I’m currently at a blogging conference in Berkeley. Meeting people here got me thinking about how I would summarize my blog. One approach would be to list a set of unconventional claims I have made in various articles over the past 15 years:
1. The Great Recession is usually linked to the financial crisis, but it was actually caused by restrictive monetary policy.
2. Monetary policy is generally linked to interest rates, whereas interest rates have little or nothing to do with monetary policy, which is best described in terms of nominal GDP.
3. Economists are often seen as people who predict the business cycle. In fact, economists are incapable of predicting recessions and major changes in inflation, and should not even try.
4. It is widely believed that asset price bubbles occur in various markets, when in reality bubbles do not exist.
BTW, none of these statements are precisely true, they are all useful approximations to reality – true in the sense that Newtonian mechanics is approximately true (although much less precise than Newtonian mechanics.)
I could add many more contrarian views to this list (the tax multiplier is close to zero, price gouging is good for consumers, etc., etc.), but I will focus on these 4. Should we think about this “monetarist market” model? as being analogous to something like MMT – a heterodox model that rejects economic textbooks? I do not think so.
In an essay about his battle against the protectionists of the Clinton administration, Paul Krugman offered this advice:
(ii) Take the rebel stance: There is nothing worse in our culture than appearing to be the staunch defender of old ideas, no matter how true they may be. Fortunately, at this point, the orthodoxy of academic economists constitutes a very minority position among intellectuals in general; one can sound like a courageous maverick, boldly defying the powers that be, while reciting the contents of a standard textbook. It worked for me!
This really spoke to me. All of my extremely controversial ideas are built 100% with standard economic building blocks. In my blog posts (and in The illusion of money book) I frequently cite popular textbooks as well as the assertions of mainstream macroeconomists who do not share my unconventional views. I show that even if they disagree with me, my assertions are the natural implication of many things they have written and said over the years. In this sense, market monetarism has nothing to do with MMT. It’s also quite heterodox; but only in its conclusions, and not in terms of the underlying model.
Another way to think about my blog is to consider some even more basic “tools” that have allowed me to reach these various controversial claims:
1. Never reason about a price change
2. Monetary compensation
3. Efficient markets hypothesis
You could say that my blog aims to apply these tools to a wide variety of problems. For example, these three tools played a role in my conclusion that the Fed caused the 2008 recession. Never reasoning from a price change allowed me to examine the situation without thinking about it. be fooled by low and falling interest rates. The EMH allowed me to see that almost all asset markets were signaling that money was too tight. And I understood that the central bank could and should have used monetary policy to compensate for the drag on the economy (especially the NGDP) caused by other factors such as the decline in the real estate market.
I am sometimes associated with advocating for NGDP targeting. But many economists favor targeting the NGDP (much more than when I started blogging). It’s the controversial statements that make my blog distinctive.
