I’m currently at a blogging conference in Berkeley. Meeting people here pushed me to think about how to summarize my blogging. Another way would be to list a bunch of outlandish claims I’ve made in various posts over the past 15 years:
1. The Great Depression is often linked to the financial crisis, but it was actually caused by tight monetary policy.
2. Monetary policy is often linked to interest rates, while 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 business cycle forecasters. In fact economists cannot predict recessions and major moves in the currency, nor should they try.
4. Commodity price bubbles are widely seen as occurring in various markets, when in fact bubbles do not exist.
BTW, none of these claims are exactly true, they are all true useful true measurements—true in the sense that Newtonian mechanics are approximately true (though less accurate than Newtonian mechanics.)
I could add many counter-arguments to this list (financial multiplier is close to zero, price increases are good for consumers, etc., etc.), but I will focus on this 4. Should we think of this “market capital” model as something like MMT—a heterodox model that rejects textbook economy? I do not think so.
In an article discussing his battle with defenders of the Clinton administration, Paul Krugman gave this advice:
(ii) Adopt the status of a renegade: Nothing plays worse in our culture than appearing to be a staunch defender of old ideas, no matter how true those ideas may be. Fortunately, at this point the belief of academic economists is a very small position among intellectuals in general; one can appear to be a brave person, boldly challenging the powers that be, by reciting the contents of a standard book. It worked for me!
That really touched me. All of my most controversial ideas are built 100% from the building blocks of mainstream economics. In my blog posts (and in The Money Illusion book) I often cite popular textbooks and claims made by major economists that do not hold my unorthodox views. I point out that even if they don’t agree with me, what I say is a natural result of many things they have written and said over the years. In that sense, market monetization is not the same as MMT. It is also quite heterodox; but only in its conclusions, not in terms of its basic model.
Another way to think about my blogging is in terms of some of the basic “tools” that have allowed me to reach these controversial claims:
1. Never think about price changes
2. Financial decline
3. The efficient market hypothesis
You can say that my blog is about applying these tools to various problems. For example, all three tools contributed to my conclusion that the Fed caused the 2008 recession. Never the reason from the price change allowed me to look at the situation without being misled by the low and falling prices. The EMH allowed me to see that almost all stock markets were showing that money was very tight. And I understood that the central bank could and should have used monetary policy to do so offset a drag on the economy (especially NGDP) caused by other factors such as a downturn in the property market.
I am sometimes associated with promoting the direction of NGDP. But most economists like NGDP guidance (much more so than when I started blogging). It’s the controversial claims that make my blog unique.
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