Scott Sumner responded to my first post about NGDP futures. He seems to think I pulled the $500bn number out of thin air. He is wrong.
Before I get started, I’d once again like to express my support for NGDP level targets. NGDP level targets are superior to our current dual mandate.
Also, I’d also point out the critique I am making has absolutely nothing to do the quality or usefulness of information which might be given to Central Bankers if NGDP futures existed and traded. Bernanke and Woodford do not address the problems I am raising here. I say there is no possible futures market. I am not saying that if a futures market for NGDP levels existed, the information the CB would get from that futures market would be useless.There is no can opener.
“The traders might be so smart that they steal $500 billion from the Fed. I wonder why he didn’t pick $500 quadrillion? Seriously, I’d argue the market need be no larger that $100 million, maybe $10 million. And I’ve published proposals where the Fed would not take a net long or short position. “
Here is commenter dwb with a version of the same concern:
“err, 500 BN or 3% of nominal GDP? some faulty analysis there. there are a whole lot of flawed assumptions in your analysis, i don’t have time to go through them all, but 3% of gdp does not even pass the smell test. “
There are a few different ideas in Scott’s response worthy of further discussion, but in this post I am only going to address the $500bn number.
And dwb, you should find the time to let me know those flawed assumptions, because otherwise NGDP level futures will be a smoldering heap of ash in 2 weeks.
But back to the $500bn question, “How did I get $500bn?”
I did the math.
First, I’ll give an explanation of the thinking behind the math. Then I’ll show the math. You’ll see $500bn is a decent estimate for how large of a payment the fed would have made to Goldman Sachs and hedge funds on January 30th, 2009.
First, here is some background information about NGDP levels. David Beckworth’s chart shows the Bank of England (BoE) was extremely successful in targeting 5.3% NGDP for decades – until The Event. The BoE missed by about 10% during The Event. It’s pretty clear a central bank can be extremely successful in targeting NGDP.
The U.S. federal reserve isn’t targeting NGDP, but here is a similar chart for the U.S. Not too shabby for a CB not even trying to hit a nominal NGDP target.
But something to notice about both of these charts is the difference between success and failure. There are very few “slight misses”. The series is binary – either extremely close to the NGDP target, or huge misses of 10%.
The success of the Central Bank in hitting the NGDP target during normal times is the source of the $500bn.
We want to create an NGDP level futures contract with specifications economically useful to end users during non-recessionary periods. If the Central Bank is to get useful information from this the NGDP level futures, somebody must trade the contract.
To do this, we need to create a contract hedgers can use in a capital efficient manner to hedge fluctuations in NGDP levels during normal times. We need a contract hedgers can use during the times when NGDP is close to the target line.
Economically Useful Futures Contracts
Economically useful contracts apply to every possible futures contract design. If the contracts aren’t economically useful, nobody trades them. This means the Central Bank does not get private sector forecasts from NGDP level futures.
Scott Sumner says in his response:
“I would add that the “futures” market being proposed is unlike any real world futures market.”
I think he’s implying I wouldn’t understand a futures market with an unusual design. Hmmm. He’s also implying he’s discovered some special new futures market which the real world futures markets didn’t feel worthy of launching over the last 175 years. Hmmm.
But every futures market, of any structure, must be economically useful to the participants. There are no special designs, no magic tricks, and no special “designed by an economist, not that dumbass Mike Sankowski” exemptions to being economically useful to the participants. The contract must make economic sense for the participants, or they don’t use it, and the fed doesn’t get information.
This means the leverage on the contract is above 50 to 1, most likely above 80:1, and perhaps as high as 100:1.
Why must leverage be this high?
- NGDP doesn’t move around that much during good economic times.
- Firms do not and cannot tie up large amounts of capital on hedging operations
David Beckworth’s famous chart shows us how this works for the UK. NGDP has minor fluctuations around the NGDP target level. NGDP growth doesn’t vary enough to justify high margins/low leverage.
Any possible futures contract needs to be capital efficient for end users. Futures contracts don’t have high leverage by accident. Futures have high amounts of leverage in order to be capital efficient for the target audience of the futures markets, hedgers and speculators.
Consider what degree of leverage Walmart would require to even consider using NGDP futures to hedge either top line sales or corporate profits. If Walmart is hedging top line sales, they need to hedge $440 billion of sales. If the hedge ratio is 1:1, they will need to sell $440bn of NGDP futures.
How much money is Walmart willing to use to hedge their sales? Are they willing to put up the entire $440bn in margin? Of course not. They may be willing to tie up $4bn in cash every year to hedge their exposure to NGDP. But anything more than $4bn starts to be not worth the cost. That’s a ton of money to be sitting on a hedge, doing nothing for a company)
If Walmart is hedging profits, the issue facing Walmart is still the same. Margins in the futures markets are extremely low – and leverage extremely high – because participants have cash efficiency concerns.
I’d argue with the minor fluctuations around the NGDP target level, the Walmarts of the world will push for even higher levels of leverage than 100:1
(Now, there are HUGE PROBLEMS with the uncertainty of the NGDP index. The uncertainty of measuring NGDP will cause constant tension between the margin/leverage of the contract and the economic requirements of hedgers. This is a problem with the underlying index – another issue not addressed by economists, but extremely important to end users. I am ignoring these problems for right now, but these problems are yet another problem for NGDP futures which will be difficult to overcome.)
The most common formulation for NGDP level futures was “fed as market maker at a static price” – at least up until a few days ago. Scott used the “fed as market maker at a static price” design to push back against Noah Smith’s critique of volatility.
Here is Scott Sumner responding in an email to Noah Smith on NGDP level futures contract design:
“In an email exchange, Scott Sumner has clarified the nature of his NGDP futures market proposal. In a nutshell, he proposes that the Fed act as a market maker, buying and selling infinite quantities of NGDP futures at the target price. Demand for NGDP futures would then be used to determine Fed policy; if NGDP futures demand increased, the Fed would commence open-market operations to bring down expected NGDP. The price of NGDP futures would not move, but demand would swing from positive to negative, moving Fed policy as it swung.” [Bold Mine]
Well, if the fed is the target price market maker for infinite quantities at target NGDP, and leverage is 100:1, somebody makes $500bn on January 30th, 2009.
How do we know this?
“Current-dollar GDP — the market value of the nation’s output of goods and services — decreased 4.1 percent, or $148.2 billion, in the fourth quarter to a level of $14,264.6 billion. In the third quarter, current-dollar GDP increased 3.4 percent, or $118.3 billion.”
5% growth per year means each quarter needs to grow at 1.22% per quarter.
I think 5% is a low NGDP level target. A reasonable NGDP target really needs to be a “NGDP per capita target” and should include population growth. The U.S. population is growing at .98% per year.
This means NGDP levels should grow at 6.0% annually to hit 2% inflation and 3% per capita real GDP growth. 6% annual NGDP growth translates to 1.47% growth per quarter.
So how much notional contract value would it take for the Fed to give away $500bn? If the NGDP level growth target is 5% – which I believe is low – then we missed the growth rate target by 5.012% for Q4 2008.
How much notional value of contracts are necessary to generate $500bn in profits? Math tells us
$500,000,000,000/.0532 = $9,398 bn of notional contract value. At 100:1 leverage, we only require 1% of this amount to be put up in margin. This is $93.9bn of margin required to fund this position.
If the target level is 6% – which makes more sense – then the margin required is only $89bn.
That sounds like a lot of money. It is not. The hedge fund industry has $2.3 Trillion under management.
As of 2009, hedge funds represented 1.1% of the total funds and assets held by financial institutions.[3]As of April 2012, the estimated size of the global hedge fund industry is US$2.13 trillion.[4]
$96bn is roughly 5% of the assets of the hedge fund industry. This number does not include what firms like Goldman Sachs and UBS commit to their active trading.
We need to recognize the utter certainty of the NGDP number coming in below target on January 30th, 2009. The concern wasn’t if GDP would be close to positive 1%, but rather if we should start stocking up on guns and potable water. It was 100% clear NGDP was coming in below target – it was the most certain outcome I’d ever seen. The U.S. was in a massive recession, and there was no doubt NGDP would come in below target.
People like George Soros and Paul Tudor Jones would have bet the farm on this trade. People like John Paulson would have sold billions, while every family office and hedge fund would have sold NGDP level futures as well.
Of course, they would have done their trading on the last day possible, which is a month after the end of Q4 2008.
Recall, the only way a short position loses money selling NGDP futures at positive 1.012% is if the NGDP number comes in at a number larger than 1.012%. This simply didn’t and probably couldn’t of happened.
It’s easy to see how the $500bn number is probably too low. It is entirely possible we would have seen the Fed hand over several trillion U.S. dollars to financial institutions on January 30th, 2009. It’s easy to imagine the problems for countries smaller than the United States adopting NGDP level futures.
Recall the chart from David Beckworth and how it’s obvious the BoE was targeting NGDP levels at 5.3%. This chart is utterly damning for this contract design. The BoE- a Central Bank actively targeting NGDP levels – missed the NGDP level target by a massive amount!
So to recap, any futures contract needs to be economically efficient for participants to trade. This is entirely independent of the final specifications and market structure for the contract. If the “the Fed act(s) as a market maker, buying and selling infinite quantities of NGDP futures at the target price”, then we will eventually see a situation where the Central Bank hands over a significant percentage of GDP to speculators.
I think this fully disposes with the possible contract design where “the Fed act(s) as a market maker, buying and selling infinite quantities of NGDP futures at the target price.”
In his response to Noah Smith, Scott proposes the market for NGDP level futures does not need to be very large. He also proposes alternative contracts where the Fed is not the market maker at a set NGDP target level. Instead this alternative contract design has a floating price level set by market participants.
Before we go on, I think Scott entirely misses how damaging the correlation issue is for NGDP level futures.
In another post, I’ll show allowing the level of NGDP level futures to vary means the market size of the NGDP level futures will be tiny. Then, I’ll demonstrate why an tiny NGDP level futures market is the equivalent of an online survey and prone to massive manipulation. Having an online survey dictate U.S. Federal policy is a bad idea in another post.
So the fed will give huge sums of money to banks as soon as NGDP dips? So an immediate bailout essentially? Couldn’t that potentially be stabilizing?
Also, while NGDP growth was stable in the UK for a while, the BoE is required by law to target inflation; it’s not certain the BoE was actually targeting NGDP deliberately.
It would be banks that make prop/speculative trades, not banks that make loans to the parts of the economy that need them in economic downturns.
Also, let’s say it did get to traditional banks that ‘could’ disseminate the additional $$ into the economy via a transmission mechanism such as lending- if there isn’t demand for more loans and/or risk appetite of loan makers has tightened then how do those additional funds get into the economy? (see Easing, Quantitative).
But the sudden failure of institutions like Lehman Brothers and Bear Stearns caused ruptures throughout the system, I’m not talking in terms of getting money in circulation, that’s another matter.
Hope this isn’t too dickish- but you’re proposing these futures are economically beneficial because they allow bailouts of institutions that should, by capitalist standard, no longer exist? Also- even if the answer is yes the government bailed these institutions out anyway, so obviously there’s already a way to do this. I’m failing to see the benefit in general.
Know you’re a smart guy so I assume there’s more to your view- hoping for more discourse.
I’m just brainstorming here, I’m not proposing anything. What I will note here is that it doesn’t follow that these institutions should be classed as failures in this hypothetical scenario, they’ve hedged their assets using NGDP futures preventing them from making large losses, it’s in fact prudent financial management on their half. Of course this doesn’t stop moral hazard, on the other hand these assets only hedge against market risk, they don’t stop banks failing due to idiosyncratic failures, unless they’re lucky.
More than fair points, Brito. I’d respond by saying that the NGDP hedge is a hedge against a downturn in NGDP prediction and not against the type of risks the have dire systemic repercussions as described in the example you lead with, hence- they would be by definition lucky for this to be profitable. Part of Mike’s criticism here is that these proposed futures don’t do what they claim to but also have unintended and not necessarily beneficial outcomes.
That’s exactly right. I don’t think Scott envisioned handing over hundreds of billions to speculators as part of the intention of the contract design. But his proposal to have the fed as a market maker in infinite size would hand hundreds of billions to speculators when the fed makes a mistake.
Even minor mistakes like typical recessions would result in massive giveaways to speculators.
Just repeating yourself once bested doesn’t make it so…
1. 2008 doesn’t happen, nice climb down on your $500B claim BTW… but month over month, the Fed is routinely swiping money off the table.
2. MY PLAN has none of Scott’s problems. And you have no response.
NGDP Futures stands.
You are a horrible arguer.
Straight lines in economic and financial data are not natural. It’s not an accident 5.3% happened over 20 years.
And please, read the post and think through the process. If the fed is the market maker in infinite size at the target NGDP level, and the leverage is reasonable for good times, the fed will hand over $500bn or more to traders when events like 2008 happen.
The preposterous part is not the math – it’s the flawed idea of NGDP level futures.
Remember my claim is either the fed hands over billions to traders or these contracts don’t trade. If we want the contracts to give us useful information in the good times, we are going to hand billions or even trillions to traders in the bad times. If we don’t want to hand traders hundreds of billions of dollars in the bad times, the contracts will never trade.
I am sorry to be the bearer of bad news, but there is not a magic solution which cuts the Gordian knot.
Mike, a post on “Straight lines in economic and financial data are not natural. It’s not an accident 5.3% happened over 20 years” would be interesting. Nick Rowe uses this line with regards to Canada when people question the efficacy of monetary policy at his place. And it’s a good one liner, but it certainly begs more analysis if you are not convinced of the potency of monetary policy to the same degree monetarists are- how much of this is the evolution of the private sector, fiscal policy, monetary policy, etc.
Oh I’m not saying it was an accident, but theoretically the same thing can be achieved by targeting inflation over the medium term, if economic conditions are ‘normal’.
I’m not sure what your point about handing money to traders in bad times is, that was what I was assuming. I wasn’t saying it would stabilize NGDP, but possibly the financial system hypothetically speaking, which in turn could possibly make downturns in NGDP less severe.
Michael you are making two mistakes, and the first one I don’t like saying because I prefer my own plan, which is winning.
1. You can’t assume 2008 happens EVER AGAIN. If you are running 4.5% NGDPLT, 2008 is impossible, becuase back in 20056, the computer that used to be the Fed start s raising rates until Barney Frank stops trying to give bad credit risks houses.
You get this out of any kind of level target, but again, there just can’t be a single 2008 shock short of act of god, and under ACT OF GOD paradigm thinking, you are getting much juice out of Goldman getting $500B.
Sorry, but its true.
2. The BIGGER MISTAKE is this:
“Remember my claim is either the fed hands over billions to traders or these contracts don’t trade.”
As I keep saying, we can get the EXACT SAME kid of info out of my system that doesn’t allow “price setters” to participate. I came tot his conclusion early on afraid about WalMart running 10% of retail or Amazon – both raising their prices for two weeks.
More importantly, we need a POLITICALLY POSSIBLE system, and one that puts the “printed money” first into the hands of retail bettors, folks hedging against personal systemic loss, etc. That will sell.
You can’t discount the strength of any plan that the Tea Party / Ron Paul will support.
This is that plan. It deeply weakens the Fed’s powers and does so to the benefit of non-bank, non-corporate private citizens.
This is a claim you need to back up with evidence. Straight-line plots occur in nature all the time.
Here’s to hoping Sumner and Woolsey will actually engage your critique this time, unlike in the last post or at Sumner’s blog.
I was going to bring up what Brito mentioned, that the BoE wasn’t targeting NGDP. But even if it was, is it realistic to assume the BoE would be infallible? Probably not. And I won’t even get into how achievable NGDP targeting is, or the degree to which those GDP growth rates that you display were a result of monetary policy.
Or rather – is it realistic to assume a CB targeting NGDP would be infallible?
why, I am handling it fine.
Or rather – facilitated by monetary policy. Wish we had an edit function!
Once again, I think I have figured this out:
1. Wal-Mart, Goldman, etc. aren’t allowed to trade it. Price setters are out.
2. Instead it runs and feels like a national lottery or sports book where only US Citizens are able to bet and they are limited in how much they can drop into their account. They can’t lose more than this in any given month.
3. You can only bet the under… but you predict like Price is Right how much under.
4. If the Fed comes in above target, they destroy everyone’s money (or some percentage of it). Gone. Removed from system.
5. If they come in below target, they print cash and hand the newly printed money to the winners, the closer you come to the number without going under the more outsized your gains.
But if you bet under the under #, you get nothing.
The idea here that when the Fed misses low, there may be BILLIONS being handed to the daring folks who placed the accurate bets, and the whole country will get lottery fever… increasing the players.
And Goldman and WalMart will suck it.
The goal of futures is to put the printed money into the hands of regular folks first, and screw Goldman with its pants on. If you don’t start with a plan like that, then WHY do it?
——
Run the lottery monthly, the first time a bunch of folks get a sick payday, the Fed will have plenty of money to destroy.
What is the quality of the information to be derived from that though, if a bunch of small, naive and inconsequential players dominate the action, treating it as a lottery?
There are BILLIONS of dollars to be won… the fewer the players the more they make!
Greed and professional betting takes over…. oversubscription can’t happen, when there is money destroying going on, everyone just loses less than their full bet.
Have you EVER seen a Vegas book making operation?
It’s OK to just adopt my plan. it won’t bite.
But point of the futures is the generation of information, money changing hands is the means, not the end. I don’t see how excluding the market makers and shapers is going to generate much useful information.
This is wrong.
Let’s say that we need a bump in NGDP after August 2013, so the Fed prints $15B and hands it to 15K people…
What do you think the effect is going to be from minting 1M new millionaires overnight?
How many new home sales will occur?
——
The information is SECOND BEST, if you can get NEW MONEY into regular lottery folks / gamblers hands.
I’m not demeaning the information bit, I’m just saying don’t leave the real benefit on the table.
FUCK GOLDMAN SACHS. Make them work for their money.
15K new milionaires
“The goal of futures is to put the printed money into the hands of regular folks first, and screw Goldman with its pants on.”
Why not just deficit spend it into people’s hands? Something countercyclical and automatic would work just as well as NGDP targeting, right?
No, then the money would go to rent seekers and Dem voters… the goal here is to run a major betting system, that puts new money into the hands / destroys the money from the US citizen risk takers.
You still get a accurate prediction on where the market thinks real growth and inflation is going, and you don’t have bigger government, crony capitalism, or Goldman getting out-sized gains.
“No, then the money would go to rent seekers and Dem voters… the goal here is to run a major betting system, that puts new money into the hands / destroys the money from the US citizen risk takers.”
If they redistribute it per capita inverse of the income tax stratifications then it goes to renters and repub voters too.
I dont really see the value of creating a super casino and encouraging lottery fever. We have plenty of lotteries and plenty of markets in commodities and stocks for people to speculate on if they wish. There is no dearth of outlets for gamblers.
ALL OF LIFE is gambling. Don’t be daft.
This is certainly a smarter bet than FOREX.
You didn’t get my point. Repubs PAY the huge bulk of the taxes, so stuff they get from the govt. isn’t free. (not kidding)
The goal is to reward the folks that place smart bets, the reality is you will see all kinds of smart strategy spun up – for people with real jobs in some ways it is a unemployment hedge.
First do no harm! That means: First, do not make the govt. bigger. First, do not make banks bigger.
My plan accomplishes that AND has all the upside of NGDPLT signalling.
Don’t be hater, I’m the guy who figures this shit out.
No – I’m the guy! Ha!
Michael, you’re beat – my plan works…
Noble losers knock over their king, otherwise you can make me chase you around the board, but you lose.
My plan stands.
Flame on!
1. Your plan most closely resembles an online poll. Why are we basing fed policy on an online poll? Well, perhaps the point is to get money into the hands of normal people, but…
2. Why do you want to take away granny’s Social Security check when she confusedly bets wrong? She’s old, she needed some money, and you’ve taken away her money! What a bastard, the evil politician who enacted this dumbass plan. As soon as I point out to people this takes away money from a voter much like taxes do, this plan gets zero votes. It’s dead. Still, even afer that…
3. Why is this plan so complex? It’s so much easier to just send a check to everyone when the fed is wrong. In fact, that’s what my alternative plan – which I haven’t proposed here yet – would do. When the fed is wrong to the downside, send a check for the per capita difference to every person in the country. When the fed is wrong to the upside, raise interest rates. It’s simple, and takes advantage of the asymmetrical timing needs of recessions/booms and fiscal and monetary policy. 4 times a year, you might get a bonus check – or the fed might raise rates! And then, even for the people who understand your confusing betting scheme, here is the real kicker…
4. Why in the world do you punish people for overestimating the fall in NGDP? NGDP is a guess on the first round, and you and I and everyone who knows anything about GDP releases know it. GDP regularly gets revised all over the place.
Heck, we revised q4 2008 down another 3% or something years after the fact. If your plan is in place during 2008, the people who were most accurate in estimating the depth of the recession in real time made zero money, while ignorant pollyannas who thought the economy was only falling at 4% per year made big money.
GDP is too much of a guess for your over/under payout mechanism. It’s a massive design flaw.
I am sure there are more flaws, but I’ve only thought about it for 10 minutes.
Morgan, you are no longer dealing with slow witted people who can’t think. You need to up your game. Ha!
Dear TARD,
1. The A Power doesn’t support sending a check to everyone, they support opwn market risk taking.
2. Granny is not the one betting here, this is FOREX run like a sportsbook without the spread. You deposit cash into your account, and you make you bet on the under.
This is NOT FOOTBALL, where everyday people have a team and knowledge base of.. this is where SMB owners (the A POWER) are hedging against economic downturn directly with the Fed – this is cutting out the middleman (Goldman Sachs).
The point here is that when the economy heads south, the GUYS WHO SIGN THE PAYCHECKS are the ones getting handed fresh new printed money.
Understand what we’re talking about here Michael… this is Distributism as practiced by the Federal Reserve. The top 1/3 of America, now self-insures itself against economic slow-down.
No one cares about Granny on a SS check, she’s watching Fox News, she’ll like seeing that Ron Paul and The Factor agree on something.
Michael, you need to understand that EVERYONE is not equal. And that the system is not set up to promote economic equality.
it isn’t set up for the 1%, it is set up for the top 1/3, and if you are VERY SMART, you’ll learnt o think about how the 1/3 can be used to take down the 1%.
if you are very dumb, you’ll keep thinking about the bottom 2/3 – who barely vote, and have no money, they are renters, they are service industry labor, they are not your salvation.
They will not rise up and over throw the top 1/3 who have 200M GUNS, and fund the police depts., own their homes, own the SMBs in small towns all over America. They run the PTAs, they run the churches. They are the TRUE HEGEMONY.
Get it through your head Michael, the Tea Party is 100x than the OWS crowd.
Your salvation lies in helping the top 1/3 to take down the 1%.
It is called Distributism. It is the future.
lol Morgan,
I think the image of Granny losing her house due to your plan is enough to make sure it doesn’t pass the house or Senate. It doesn’t even matter if it happens – I like Granny.
I get you on starting up the top 30% vs. the top 1% class war. It’s the only way it all happens. Your plan is only kinda good at doing this, but the idea has got me thinking. Betting is such a poor method of doing all of this. There are better ways.
I proposed a much simpler way to get money into the hands of people, one that doesn’t involve people doing anything but sitting on their ass. You need to remember something – mass production requires mass consumption.
More on this later.
We don’t give FREE SHIT to the bottom 2/3.
get this through your head. the top 1/3 pay ALL the taxes that actually fund the government… (SS doesn’t count form the 2/3 they get it back), so they aren’t being given anything.
Look dude, my Guaranteed Income plan works BECAUSE it lets the 1/3 put the unemployed (who the 1/3 subsidizes with the GI) to work doing menial tasks / time saving tasks – so they’ll support it.
Giving the GI recipients a private sector bossy boss who wants ROI on the auction win gets the social benefits of hard work and makes society more cohesive.
It gets you ghetto renewal and advantages entrepreneurs in poor areas, sot here’s lots there for real progressives.
You NEED to let go of the idea that the top 1/3 will let the civil SERVANTS (the teachers, the bureaucrats be more important – they are going to be replaced by computers – govt. is going to be replaced by the Internet.
There is no future power base of the public sector which is about to undergo a MASSIVE FORCED PRODUCTIVITY BINGE that will reduce its labor size by more than half.
Postal workers, teachers, local office clerks, all of them are going bye-bye.
Imagine a new govt. is being built in the modern age of the smart phone. Citizen A takes picture or pot hole, low bidder by end of day fils up pot hole – there is NO govt. in there, just computer and end users.
This is whats coming, the baby boomers need the $$$ for medicine and food and that means $1.2T in public sector employment is going to go down to less than $600B, which is where we’d be IF the public sector just stayed on the same productivity gains as the private sector from 1980 on.
Michael, don’t bet on a vibrant growing public sector, bet on disintermediation, bet on distributism.
Focus your rage on the 1%, but be smart about WHO can and will take them down a few notches, and WHY they will do so – it is NOT to help the bottom 2/3.
Take from the top 1%, give the top 1/3, and bottom 2/3 will have far more service jobs, hair cuts, yoga lessons, to teach.
You’re sputtering and incomprehensible, plus mixing in off topic ideas on a guaranteed income plan in a last ditch attempt to save your NGDP betting plan.
I call that a win for me.
Mike, you really think that Congress would permit the Fed to send out checks to people? Really? And you really think that Congress would rather do that than institute a BIG or JG? I am not arguing for either a BIG or a JG here. Jus’ sayin’
Congress is smart enough to know that it controls fiscal disbursements and that fiscal is the most powerful tool that politicians have in their toolbox to reward their constituents. You don’t really think that the politicians are going to cede this the Fed chair, do you?
Tom, They already have sent out checks like this. GWB sent the checks. They would do it again in a heartbeat.
That was appropriated through Congress and the checks came from Treasury, not the Fed as in NGDP schemes in which the Fed bypasses Congress, obviating the need for a messy political fight.
So if you mean another round like GWB, I agree that it is possible but less probable now. It would not be easy if of per capita “redistribution” is not offset and “adds to the deficit.” IIRC, GWB was just sending back “your money.”
You are an idiot.
MY PLAN: requires no political fighting. It does require a change in law. But it has no tax / spend component. folks are free to choose to hedge on financial instrument – get money , lose money – it is THEIR MONEY.
Your plan pretends all people are equal. You are wrong. money WILL NEVER be handed out monthly to the non tax payers to spur the economy along under any Fed plan.
You are DREAMING that the bottom 2/3 matter. Asserting it doesn’t make it so.
They have no money, they barely vote – they ride along, thats it.
Michael i think the issue is you like to dream big with OTHER PEOPLES MONEY.
If it isn’t done for and by the top 1/3 it doesn’t happen.
I see where Morgan is going with this, its a way to harness the gambling instinct in a socially useful way. It’d be just like sports gambling, the public would be willing to pay handicappers for betting advice.
Morgan’s ideas (this and the ebay hiring hall) seem to be about, in Andy Kessler’s terms, the government using technology to distribute decision making to the edge of the network as opposed to using it to put more decision making at the center of the network. In other words, the opposite of Project Cybersyn (though the console chairs were cool).
http://en.wikipedia.org/wiki/Project_Cybersyn
Completely unrelated to almost anything: I would just love it if you would tell the ‘not shower curtain rods’ story again sometime soon. I love that story.
huh?
Michael: “Straight lines in economic and financial data are not natural. It’s not an accident 5.3% happened over 20 years. ”
This is off-topic, but I loved that line. Here are my own thoughts on that same theme: http://worthwhile.typepad.com/worthwhile_canadian_initi/2011/03/are-there-any-straight-lines-in-economics.html
Lets all remember we are not arguing about strategy here. I’m not sure we are even arguing about tactics. More like whether to use a GPS or map and compass to find our way to the target. You say the GPS won’t work.
I’m going to have to try to get my head around this question, and understand your argument better.
Yeah, but why does the straight line prove the potency of monetary policy and not automatic stabilizers of the fiscal policy? This is not a proof of anything.
I stole it from you and Steve Waldman. I read that post of yours a while back and liked it a ton.
I am saying NGDP futures are a non-starter due to contract and market structure problems These problems happen before the fed could possibly use the information to help guide policy. NGDP futures can’t be used by the fed to get around Lucas critique issues because NGDP futures won’t ever exist in the real world.
I don’t like going after ideas you and Scott support because at least you recognize the lack of agg demand in our economy. It’s true, we want the world to be a better place, and recognize the importance of agg demand in reaching that goal. We do disagree on how to get there.
NGDP futures bothered me because it was in a direct area of my expertise, so I had to write something. I’ve been sitting on the ideas in these posts for a few years.
We haven’t gone after monetary policy or expectations with both barrels yet. But at some point, we will. Monetary Policy doesn’t work very well. Expectations aren’t very powerful. And we’ve got JKH.
The work of Godley and Lavioe in Monetary Economics is the path. Bill Vickery knew how it all fit together too.
dude, bring it. you still haven’t come close. Scott’s approach to NGDP futures isn’t best.
MINE IS. And you haven’t come close to touching my plan. When you actually have a STOPPER argument on MY PAN, you get back to me, until then NGDP Futures stands.
And it never EVER equals a $500B payday for Goldman Sachs… I gave you TWO arguments above, one for Scott and one for me – both leave you nekkid like a jaybird…
1. Under 4.5% NDGPLT 2008 CANT HAPPEN, because 2005 can’t happen either.
2. My lottery / Forex / Sports book for US citizens is genius politically because it screws Goldman Sachs with their pants on… and OH YEAH work to actually take money in and out of economy.
P.S. MMT is a joke. I’m your Huckleberry… you dirty hippie folks need to understand this… MONEY, MONETARY THEORY,a dn GOVT. ITSELF are all tool of the hegemony.
And hte hegemony are the top 1/3 or Americans who own their homes, the guns, the small businesses, and treat the government like their bitch.
The bottom 2/3 don’t matter, even when they suck off the top 1%.
You and I both know what MMT is…
You want to PRETEND that the government is stronger than it is, and that the mob can be incited to give you power.
Doesn’t happen. The guys who matter are the Car dealership owners and Main Street Tea Party Republicans across the land…. this is so because US states have tons of power to thwart the will of technocrats in DC.
So Looksie, if you want to do a job guarantee it happens MY WAY becuase my way is the way that the hegemony supports.
But the GOVT will NEVER grab hold of the currency, hand it out as you see fit, and cool it off with taxes applied as you see it.
MMT people DONT MATTER.
Who matters? The guys who OWN EVERYTHING, VOTE 100% of the time – the top 1/3 of America (minus the 1%)
say hello to radical internet based distributism.
“1. Under 4.5% NDGPLT 2008 CANT HAPPEN, because 2005 can’t happen either.
2. My lottery / Forex / Sports book for US citizens is genius politically because it screws Goldman Sachs with their pants on… and OH YEAH work to actually take money in and out of economy.”
I laugh at you. If you think the government will prefer to create a national lottery on GDP where they take money away from Granny, you’re insane. I suspect YOUR USE OF ALL CAPS WAS A GOOD TELL FOR YOUR SANITY LEVEL ALREADY.
Then, if 2005 doesn’t happen, we fall into 2008 in 2005. THE ONLY THING WHICH KEPT US OUT OF A MASSIVE RECESSION IN THE 2000′S WAS A MASSIVE CREDIT BUBBLE.
Dearest Dicknose,
Ok, you need a bigger view of NGDPLT and what it truly does… ASK SAX.
The real point of it is that it SHRINKS GOVT. which ends economic woes, Sumner doesn’t talk about it much, but he admits it if pushed.
See what happens is this:
We’re running at 4.5% NGDPLT, and lets say it is 4.5% RGDP and zero inflation…. we are experiencing a HARD CAP on growth, what to do???
Wait! Let’s fire govt employees making the govt. operate more efficiently and that will shrink RDGP in short term and give us room under hard cap for more growth.
Deflationary forces broguht about by less spending on public employees – getting more for less $ is SUPER POSITIVE under the hard cap of NGDPLT.
Let’s say instead we have zero RDGP and 4.5% inflation….
Guess who isn’t getting a raise while their dollar buys 4.5% less this year???
Public employees.
By have an single target that is super easy to run into the hard cap on (4.5% means 78% of time we needed tighter money since 1980), govt. doesn’t grow.
So Barney frank giving bad credit risks homes doesn’t happen.
THIS FORCES US to eat our medicine.
And dude, psssst! our medicine is treating public employees the way they were treated in 1980 – with NO compensation premium over the private sector.
It is over dude, the public sector is gong to shrink its work force liek Manufacturing and Agriculture before it.
EVERYONE who is a ZMP worker is going to do menial jobs for the top 1/3
And that means EVERYONE.
get over it.
So you don’t miss my response; the economy will run fine if the public sector is put int he bottom of the boat and told to STFU and row.
And that is what is going to happen under NGDPLT.
this guy is hilarious.
hilarious and right!
This is what you need to know… when 20% of your employees have made less than 1% productivity gains SINCE 1980…
The economy has a ton of juice that just comes from squeezing that 20%.
Dude, Agriculture runs with less than 3% of workforce, and produces more food than than ever. We NET EXPORT food.
Well bub, we’re gonna do the same thing with the PUBLIC SECTOR… expect to see just as much govt services, wealth transfer, potholes filled, public goods, with a govt. workforce that is les than half the size it is now.
Including savings on ending pensions and public employee unions we’re talking about saving $1T a year with about $250B of that flooding into the TECH INTERNET space.
What exactly do you think DRONES ARE??? That’s how you fire cops and soldiers!
The Internet replaces teachers and outsoruces much of day to day govt. services.
Again, look at AGRICULTURE look at MANUFACTURING – so goes PUBLIC SECTOR.
Hilarious and right.
Here to help!
Morgan, that’s fine. If all that really happens in the future and you can find something else for everyone else to do, great. I just am highly skeptical your Casino America or Slave Auction plans are the best ways or realistic ways to transition to it.
Casino America, Slave Auction! Great stuff.
Unfortunately I think he does describe the mindset of many of the 67-99th percentiles. They really do just want to create a situation where workers have very little bargaining power and public sector workers are regarded as subhuman.
Greg,
the deeper question is, if you are smart enough to SEE IT, why do you build policy around things that don’t ACCEPT it.
I’m in favor of progress, but I’m a radical realist, if you want to get something done, ANYTHING done, you have to work within the the governing paradigm, or you have to go for revolution.
Revolution is dumb. the top 1/3 are rightly in charge, the ISSUE is that the 1% have been EMPOWERED by the bottom 2/3 – Dems suck off the 1% to try and do battle with the party of the top 1/3.
During that time, the top 1% got richer, the bottom 2/3 got poorer and the A Power – the top 1/3 they stayed the same.
China knew how to be the C Power during the cold war, they played both sides against each other.
The bottom 2/3 need to throw off public employees and folow the top 1/3 into battle against the 1%.
It is called DISTRIBUTISM.
Look it up.
A related question is whether price discovery mechanisms actually help CBs. E.g. has TIPS implied inflation actually been useful to the Fed? Does the market give meaningful info? (http://newyorkfed.org/research/conference/2010/cb/Longstaff1.pdf)
This is a very good question.
TIPS give the fed useful information about inflation. Additionally, TIPS are a possible partial hedge for NGDP futures – but only a partial hedge.
Few traders would consider TIPS to be even close to enough to hedge NGDP futures. This is yet another reason why NGDP futures are a bad idea. If the price of NGDP futures float, then someone beyond the fed must be making markets. What will the market makers use to hedge themselves? TIPS + ???
jt26!!!!
This paper is exactly what I’ve been looking for!
I knew there was a problem in this market. Knew it! And I might have a solution to the conundrum identified in this paper! The basis point value is the about the right size! Holy smokes!
There is a series of Asian Options on Inflation embedded in Treasuries. The strike price is the expected inflation curve embedded in the purchase price of treasuries. Treasuries has expected inflation plus the embedded Asian option to account for all of the risks facing the holder of Treasuries. The backed out inflation curve doesn’t have the option because expected pricing can’t account for volatility or distribution curves. TIPS don’t have the embedded options because they index to realized inflation.
For example, an average of 50 can be due to a price of 0 and 100 or 45 and 55. But the volatility implied by these two averages are completely different. Also remember the fed uses recessions to ratchet down inflation. Even though the expected future inflation might be the same, the depth of recessions is less predictable than the path of economic good times. More future recessions means more volatile, less predictable future inflation, even if the expectation remains exactly the same. This would increase the value of treasuries over TIPS.
Inflation Swaps! I know the guy who does them on The Street! This is awesome.
Maybe I’m missing something, but I don’t see how NGDP-targeting is even supposed to work. What is the transmission mechanism from the Fed to spending in the real economy, other than interest rates?
Is there a primer anywhere on NGDP targeting from an MMR perspective?
I’ve done a lot of thinking about this. I don’t buy the Sumner notion that the Fed can just say things and the private sector will respond. 95% of the people in the USA don’t even know what the Federal Reserve is and could care less what they’re doing so I don’t see how communicating inflation levels is going to change how mom and pop shop. It won’t. I also did a survey of my readers at Pragcap who are basically older, rich and in the know. And they basically all said the Fed has minimal impact on their every day dos and don’ts. Ie, again, no impact even from the more in touch crowd.
So what’s the real transmission mechanism? It’s gotta be through either rates or some fiscal impact that changes net financial assets. So my conclusion is basically this; the Fed either has to buy assets directly from the private sector which is in some way similar to fiscal policy (like funding states through muni purchases) or they have to target long rates like they do at the short end. Ie, “the 30 year bond is 1%” or something like that and hope for credit demand to pick-up for varying reasons.
There are probably others transmission mechanisms and I’ve thought about NGDP for countless hours and these are the primary ways I think it would have to work. One is basically fiscal and the other is basically monetary policy on roids. So pick your poison.
That’s pretty much been my conclusion too. I’m glad I’m not the only one who doesn’t see a whole lot to get excited about.
The expectations fairy is BS. It’s not falsifiable, not measurable, and not observable. It’s not scientific.
We can’t tell if it even works, or when it works.
“my conclusion is basically this; the Fed either has to buy assets directly from the private sector which is in some way similar to fiscal policy (like funding states through muni purchases) or they have to target long rates like they do at the short end. Ie, “the 30 year bond is 1%” or something like that and hope for credit demand to pick-up for varying reasons. ”
Aren’t even long term rates now very low though? Doesn’t it seem like at this point we have very low rates even on the long end so this is basically not available? I mean Operation Twist was done with this idea of long rates in mind, wasn’t it?
Yeah, I guess the Fed could get crazy and pin rates at something that would basically send the 30 year mortgage to 1% or something, but this still relies on credit channels to work so there has to be demand for debt. This might work, but it’s not my preferred choice right now.
It’s terrible but at some point we are going to have to show how monetary policy = real estate policy, over and over again. I do not relish writing these posts.
Cullen, I thought that pole of yours was really cool. I wonder why more econ/finance research aren’t survey-based like that. It’s interesting to see how people actually think.
Hi WH10. You don’t hang out at Pragcap any longer. Did you become convinced like many MMTers that I am out to destroy the whole world by trying to piece together what I believe is an accurate understanding of the monetary system?
Also, I think my “pole” is really cool also and I’d prefer that you not talk about it, thank you very much!
lol!!!! Again- I wish we had an edit function.
Ross, what NGDP targeting comes down to for the Market Monetarists is that expectations are everything.
If you ask them about a transmission mechanics you get accused of being overly “hdydrualic” of being “The People of the Concrete Steps.”
It’s “steppes.”
But that’s not true. They do propose asset purchases.
Oops! Right you are, it’s Steppes. They do propose QE, true. Though the resaon they think this works seems to be mostly through expectations. As I read Sumner, he has conceded QE may not do all that much but it’s effective in trasmitting to the market the Fed’s intentions.
QE is really the be all and end all of proposals-beyond simply having the Fed announce a NGDP target.
I just did a search for “concrete steppes” and I see the post to which you refer, I think:
“You want me to tell you a story in which the central bank pulls a lever, and that lever causes another lever to move next, followed by another lever, then another, spelling out a causal chain from beginning to end, where the end is a higher level of NGDP.
“But economics isn’t like that. Because people aren’t like that.”
So it’s mostly the confidence fairy, then?
That’s the exact post, and, yes.
Reading on:
“The US economy is currently in equilibrium. It’s not a market-clearing equilibrium. It’s not a very good equilibrium. But it is an equilibrium. If it wasn’t an equilibrium, it would be somewhere else. But it isn’t somewhere else, so it must be.”
If that were true then a photo of a collapsing pile of sand would show a pile of sand in equilibrium, because in that instant it was where it was and nowhere else…
Apart from his fundamentally misunderstanding complex dynamic systems, and his claim not to require any identifiable means by which his idea could actually work, I see nothing wrong here.
Ha!
“First, here is some background information about NGDP levels. David Beckworth’s chart shows the Bank of England (BoE) was extremely successful in targeting 5.3% NGDP for decades – until The Event. The BoE missed by about 10% during The Event. It’s pretty clear a central bank can be extremely successful in targeting NGDP.”
He he.
Next Sumner will claim the Bank of England controls the global temperature as well!
The graph of Beckworth is drawn so as to create an illusion that its perfect. The data shows it fluctuates around 4-6%.
http://www.ons.gov.uk/ons/rel/naa2/quarterly-national-accounts/q1-2012/tsd-quarterly-national-accounts-2012-q1.html
I should have been more careful with the log graph – I know it’s easy to be mislead using log graphs.
The next step in all of this is to go after the expectations fairy. I fully expect Scott to come back with a claim along the lines of “it doesn’t matter if NGDP level futures trade, because it’s the expectations which matter and not any actual, real world transactions. “
I need to pull out those “monetary policy sucks because it uses real estate as the transmission mechanism” posts and do them right, instead of in 10 minutes.
Right. It works through the housing channel via changes in mortgage rates.
OT, but I think this conversation is very damaging for MMT. I hope one of the MR founders might chime in.
http://mikenormaneconomics.blogspot.com/2012/07/john-t-harvey-why-you-should-love.html
You lost.
FDO,
Keep this nonsense on other sites. The last thing I want is you dragging your battles over here. I’ve had quite enough of the MMT vs MR wars. We’ve made a concerted effort not to stoke that fire so don’t bring the battle here. If you want to wage internet wars on other sites then be my guest. Just don’t do it here or at Pragcap.
Tom,
I’d appreciate it if you did the same. We’ve hashed out our differences and we disagree. That’s that. “Irreconcilable” as you said. We’re not pushing your buttons and FDO doesn’t represent our work so just do everyone a favor and put him on ignore. No one “wins” in these arguments. We just all end up looking bad. There are no winners and there never will be.
Thanks,
Cullen
My political sense it is that it would far easier to get a dole through Congress than to get politicians to go along with any NGDP sceme that allow the Fed to act fiscally, especially to the tune of $500 billion.
The problem with any NGDP scheme that could actually work is that the transmission has to involve fiscal. The Fed is not permitted to undertake fiscal other than in limited ways such as buying gold and paying IOR in non-ordinary situations.
Carlos (beowulf) has pointed out before that for the Fed to do anything fiscal beyond the ordinary, it takes an order by the Tsy Sec, which effectively involves the president in taking responsibility. The executive would be asking for trouble by endrunning Congress, probably even in his own party, and I doubt a president would approve such a plan unless it was deemed absolutely necessary before Congress could act. NGDP targeting scheme are not on that order. They are substituting fiscal for monetary to the degree they could be effective.
The difference between fiscal and monetary has been pointed out repeatedly at sites discussing NGDP and it seems to be ignored. The MM’s are substituting fiscal for monetary to the degree their schemes could be effective. Forget expectations. Dead in the water.
I won’t go into the many other political considerations but suffice it to say that anything like this would provoke a firestorm. There is just no way to sneak $500 billion in spendable funds into the economy .
“My political sense it is that it would far easier to get a dole through Congress than to get politicians to go along with any NGDP sceme that allow the Fed to act fiscally, especially to the tune of $500 billion”
Tom, I’m not, as the Market Monetarists are, opposed to fiscal stimulus at all-indeed, I’d like to see it done. However, I don’t think it’s easy at all to get a dole through Congress based on recent history. I’m not saying the NGDP targeting would be easier. In theory though, it could be.
The beauty of the Fed-in this sense-is that it can circumvent the whole political process. Maybe many don’t like that idea. But look at Volcker-he went Monetarist for a time and there was absolutely no debate about it in Congress.
If we go by what’s happened since 2008, neither are easy to get done. Both monetary and fiscal stimulus are difficult to achieve and are deemed controversial.
Two huge problems in my view. First, Congress would be giving up power, and constitutional power at that. Secondly, inflationary concerns. They think that it is borrowing before spending that prevents inflation. The Fed pouring money into the economy in addition to what they see as the Fed pouring money into the banks would run into strong opposition. Thirdly, a whole lot of people would object to this money going to “gamblers.”
Some have objected to a job guarantee on political grounds. In my view, it would be easier to get social programs through Congress than permit the Fed to run what is essentially a lottery. If there were to be a federal lottery, voters would only go for it if they thought it was sure to lower their taxes.
HOLY SHIT, Tom Hickey!
A MMT idiot just argued POLITICAL REALITY – OMG, let’s mark this day down on our calendar!
Thomas, simmer down.
It is a “Futures Market” with the top 1/3 of America – the A Power – the true Hegemony – the Tea Party – the SMB Big fish in small ponds – all gaining power while Goldman Sachs loses power.
When the god fearing Christians are for it dear boy, that is REALITY.
—–
Note: WHAT IS NOT REALITY?????
MMT pretending the A POWER the top 1/3 will ever let the govt. increase and decreases taxes wherever they want to COOL OFF the economy, after it has been handing out public sector jobs paid for with printed money.
You friggin TARD.
A Job Guarantee ONLY gets done my way, and it WILL HAPPEN because it directly benefits the top 1/3, who get to buy up all the cheap labor for pennies ont he dollar.
MY WAY weakens the government – and that is how you get things done.
Tom, get over it, I BEAT YOU.
Not until it is implemented, Morgan. Never happen because the politics. But this is no reason not to propose ideas. I am just bringing up a practical consideration.
BTW, I support MMT not because I think it is the best solution. I have made clear here and elsewhere that I am far more radical. However, I also recognize practicality and will support policy that I think will make the social, political and economic system better nationally and internationally.
As Mike said the big issue is transmission, and the transmission needs to be fiscal. There is huge legal problems standing the way of the Fed doing fiscal, which would necessitate a change in the law through the political process. Not going to happen anytime soon.
Don’t count your chickens before they are hatched. Anyone can come up with a plan. The design problem is to come up with one that works practically. This is not just economics since it involves changing not only policy but also law.
Tom, I’ved already beat the $500B argument, and your team as no response.
READ CAREFULLY, it makes you look non-responsive…. assuming you just missed it.
$500B is off the table for your side.
Next!
Morgan, see my reply to Mike Sax above.
Speaking of nonresponsive, why is no one else from “Your team” here Morgan? Usually dwb is all over the comments section.
I’m surprised there aren’t more Market Monetarists here. Scott must be preparing a response.
Sax, there is no team, there is MY PLAN. Which is stated clearly, and BEATS Michael’s now two long winded post response.
That’s it, MY PLAN works for NGDP futures… it stands supreme. Saxie, I’m very tricky at making these things precisely so that MMT folks are stuck.
It is actually a derived argument from Cochrane from a couple years ago, and Scott was so focused on getting the “information” bit right he didn’t see the bigger cooler piece, which is how the money gets removed from the system, and printed and put into the system WITHOUT the government having any control over it.
Scott gets his little precious NGDLT and the Ron Paul guys get a Fed that fucks Goldman Sachs out of their pole position (which is a pretty good consolation prize for the Gold Bugs).
THAT SAXIE is why Michael is stymied by my plan, because the REAL motivation of MMT is govt. control – and my plan accomplishes it WITHOUT the govt. getting any control, they in fact lose control.
And that’s the unstated, now stated reason that everyone on the MMT side is so silent when I come calling.
I expose them as dirty hippies, my boy… DIRTY HIPPIES.
You should learn to think for yourself Sax, note where Michael is afraid to tread.
Morgan: “THAT SAXIE is why Michael is stymied by my plan, because the REAL motivation of MMT is govt. control – and my plan accomplishes it WITHOUT the govt. getting any control, they in fact lose control.”
And you really think that politicians aren’t going to figure this out? As I have said, the Fed doing fiscal is already illegal, and the politicians would have to be convinced to change the present law.
Actually the Fed could do this without going back to Congress though they’d need approval from the President. The Gold Reserve Act gives him authority to allow Tsy or an agency it designates (let’s say… the Federal Reserve) to trade gold, foreign exchange and other instruments of credit and securities. The term “securities” is broad as a barn and certainly includes option contracts.
Remember too, the Fed is off-budget (independent of congressional appropriations committees) and has a “negative capital account” to shift any losses to, the accounting equivalent of putting them on a rocket and shooting them into the Sun.
The Fed would just be writing options–I guess they’re put options since the investor wants GDP “closing price” to be lower than option “strike price”. Losers would be out their option premiums, winners would be paid from the Fed’s bottomless checking account.
I though they might do it and call it Research. Issue is that overall at the start they will routinely be taking money off table destroying it to slow down economy, and printing to increase it – but IF they could say this is research to start like a pilot program, then when they have proof it stabilizes NGDPLT growth at 4.5%, then getting it done truly legally is easy.
GOLD RESERVE ACT
“Consistent with the obligations of the Government in the International Monetary Fund on orderly exchange arrangements and a stable system of exchange rates, the Secretary or an agency designated by the Secretary, with the approval of the President, may deal in gold, foreign exchange, and other instruments of credit and securities the Secretary considers necessary.”
http://www.law.cornell.edu/uscode/text/31/5302
SEC ACT
“The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, pre-organization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or in general, any instrument commonly known as a “security…”
http://www.law.cornell.edu/uscode/text/15/78c#a_1
“afraid to tread” is more accurately “busy at work”
Morgan, nobody will ever adopt any of your plans because you’re such a jackass. Nobody listens to you at Sumner’s place. I’m humoring you here because it’s Friday and I need a laugh. You’re pretty smart in a twisted way, but if you were really all that smart, you’d be less of a jackass.
Then, your plan of a lottery is not superior. It’s dumb, like something out of a movie which won’t ever be adopted because it is so dumb. It’s fun to think about over a beer, but in the end, it’s dumb.
One reason it’s dumb is because people will only play when the outcome is obvious. It’s also dumb to think the fed will never make a mistake under this or any plan. It’s dumb to think the economy is self-regulating except at extremes. Additionally, it’s dumb to think the fed has that much control over the economy. Then, it’s dumb to think taking money from people will be a political winner. Then it’s dumb to think sober economists like Ben Bernanke and Peter Orszag will find an NGDP lottery reasonable and give testimony in congress in support of a NGDPLT lottery. It’s not political genius – unless you count the support of the untapped unibomber faction. There’s a whole barrel of dumb in your lottery plan.
It does have at least one good point – I’ve been amused by it for a few hours.
My plan uses two things the government already does all the time, specifically raise Fed fund rates, and send out checks to people. And it’s based on a number the government already reports every quarter, the NGDP level.
Plus, Granny doesn’t lose her house. It’s a big, unappreciated plus to my plan – no grannies lose their homes.
All of Worstler’s ideas rest on his conspiratorial caricatures of America. And in those caricatures, there is some truth. There are a lot of assholes like Worstler out there in the top 1/3 for sure, but not enough for his plans to work in the real-world.
And yes Morgan, I know I am a dirty hippie, dicknose, and / or tard etc. BTW I love the latter two. The first one is not as funny.
Plus, he seems to think we are an MMT site. I hope Joe Firestone can set him straight on this fundamental error.
Boy Mike
I bet you regret, just a little, courting Sumner and his NGDP nonsense because along with Sumner comes Warstler (they may be the same guy, alter egos).
Ive seen Warstler say some ridiculous things but I think you’ve really got his goat here. He’s spending an awful lot of time TRYING to make you look silly (he’s not doing a very good job )You should be flattered, this means he’s concerned about what you say. Otherwise he’d just ignore you.
lol exactly. I said I didn’t want to write the post and now am really finding out I really didn’t want to write the post.
We haven’t banned anyone here yet, but if he starts cluttering up the comments with his ALL CAPS, he might be the first.
It’s sad because he does have good ideas sometimes. He’s not dumb. Its just his signal to noise is so low, and the noise is so annoying.
There are lots of smart people that have bad/dangerous ideas.
I find his ideas intriguing too, its just when I realize whos making them I start wondering “Well why does he like this idea so much, someone I like is likely to be getting really screwed!!”
You still haven’t RESPONDED, just babble.
Greg,, I HATE MMT, I know who you really are, I know what you are really about – and dirty hippies are dirty hippies, and I generally forget it…
But since my GI plan drew such a nice line between sanity and well MMT, I thought I’d do it again.
NOTICE: Michael literally argues that my plan wont work politically becuase GRANNY is going to blow her wad on NGDP Futures.
THAT is shitty shity shitty argument.,
Thats what you hang you hat on… Granny could blow it on Bingo, Craps, Lottery, Stock Market, anything…
And Michael PEARL of wisdom is the NGDP Futures don’t happen my way, which CRUSHES his response to Sumner, because of GRANNY.
Granny watches Fox News, and I am dialed in there, they are on my frequency.
Granny hates dirty hippies, she LOVES me.
“Thats what you hang you hat on… Granny could blow it on Bingo, Craps, Lottery, Stock Market, anything…”
That’s a fair point. But I do think when something is so directly operated by the government, when the govt is taking Granny’s money, it feels a lot different to the public.
Morgan as to your solution, it’s interesting though did you clear it with Scott -as this is his brainchild?
One reason no one is answering you in more depth is they don’t know if you speak for MM or this is just your own idiosyncratic plan.
Think of it as war-or even labor negotiations to use something always on your mind, gutting labor-no one will negotiate unless you speak not just for yourself. Otherwise it gets confusing, like Alexander Haig’s “I’m in charge here.”
Let’s discuss it Morgan my friend after you’ve sold the other Market Monetarists on this. You have actually already conceded a lot here. You are agreeing with Mike Sadowski that the plan as Scott constructed it is a huge boondoggle where Goldman nad the hedege funds can get a TARP style bailout in one day-January 30, 2009.
Again, negotiate it with Scott before you make an offer to these folks you can’t honor.
It is very simple. The Fed should set a bid ask spread for the NGDP futures. During good times, nobody trades, but NGDP is close to target anyway. During bad times there is trading, but the bid ask spread is wide enough so the Fed usually wins and when it looses it doesn’t loose too much.
You should also consider an example where
You should also consider an example where 2 year on the run futures are targeted.
Mike you may well already be aware but Sumner has an answer for you. He again insists that your big problem is you haven’t read his proposal.
http://www.themoneyillusion.com/?p=15446
“get this through your head. the top 1/3 pay ALL the taxes that actually fund the government”
See Morgan even that you’re wrong about. Everyone pays taxes, even the wino on a park bench pays consumption tax on his whiskey.
If you factor in the payroll tax and the state sales, income tax, also traffic fees, property, its not just the to third. Do you get a paycheck-I presume you do. Well you see how much money gets taken out.
The payroll is most regressive and hits the bottom 2/3 much harder.
In fact aren’t we always hearing the conservatives tell us that raising taxes on the rich is not enough-that there aren’t enough rich people to tax to close the deficit? If so then there aren’t enough to fund the government either.
Morgan, there’s no question about it, you have a bigger edge lately! Why is that I wonder? Is it because things look a lot worse for the conservative cause than just a month ago-before the Arizona and Obamacare rulings?
Now Romney is being Karl Roved! His strength-Bain-has become his weakness. You never saw liberals play so rough. Romney has been checked again and again, without mercy.
He has two moves-he can stonewall releasing his taxes or he can release them. His choice. He can only react, Obama is on the attack.
That the most conservative Supreme Court since the 20s couldn’t knock down Obamacare tels you that you’re wrong about any inevitable Right ward shift.
The country is not more conservative than it used to be. The conservatives had a good run but simply don’t haev the political capital and never will for dismantling the New Deal. The Ryan plan never happends.
Maybe this is why your “hate for the hippies” is boiling up right now. If you read the Gallup polls, which I reccomend as you say you like to discuss political reality, you see that Romney is getting no jjuice from the bad economy. By a 54-37 margin Americans want him to release his tax returns.
http://www.gallup.com/poll/155897/Majority-Americans-Romney-Release-Tax-Returns.aspx
I know you were arguing before that people like the President but they respect Mitt Romney. Unfortunately, that’s not how American politics works and you should know better.
Americans never vote for the guy they don’t like. Think about it. Right back to Reagan name me the time they voted for the guy they didn’t like respect or no? I mean people respected Al Gore.
In a way these guys here are right. Elections have consequences. You are correct as wel to focuus on November. Becuse this discussion about NGDP-or any other idea-is just academic without the political capital for it.
Actually Mike I think people like AND respect Obama. He started at the bottom, worked hard, is smart and is a good family man with two lovely daughters. With Romney, because of his money, they assume he earned it and are therefore impressed by him but as they find out more about how he earned it, like putting some of their friends companies out of business using very shady (what sounds to many as shady anyway) tactics and now learn about how he worked to avoid taxes (most Americans want low taxes but want EVERYONE to pay them, tax avoidance is a no no), Romney is just being revealed as a dickish rich guy. Not presidential material at all.
The one thing I’ll say for Morgan is at least he’s not Major Freedom. I swear MF has some kind of chemical inabalance-how does one person write that much?!
Morgan is at least entertaining to talk to and does have some decent ideas. However, I notice that even Steve Doocy is not making that arguemnt that Obama my be liked but Romney is respected on the economy.
That is a bad sign. Expecially as Gallup shows Romney gets no traction from the bad economy.
I also thing that Scott is right on political calculations over you Morgan. I notice he makes every effort not to seem like he’s just a monetary Rush Limbaugh, even calling the Republicans evil the other day as if he means that!
But his calculation tells him that he doesn’t want to become purely a partisan flavor. If he admits he’s aPaul Ryan Republcian it’s over for him, he is marginalized for any mainstream discussion
Greg of course they respect him. This is just another Right wing urban legend.
I cannot beleive that guy said the bottom 2/3 don’t matter. Without them the upper echelons would have nothing. THey do all the work and they buy all the products and services. They may not pay all the taxes but they wouldn’t have that money to pay and more without them.
dude,
go look up CONSUMPTION stats and see who buys what… it is the top 1/3. Look man, the bottom 2/3 can be “good people” and still int he scheme of things, “not matter”
What I mean is:
1. They don’t own stuff.
2. The taxes they do pay, are minimal and DO NOT cover the SS Medciare etc they get back.
3. They don’t really vote.
Look, theoreticaly is is POSSIBLE the bottom 2/3 start to vote in large numbers and get more free shit, but we all know thats when things really go to pot.
I’m not talking about what you deem is right or fair, I’m trying to just look at WHAT REALLY HAPPENS.
Becuase you all spend all your time daydreaming about Monetary policy, money itself, and GOVT suddenly worryiing about something else other than the top 1% most often…
And you worry about it so much you dont see that the top 1/3 TRUMP daily the top 1%, and it is ONLY when the bottom 2/3 keep siding with the 1% that the top 1/3 don’t get their way.
That is the problem… I just want the top 2/3 to FOLLOW the top 1/3 and really let the top 1/3 beat down the 1%.
But if we are all in agreement that the Great Recession is a problem of aggregate demand, then clearly the bottom 2/3 do matter.
THey are more like a parasite that wraps itself around it’s host and lives off it’s lifeblood.
Mike here is a piece Sumner wrote about NGDP futures back in 2010. His modus operandi is clear. He’s just going to keep saying you haven’t read his proposal.
http://www.themoneyillusion.com/?p=5796
That’s his story and I expect he will stick to it.
Keep doing what you’re doing I look forward to Part III, but don’t necessarily presume he is operating in good faith where the truth is the only objective.
Philip Pilkington has a post up today at Naked Capitalism about MM:
http://www.nakedcapitalism.com/2012/07/philip-pilkington-market-monetarism-or-an-attempt-to-speed-up-the-decline-in-real-wages.html
It’s not free shit. It is shit that they should have been paid enough to buy in the first place and maybe we wouldn’t be in this situation. All the businesses the top echelon own wouldn’t mean dick if it wasn’t for the 2/3′s labor.
you do a job, you get paid, that’s it…
there’s no extra good will left over that gives you a piece of somebody else.
If you want to think like that you can but as long as people do we will deal with problems like this.
How do you think of it then?