David Beckworth and Obama’s need for a “FDR Moment”

“No one doubts Congress’s power to create a vast and varied federal bureaucracy. But where, in all this, is the role for oversight by an elected President? The Constitution requires that a President chosen by the entire Nation oversee the execution of the laws.”
Free Enterprise Fund v. Public Co. Accounting Oversight Bd., 130 S.Ct. 3138 (2010)

Let him remember, by the way, that the unforgivable crime is soft hitting. Do not hit at all if it can be avoided; but never hit softly.
Theodore Roosevelt, 25th President of the United States

David Beckworth posted a fascinating piece today that makes a great historical analogy.

Last year Christina Romer argued that Fed chairman Ben Bernanke needed a Volcker moment. What she meant is that like Paul Volcker in the early 1980s, Bernanke needs to rise to the occasion and adopt a new monetary regime radical enough to solve the big economic problem of the day… Maybe it is time for us to admit that Bernanke will never have his Volcker moment. He has had many opportunities and whether because of groupthink at the Fed, political power of savers, or a failure by him to read Scott Sumner’s blog, Bernanke cannot seem to find his Volcker moment. It is not clear he ever will. So instead of hoping Bernanke has a Volcker moment, maybe we should be hoping for President Obama to have a FDR moment.
The Fed had allowed aggregate demand to collapse for three years when FDR responded. He signaled that he wanted the price level to return to its pre-crisis level (i.e. increased expectations of higher nominal spending) and acted upon it by having the Treasury Department devalue the gold content of the dollar. This dramatically increased the monetary base and spurred a sharp increase in aggregate demand.
So how could President Obama have his FDR moment? Like FDR, he should signal his intentions for higher level of nominal spending and follow through on it by having the Treasury Department take the reins of monetary policy from the Fed. President Obama could do this by announcing a NGDP level target that would be implemented by the Treasury Department creating large-denomination platinum coins that would be deposited at the Fed and used to fund checks to the public. The Treasury Department would keep making these coins until the the NGDP level target was hit. If NGDP went above the target the Treasury Department would issue bonds to withdraw the excess money.

This is very very good advice (I must admit that’s a very clever use of platinum coins) and he does have Bernanke’s number. Ben Bernanke seems like a genuinely decent man but he is, at heart, a college professor. Some men are born to lead armies and other men to write books about the battle. You can’t expect the war hero to be a gifted writer, nor the professor to lead men by command presence and neither to be an effective President (Teddy Roosevelt, of course, excepted on all counts).

There was no Volcker moment simply because unlike Tall Paul or the two Roosevelts, Bernanke lacks the nerve of a riverboat gambler. And that’s fine, he never ran for office or promised bold leadership. The bigger problem is that the President’s last real job was law professor, so he’s not temperamentally suited to follow Beckworth’s advice either.

In FDR’s time, the President actually had greater authority over the Federal Reserve (until the 1935 Humphrey’s Executor decision, the President had the power to both hire and fire Fed governors), but I doubt it makes a difference in our present difficulties. The economy is a mess and if the President were willing to lead, I don’t doubt the Fed board would cooperate.

Every football fan knows that the prevent defense only prevents you from winning. If Obama doesn’t step up and embrace his FDR moment this year, he’s simply handing Mitt Romney the opportunity to embrace HIS FDR moment next year.

(Mike Sankowski here. Steve Waldman has been talking about common ground among the MMT and MM crowds. I think “NGDP level target from President Obama supported by using a Trillion Dollar Coin” is a brilliant mashup! )

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Obsvr-1
4 years 3 months ago

US would be better off if Obama were to have a Warren G. Harding moment.

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KainIIIC
4 years 3 months ago

That’s pretty cryptic. You think Biden would be better?

Guest
Obsvr-1
4 years 3 months ago

nope to the dope, but that would just be temporary.

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geerussell
4 years 3 months ago

I’m happy to see a monetarist awakening to the need for fiscal policy. The last sentence in the Beckworth quote struck me as a little sketchy though.

” If NGDP went above the target the Treasury Department would issue bonds to withdraw the excess money.”

Am I reading that wrong or does bond issuance not do what he thinks it does?

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Detroit Dan
4 years 3 months ago

I appreciate Cullen’s outreach to Beckworth and others of goodwill. But let’s not pretend that we agree with the Monetarists on how the economy works…

Admin
4 years 3 months ago

I very much agree Dan. We don’t agree on how the system works. But we need to reach out and compromise because no one will agree on everything with everyone. I think David is reaching out. We should reach back. We won’t agree on everything, but there IS overlap. I think David and I are finding some of it….I think there’s more there.

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Detroit Dan
4 years 3 months ago

Agreed Cullen. Very constructive approach!

Admin
4 years 3 months ago

Yeah, I know. We do not agree on that.

But lets focus on what we do agree on.

First, we agree there is a shortage of aggregate demand.

Then, we agree an NGDP level target is far superior to (an inflation target and a vague promise to help out employment).

I am taking Steve W’s idea to heart and seeing where it goes. I had reached out to Steve on this many months ago now, and he came up with a path which works better than the status quo and is possible.

David B is a quasi-MM, but heck, he was able to embrace the Trillion Dollar coin, and call for fiscal. It’s the least we can do to make a step to NGDP level targeting.

Would I prefer something like the TC rule? Yes.

But if we can get Scott Sumner to say “Yeah, let’s have President Obama announce an NGDP level target and finance it with a few Trillion Dollar Coins until Bernanke wakes up”, I’d pop a bottle of champagne.

The goal here isn’t to be right. The goal is to get the economy moving.

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Detroit Dan
4 years 3 months ago

“The goal here isn’t to be right. The goal is to get the economy moving.”

Actually, I think that part of the goal is to be right about how the economy works. It was Beowulf who pointed me to this paper by Colander which describes the demise of functional finance in theory.

Quoting Colander: Why were the neoKeynesians willing to agree to such a synthesis that theoretically precluded Keynesian economics? As I argued in The Coming of Keynesianism to America their primary interest was policy; theory for them was something that led to a model with acceptable policy conclusions… Like many compromises based on short-run policy concerns, the neoKeynesian compromise had within it the seeds of destruction of neoKeynesian economics.”

There is also a new book by Thomas Palley that argues: “the crisis is at a deep level the product of a flawed economic policy paradigm derived from a set of flawed economic ideas. Escaping the crisis means replacing that policy paradigm and the ideas from which it derives. That is a massive challenge involving both a political contest and an intellectual contest. We need to win both.”

Admin
4 years 3 months ago

🙂 Well, part of why MMR was started was to keep the economics separate from the policies. We’re Godleyists at the core, but we’re aware of how we can advance our goals too.

I should write a post on this. Great stuff, DD

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Detroit Dan
4 years 3 months ago

Thanks Mike. I’ve been citing MMR a lot, most recently when someone asked about MMT’s take on the trade deficit…

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Tom Hickey
4 years 3 months ago

Looks to me like DB just threw in the towel and admitted that a fiscal solution managed by the Treasury is needed now that monetary policy has shown it self to be ineffective. If he wants to call that NDGP targeting, so be it.

Admin
4 years 3 months ago

I think he’s just being open minded. This idea is as likely to be implemented as NGDP targeting of the kind David would prefer. But I think he’s acknowledging a really important fact and one that I’ve been trying to emphasize in recent weeks – there’s a lot of overlap in what the different schools are all trying to achieve and a little compromise from each might actually move us forward towards something that can then be implemented. Personally, I applaud David’s open mindedness and I think the rest of us would be wise to approach policy and ideas in the same manner. I think there’s a great deal of potential collaboration and enlightening discussion that can come from simple compromise like this and I think David is taking a brave and important step in the right direction. MMR hopes to reciprocate when possible.

Admin
4 years 3 months ago

Plus, we’re likely to have another debt ceiling debate later this year after the elections. We could kill two birds with one stone!

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Detroit Dan
4 years 3 months ago

It’s Volcker, with a “c”.

In my opinion, there is no more chance that Obama will have an FDR moment than there is of Bernanke having a Volcker moment.

Good to see Beckworth getting with the MMT/MMR program…

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