Thursday , September 19 2019
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The author Scott Sumner
Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment".

S. Sumner: Money Illusion

The ECB cut its IOR to minus 0.5%; it should have been minus 50%

The ECB should stop playing around with negative interest rates and simply put a prohibitive tax on excess reserves (something I proposed in 2009). If a small amount of excess reserves are needed to clear interbank balances, then exempt a modest amount of bank reserves from the negative 50% interest rate (aka 50% tax rate.)   It’s time to abandon interest rate targeting and move to a monetarist approach to policy. In the short run, this heavy tax would lead banks to convert...

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More on Trump and trade

This Politico story caught my eye: President Donald Trump’s top advisers are rushing to find an escape hatch for a series of tariff increases in the coming months, worried about the potential for further economic damage.Many of the president’s top economic officials are trying to resurrect the terms they previously were negotiating with China, a deal officials said was “90 percent” done before a sudden impasse this summer, according to a person familiar with the discussions....

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My new Mercatus paper on IOR

I have a new Mercatus policy brief discussing interest on bank reserves. Here’s an excerpt: After the Fed adopted a policy of IOR in late 2008, I argued that the interest rate should be set at a negative level. At the time, many scoffed at this suggestion, doubting whether the effect would be expansionary. After all, negative IOR is a tax on reserves, and we normally think of taxes having a negative impact on the economy. But money is very different from other goods. Less demand...

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Land of bridges and tunnels

Guizhou is a relatively poor province in southwestern China, with lots of long tunnels and high bridges. And when I say “southwestern China”, I actually mean southeastern China, just as “midwestern” states like Ohio are actually eastern states. Last week I traveled to Guizhou, and this overly long blog post will offer some random observations on everything from economics to travel tips. 1. The World in a Day For most of human history, it was impossible to grasp the range of the...

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Bullard on the Fed’s policy reappraisal

St. Louis Fed President James Bullard recently had some interesting comments in response to this question: What will policymakers at the Fed do with the information gathered during this whole review? I think the code word here is evolution, not revolution. I don’t think we want to give the impression that we’re going to overturn the current Fed operating framework or strategic framework overnight. I don’t think that’s realistic or desirable. But I do think that many of...

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Five facts about China

I just returned from 8 interesting days in Guizhou, and I’ll do a longer post on my trip when I have time. But first I’d like to comment on a picture I took before my Guizhou side trip, showing a wall a few blocks from Tiananmen Square: The picture illustrates 5 facts about China: 1.  The Chinese like the color red. 2.  The Chinese like to illuminate public buildings from below for dramatic effect.  More broadly, they like to brightly (and colorfully) illuminate their cities...

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Random notes

1. The FT on Boris, pt. 2 A few days ago, I said this: Imagine a Democratic president with dictatorial powers. What would a President Sanders or Warren do if there were no restraints on their power? Yesterday, the FT said this: Mr Johnson’s move may not be a “coup” but Tories cackling over this wheeze might ponder how they would view a leftwing government under Jeremy Corbyn taking the same step.. .There are reasons conventions survive. All sides know that the...

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What’s fueling the rise in anti-Chinese hysteria?

How do Americans form their views of China? I see two possibilities: 1. They look at Chinese behavior, and form their views on that basis. 2. They take their cue from American politicians and pundits, who try to whip up anti-Chinese hysteria. There’s actually an easy way to distinguish between these views. Chinese behavior has not changed significantly in the last year or two, but anti-Chinese propaganda has increased dramatically. So if we look at the attitudes...

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Rococo revival in Tianjin

Ten years after my previous trip to Tianjin, I returned for a second time. This time my primary goal was to visit the Binhai ghost town, one of the two most famous ghost towns of China (the other being Ordos.)   Tianjin is almost a poster child for the sort of reckless Chinese malinvestment that people like Michael Pettis often point to. In the Binhai section of town (about 25 miles from downtown Tianjin) there’s a huge forest of mostly empty skyscrapers on both sides of a big...

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The FT on Boris

If you thought things were bad in the US, consider the UK. Here’s the FT: If Mr Johnson’s prorogation ploy succeeds, Britain will forfeit any right to lecture other countries on their democratic shortcomings. The UK’s constitutional arrangements have long relied on conventions. The danger existed that an unscrupulous leader could trample on such conventions. That has not happened, in the modern era, until now. Parliamentarians must seize their opportunity next week to...

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