The Fallacy of Market Monetarism | Robert P. Murphy
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- Опубліковано 28 лип 2022
- The original Monetarists (Milton Friedman), Scott Sumner, and problems with Market Monetarism.
Download the slides from this lecture at Mises.org/MU22_PPT_38.
Recorded at the Mises Institute in Auburn, Alabama, on 29 July 2022.
Robert’s lectures make this content come alive. Always thrilled to listen!
Market monetarists do not ignore money altogether. They claim that money represents the supply-side, while demand for money represents the demand side for money. While the money supply increased during the Great Recession, it did not increase at the rate of money demand, hence velocity fell. Murphy didn't point out that, for example, the Fed kept the Fed Funds rate at 2% even after Lehman failed, and while NGDP was falling at an 8% annualize rate.
Bob is the GOAT!
You imply that Scott Sumner is happy about the massive growth in the money supply. In fact he's argued against this and written many times that when the fed moved to a floor system, the money supply was bound to increase a ton. He's been critical of this, and argued for a corridor system in which much smaller increases in the money supply would result in greater NGDP and inflation growth
More Bob please
Loving the mutton chops
wtf mutton chops + mustache + goatee = full beard!
If the Fed drops rates to zero, how can it be seen as too tight? That flies in the face of common sense.
That sort of tells you who are the Feds really loaning money to. They aren’t loaning money to the public at large that’s for sure. They are loaning it to their central governments by purchasing government debt.
"tight" or "loose" money is always relative to the natural rate of interest. The natural rate of interest is something that cannot be measured, only through the Fed's stochastic models
If short-term interest rates > Natural rate of interest => Monetary policy is tight
If short-term interest rates < Natural rate of interest => Monetary policy is loose
If short-term rates are 0%, but the natural rate of interest is -1%, then the Fed can still be too aggressive
@@gregorybainathsah7284 yeah that’s the monetarist theory, and really that’s the main point of contention with that school of thought. Austrian economics says that the Fed existing and loaning money, at any interest rate, is a market disrupter and will inevitably cause problems. Without the existence of the Fed, the entire market would behave differently. I don’t have enough knowledge to say if that would have been better or worse over the last century, but I am able to look at that history and point to actions and policies the Fed had and see how it caused economic downturns, and even worse.
Did you watch the video ? If the NGDP (Nominal GDP) increase is below 5% it means that the FED policy is too "tight". So by their logic, if the FED already put interest rates down to 0% it means they should lower it even more up until they reach the targeted NGDP growth of 5%. It's, at least what I understood from the video.
@@shakya00 yes, I was pointing out the absurdity.
I like Jeff Gundlach’s idea: abolish the Fed and set FFunds rate = 2 yr yield
Beyond monetary policy, supply side conditions and the velocity of money seem to control or indicate measures of economic activity and GDP growth. This is consistent with the animal spirits of human action.
gotta love Bob!
35:21 _"Real GDP is falling."_
_While some say that GDP is falling because the current number is lower than the previous number, that's neither the official definition nor the way mathematicians look at numbers. As we like to say in this administration, the GDP is merely transitioning to a lower threshold. So, yeah, it's all transitory. Next question!_
Yet another mistake Murphy makes here is stating that Sumner claims that if there's a recession, and NGDP falls, it's necessarily due to tight money. That's not true. Sumner argues that the expected growth path should be constant, not that NGDP has to be constant every single year. He was very clear about this during the pandemic recession, which was impossible to prevent with monetary policy. Keeping expected NGDP growth on trend prevents a nominal shock in addition to the real shock. Monetary policy cannot prevent real shocks, nor recessions caused by real shocks.
Market Monetarists don't ignore neither money-supply nor the velocity of money.
There's way more to money than the money-supply.
I wonder if sumner believes free markets would he object to setting bond rates at reverse auction and eliminating the fed? Or even just setting the feds overnight rate at something like double the rate for t bills rather than having powell or anyone else set the rates or is that 2 radical
Murphy has only succeeded in confusing himself. That confusion stems from the simple misunderstanding of what interest rates are, or more importantly, what they are not. The distinction was made clear in a famous debate at NYU in 1968, between Milton Friedman and Walter Heller (formerly the head of the Council of Economic Advisers to JFK) A debate that can be read online. In which, Heller makes the flat statement that, 'Interest rates are the price of money.' In his rebuttal Friedman explains in plain English (as was his wont) why Heller is wrong. I.e., interest rates are not 'the price' of money in terms of buying money, but only of renting money. The two different prices of money often move in opposite directions, which is why conducting monetary policy with a focus on interest rates isn't reliable.
Consider a grocery store owner who has been 'buying' $1 with one loaf of bread, but finds after consulting his accountant he is suffering financial losses at that price. So, he decides to cut the price he is willing to pay for $1 to only half a loaf of bread--i.e., to sell a loaf for $2 in his store. If he succeeds, and other retailers find the same thing, that will put upward pressure on interest rates--i.e., the price of renting money will go up. This is because people with money to lend will not want to be repaid with money that is worth less than what it was when it was lent out. I know from discussions with Scott Sumner that he understands this monetary dynamic. I also know that Milton Friedman did too, because he told me he agreed with me when I presented the above analysis to him. Milton and Rose's son David, also understands it, because he explicates it in his Price Theory textbook (Chapter 22, iirc).
Friedman prescribed that Central Banks should target monetary aggregates such as M! or the Monetary Base at a growth rate that would give price stability. That proved to be problematic when changes in technology made it difficult to control those aggregates. Scott Sumner prescribed using Nominal GDP as the target instead, again at a rate that would produce a long run inflation rate of 2%. Sumner and Friedman both agree that inflation is a monetary phenomenon, they simply disagree on what is the better target.
They also agree that interest rates are a lousy target. Ben Bernanke's academic papers also conclude that interest rates are not a reliable indicator of the stance of monetary policy, but he seemed to forget that when he became Fed Chairman.
If prices are rising it means that purchasing power of currency is falling, money supply needs to contract to reach equilibrium hence rising interest rates. All totally normal market phenomena
@@TheMoroPL Your comment is not responsive to mine. Interest rates are not 'the price of money'. If prices (or some index like the CPI) are rising, that is also, by definition, the 'price of money' dropping. I.e., Goods and services buy more money now: If a grocery store had been buying $1 with a loaf of bread, but finds it can charge $2 for the same loaf, because of a larger amount of money circulating, then it is now buying $1 with only half a loaf. That, ceteris paribus, will give impetus to a rise in interest rates, not a decline.
Murphy should have pointed out how he was one of the people incorrectly predicting high inflation rates in the aftermath of the Great Recession. In fact, inflation rates were below the Fed's 2% target for alomst every moment during recovery. Murphy doesn't understand macroeconomics.
Yes, but he generally admitts it in a lot of his talks about GR.
"High' relatively, since the rates did rise a quarter of a percent for a time, peaked, and they dropped it.
And they predicted high inflation rates because *that is what should have been done*.
OK so it's like "you obviously didn't pray hard enough 'else you'd be out of that wheelchair."
Austrians need to address the eurodollar system. It is money.
I am
Wisdom of crowds lol
No one market participant needs to understand much, if anything, about what's going on in the economy to simply follow economic incentives that results in an aggregate implicit expectation of economic growth. Murphy doesn't undersand free markets, ironically, despite being an extremist libertarian.
I don't think that's a lack of understanding, it's just an actual disagreement with the notion that people expect a stable price level, which transitively in the Sumnerite view would mean an "implicit aggregate expectation" (that phrase seems suspect) of a particular NGDP growth rate. If price stability isn't required to facilitate exchange, but rather is something people can and are willing to contract for if they individually want it, having a single inflationary currency is still worse than competing, or even deflationary currency. That's not a misunderstanding, it's the view of some Austrians, however much you might disagree.
With JWST and LHC showing us how wrong Newton is...shouldn't we swap to Leibniz?
We have ten whole, rational numbers 0-9 and their geometric counterparts 0D-9D.
0 and it's geometric counterpart 0D are:
1) whole ✅
2) rational ✅
3) not-natural ✅
4) necessary ✅
1-9 and their geometric counterparts 1D-9D are:
1) whole ✅
2) rational ✅
3) natural ✅
4) contingent ✅
Newton says since 0 and 0D are "not-natural" ✅ then they are also "not-necessary". 🚫
Newton also says since 1-9 and 1D-9D are "natural" ✅ then they are also "necessary". 🚫
This is called "conflating" (similar words but different definitions) and is repeated throughout Newton's Calculus/Physics/Geometry/Logic.
Leibniz does not make these fundamental mistakes.
Leibniz's "Monadology" 📚 is 0 and it's geometric counterpart 0D.
The Egyptians, Syrians, Greeks, Mathematicians, Plato (the Good at top of 0D-3D pyramid) and don't forget Jesus and John all speak of the Monad (0 and 0D).
0D Monad
1D Line
2D Plane
3D Volume
We should all be learning Leibniz's Calculus/Physics/Geometry/Logic.
Matches quantum physics and cosmogony and cosmology.
Isn't that the Theory of Everything?
Fibonacci sequence starts with 0 for a reason...