Saturday , September 19 2020
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With friends like these . . .

Summary:
Here’s Steve Hanke in the National Review: President Trump has no more knowledge of monetary policy than he does of nuclear physics. Nevertheless, he has been ahead of the curve in pushing for easier monetary policy over the last few years, and the Fed has been behind the curve in implementing it. The Fed’s recent revision of its monetary-policy strategy is an indirect admission of its shortcomings. It pains the professionals to admit that an amateur has been right more often than they have. If it’s any consolation, Trump’s naïve view has coincided with the far more thoroughly considered views of the small group of “market monetarist” economists. My view of Shelton’s statements is not that she has changed her views in response to pressure from the White House, but that she

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Here’s Steve Hanke in the National Review:

President Trump has no more knowledge of monetary policy than he does of nuclear physics. Nevertheless, he has been ahead of the curve in pushing for easier monetary policy over the last few years, and the Fed has been behind the curve in implementing it. The Fed’s recent revision of its monetary-policy strategy is an indirect admission of its shortcomings. It pains the professionals to admit that an amateur has been right more often than they have. If it’s any consolation, Trump’s naïve view has coincided with the far more thoroughly considered views of the small group of “market monetarist” economists. My view of Shelton’s statements is not that she has changed her views in response to pressure from the White House, but that she has come to a greater appreciation of market monetarist-type reasoning.

So Trump should nominate David Beckworth.

I do appreciate that Steve Hanke saying nice things about market monetarists, but I hope readers don’t associate us with the monetary policy views of Donald Trump. Market monetarists believe that interest rates should be set at a level expected to lead to stable NGDP growth. Trump’s view is that the Fed should raise interest rates when Democrats are in power (even if unemployment is high) and cut them when Donald Trump is in power (even if unemployment is very low.) Those are two radically different views of monetary policy. Trump is not a market monetarist.

I have no idea what Judy Shelton believes, so I won’t comment.

Far too much weight is put on whether someone was “right” on one occasion. Perhaps this analogy would help. There are two clocks in the room, the Trump clock and the Powell clock. The Trump clock is broken, stuck at 11.37am. The Powell clock is working but runs two minutes slow. A person enters the room at exactly 11:37am and announces that the Trump clock is more accurate. There’s a sense in which that’s true, but it’s also a sense with utterly no implications going forward.

PS. As usual, my good post today is at Econlog.

HT: Sam Bell


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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".

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