSE in book form as Prices and Production.[130] For Keynes, unemployment and idle resources are caused by a lack of effective demand, but for Hayek they stem from a previous unsustainable episode of easy money and artificially low interest rates.[124] Keynes asked his friend Piero Sraffa to respond. Sraffa elaborated on the effect of inflation-induced "forced savings" on the capital sector and about the definition of a "natural" interest rate in a growing economy (see Sraffa–Hayek debate).[131] Others who responded negatively to Hayek's work on the business cycle included John Hicks, Frank Knight and Gunnar Myrdal, who, later on, would share the Sveriges-Riksbank Prize in Economics with him.[132] Kaldor later wrote that Hayek's Prices and Production had produced "a remarkable crop of critics" and that the total number of pages in British and American journals dedicated to the resulting debate "could rarely have been equalled in the economic controversies of the past".[128]

Hayek's work, throughout the 1940s, was largely ignored, except for scathing critiques by Nicholas Kaldor.[128][133] Lionel Robbins himself, who had embraced the Austrian theory of the business cycle in The Great Depression (1934), later regretted having written the book and accepted many of the Keynesian counter-arguments.[134]

Hayek never produced the book-length treatment of "the dynamics of capital" that he had promised in the Pure Theory of Capital.[135] At the University of Chicago, Hayek was not part of the economics department and did not influence the rebirth of neoclassical theory that took place there (see Chicago school of economics).[72] When in 1974 he shared the Nobel Memorial Prize in Economics with Myrdal, the latter complained about being paired with an "ideologue". Milton Friedman declared himself "an enormous admirer of Hayek, but not for his economics.[136] Milton Friedman also commented on some of his writings, saying "I think Prices and Production is a very flawed book. I think his [Pure Theory of Capital] is unreadable. On the other hand, The Road to Serfdom is one of the great books of our time".

[Core Shot]

More wiki.

The Chicago school of economics is a neoclassical school of economic thought associated with the work of the faculty at the University of Chicago, some of whom have constructed and popularized its principles. Milton Friedman and George Stigler are considered the leading scholars of the Chicago school.[1]

Chicago macroeconomic theory rejected Keynesianism in favor of monetarism until the mid-1970s, when it turned to new classical macroeconomics heavily based on the concept of rational expectations. The freshwater–saltwater distinction is largely antiquated today, as the two traditions have heavily incorporated ideas from each other. Specifically, new Keynesian economics was developed as a response to new classical economics, electing to incorporate the insight of rational expectations without giving up the traditional Keynesian focus on imperfect competition and sticky wages.

Chicago economists have also left their intellectual influence in other fields, notably in pioneering public choice theory and law and economics, which have led to revolutionary changes in the study of political science and law. Other economists affiliated with Chicago have made their impact in fields as diverse as social economics and economic history. Kaufman (2010) says that the Chicago school can be generally characterized by the following:[2]

A deep commitment to rigorous scholarship and open academic debate, an uncompromising belief in the usefulness and insight of neoclassical price theory, and a normative position that favors and promotes economic liberalism and free markets.
As of 2018, the University of Chicago Economics department, considered one of the world's foremost economics departments, has been awarded 13 Nobel Memorial Prize in Economic Sciences—more than any other university—and has been awarded six John Bates Clark Medals.[3][4][5] Not all members of the department belong to the Chicago school of economics, which is a school of thought rather than an organization.

[4matic]

Monetarism is failed theory.

“The problem is that no one knows what money is. To economists, money comes in many forms and many gradations - from currency, to Treasury bills and common stock, to savings bonds and credit cards - and no one can isolate the true money supply money that economists want to track.”

Also. It’s basic tenets have never proven correct. Velocity is volatile:

“Monetarist theory views velocity as generally stable, which implies that nominal income is largely a function of the money supply. Variations in nominal income reflect changes in real economic activity (the number of goods and services sold) and inflation (the average price paid for them).”

[Adolf Allerbush]

Great. So if you want to discuss the politics behind the choice of Fed governor, or some such, just head over to Poly-Ass and start a thread there. We’ll try and keep things over here grounded in the technical/theory side of things.

Fair enough. it does matter who is running the Fed though when it comes to implementing the "technical/theory" side of things. https://www.richmondfed.org/publicat.../2016/eb_16-08

[Core Shot]

Fair enough. it does matter who is running the Fed though when it comes to implementing the "technical/theory" side of things. https://www.richmondfed.org/publicat.../2016/eb_16-08

That was a good link. Thx.

I like the Fed Up activism.

But this made me laugh

Finally, a key goal of the Fed's founders was establishing a central banking system that kept the value of the dollar stable. The Act's authors understood that political pressures and private interests might push the value of the dollar down or up, and they feared both inflation and deflation. Accordingly, numerous features of the Federal Reserve System — such as its regional structure and the requirement to back Federal Reserve notes by either short-term bank loans or gold — were designed to insulate decisions about discount rates and the volume of notes in circulation from undue political and business pressures.

[MagnificentUnicorn]

i"m fine with any discussions happening in the PR, so go for it...but to act like there aren't politics in the US monetary policy is pretty naive and maybe shows you have no business discussing the topic.

Obviously there’s politics involved but who cares if it’s discussed in the PR? Don’t be a snooty douche, no business discussing the topic? What a pretentious idiot

[mattig]

Oh really professor? Who appoints the head of the FED? Who appoints the board of governors? How did the FED come into existence? Yeah, zero politics involved.

Like I said, let's discuss it here, but to act like politics are not involved is pretty ridiculous.

This is the attitude I was hoping to avoid. If your cup is not empty, attempting to fill it would be a waste of both our time, at least on the Internet. It's an easier discussion to have in person. Teaching people about the Fed's impact on rates is one of my main job functions in the real world. Beers on me if an opportunity presents itself. And apologies for the confident tone. I'm humble and self-deprecating to a fault in almost every other part of my job description, but this is one of the only topics I am truly confident about, and the only one people pay me to speak about.

Ultimately whether someone thinks the Fed is political or not doesn't matter. Yes, they are political appointees, but their independence speaks for itself in terms of policy decisions. I'm also not even sure what "political" means in this context. Influencing elections and presidential popularity? Serving the interests of those who appointed them? Both of those contentions are so easily disproved with the past decade's events.

Politics aside, I chimed in on the chance people actually wanted to discuss what the Fed has been up to over the past few years, months, weeks, and days. If it's a conversation on Mises vs Keynes, and the politics of the Fed, I'm out. If people want to discuss what Powell said at Jackson Hole, how it was perfectly predictable based on the July 27th presser (and subsequent speeches from other Fed members), and what the Fed's reaction function is likely to be going forward, then I can help.

[Cisco Kid]

I'm all ears. Please do go on and ignore the Sweathogs in the class.

[jono]

Also interested. Just know the discussion is going to be all of those things and skim/skip the idiocy. This is TGR. Be the drift you want to see in the thread.

[mattig]

Sounds good. Will do when I'm sitting at a keyboard and not on a phone.

[billyk]

So, when do we get around to actually discussing the Monterey Police?

[Adolf Allerbush]

Obviously there’s politics involved but who cares if it’s discussed in the PR? Don’t be a snooty douche, no business discussing the topic? What a pretentious idiot

Ultimately whether someone thinks the Fed is political or not doesn't matter. Yes, they are political appointees, but their independence speaks for itself in terms of policy decisions. I'm also not even sure what "political" means in this context. Influencing elections and presidential popularity? Serving the interests of those who appointed them? Both of those contentions are so easily disproved with the past decade's events.

Happy to discuss here. Feel free to reread the thread where there were a number of comments on how the Fed is apolitical. It's a dumb statement and one that is easily disproven.

To answer your questions above, assuming you're serious. Yes, presidents appoint Fed chairs they think will manage the country's monetary policy in a manner they agree with to achieve the goals of the Fed. What that means is different for each president, but ultimately congress needs to approve. Please, easily disprove this as you have stated.

Politics aside, I chimed in on the chance people actually wanted to discuss what the Fed has been up to over the past few years, months, weeks, and days. If it's a conversation on Mises vs Keynes, and the politics of the Fed, I'm out. If people want to discuss what Powell said at Jackson Hole, how it was perfectly predictable based on the July 27th presser (and subsequent speeches from other Fed members), and what the Fed's reaction function is likely to be going forward, then I can help.

What do you think the Fed's reaction function is likely going to be going forward?