Tuesday , August 4 2020
Home / S. Sumner: Money Illusion / Things could be worse

Things could be worse

Summary:
When all the news seems bad it helps to think about earlier periods of history, such as 1913-14. Imagine if I had been blogging back then and saw this news play out over 18 months:1. The US makes narcotics illegal, and launches a war on drugs in 1914. A horrific disaster.2. The US passes an income tax in 1913—another disaster.3. The US creates the Federal Reserve in 1913. I’m not in the “abolish the Fed” camp. But dear God, don’t combine the Fed with a gold standard regime!4. Europe launches a completely, 100%, useless World War in 1914, and the US joins soon afterward.5. Wilson assumes the presidency in 1913. Wilson was a near perfect mix of someone being wrong on civil rights, wrong on civil liberties, wrong on economic policy and wrong on foreign policy.So while

Topics:
Scott Sumner considers the following as important:

This could be interesting, too:

Menzie Chinn writes Guest Contribution: “The impact of the pandemic on developing countries”

Tyler Cowen writes Monday assorted links

Tyler Cowen writes Nursing home networks and Covid-19

Tyler Cowen writes The Great Psychometric test continues (U.K. fact of the day)

When all the news seems bad it helps to think about earlier periods of history, such as 1913-14. Imagine if I had been blogging back then and saw this news play out over 18 months:

1. The US makes narcotics illegal, and launches a war on drugs in 1914. A horrific disaster.

2. The US passes an income tax in 1913—another disaster.

3. The US creates the Federal Reserve in 1913. I’m not in the “abolish the Fed” camp. But dear God, don’t combine the Fed with a gold standard regime!

4. Europe launches a completely, 100%, useless World War in 1914, and the US joins soon afterward.

5. Wilson assumes the presidency in 1913. Wilson was a near perfect mix of someone being wrong on civil rights, wrong on civil liberties, wrong on economic policy and wrong on foreign policy.

So while it’s hard not to be depressed by two buffoons running for president, or the US sleepwalking into an insane cold war with China, or the global rise of nationalism and statism, things could be even worse.

The world has made lots of progress in social policies since 1912 (more rights for women, blacks, gays, etc.), which I certainly don’t want to discount. But 1912 was a sort of golden age for economic policy. My dream monetary system is basically 1912 plus NGDPLT:

1. Abolish reserve accounts at the Fed. Make the base 100% currency, as in 1912.

2. Abolish FDIC and TBTF and 100% deregulate the banking/financial system.

3. Use open market operations to adjust the currency stock, using my NGDP futures “guardrails” approach, to keep one-year forward NGDP expectations on target.

And that’s it. The government’s role in our entire monetary/banking/financial system would boil down to just one item. Adjust cash to keep NGDP expectations growing at 4% a year. That’s all. A libertarian paradise. (Of course Bob Murphy would probably regard my proposal as socialism.)

My broader proposal is that we go back to treating people like grown-ups, and see if that makes them act more like grown-ups. Two weeks ago, I was told that one needs a photo ID to buy a 6 pack of O’Doul’s beer. This “beer” is less than 1/2% alcohol. (At this point my European readers are trying to decide whether they are more shocked that Americans would not allow a 20 year old military veteran to drink non-alcohol beer, or by the fact that their favorite cranky blogger has taste in beer that is appalling even by American standards.)

Saudi Arabia now allows women to drive. The Chinese can now have more than one kid. But America still doesn’t allow 20-year olds to buy O’Douls beer. I’m praying for a dino-asteroid to put us all out of our misery.

PS. I sometimes paddleboard in an 11-foot long inflatable device that could support a football player. Last week I was scolded by a patrol boat for not carrying a life preserver on my paddleboard, while on a “lake” where one is never more than 100 yards from shore. I’m 64 years old.

Just shoot me.

Things could be worse

PPS. Remember when we were warned that Bernie Sanders would bring us trillion dollar spending increases?

Senator Ted Cruz of Texas told CNN he’s a “hell no” on a $1 trillion package, while Rand Paul of Kentucky told another reporter that Republicans were acting like “Bernie Bros” behind closed doors as they discuss among themselves how many hundreds of billions to spend, a reference to ardent supporters of Senator Bernie Sanders, a self-described democratic socialist.

PPPS. Where does North Carolina go to get its apology?


Tags:

 
 
 
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".

Leave a Reply

Your email address will not be published. Required fields are marked *