A summary of my blogging – Econlib

I’m currently at a blogging conference in Berkeley. Meeting people here has made me think about how I would summarize my blogging. One approach would be to list some unconventional claims I’ve made in various posts over the past fifteen years:

1. The Great Recession is usually related to the financial crisis, but was actually caused by tight monetary policy.

2. Monetary policy is usually linked to interest rates, while interest rates have little or nothing to do with monetary policy, which is better described in terms of nominal GDP.

3. Economists are often seen as predicting the business cycle. Economists are essentially unable to predict recessions and large movements in inflation, and should not even try.

4. It is widely believed that asset price bubbles occur in various markets, when in reality bubbles do not exist.

By the way, none of these statements are exactly true, they all are usable approximations of reality – true in the sense that Newtonian mechanics is approximately true (albeit much less accurate than Newtonian mechanics).

I could add many more contrarian views to this list (the budget multiplier is almost zero, price gouging is good for consumers, etc., etc.), but I’ll focus on these. 4. Should we think about this “market monetarist” model? as analogous to something like MMT – a heterodox model that rejects textbook economics? I do not think so.

In an essay discussing his battle with protectionists in the Clinton administration, Paul Krugman offered this advice:

(ii) Adopt the attitude of rebellion: There is nothing worse in our culture than being the apparent defender of old ideas, no matter how true those ideas may be. Fortunately, the orthodoxy of academic economists on this point is very much a minority view among intellectuals in general; you can give the impression that you are a courageous maverick, courageously challenging the powers that be by reciting the contents of a standard textbook. It worked for me!

That really appealed to me. All of my wildly controversial ideas are built 100% from standard textbook economics building blocks. In my blog posts (and in The money illusion book) I regularly quote popular textbooks, as well as the claims of mainstream macroeconomists who do not endorse my unconventional views. I show that even though they may disagree with me, my statements are the natural implication of many of the things they have written and said over the years. In this sense, market monetarism is nothing like MMT. It’s also quite heterodox; but only in the conclusions, not in terms of the underlying model.

Another way to think about my blogging is in terms of some even more basic “tools” that allowed me to arrive at these various controversial claims:

1. Never reason based on a price change

2. Monetary compensation

3. Efficient market hypothesis

You could say my blog is about applying these tools to a wide range of problems. For example, all three tools played a role in reaching the conclusion that the Fed caused the 2008 recession. Never have I been able to reason through a price change to look at the situation without being fooled by low and falling interest rates. The EMH showed me that almost all asset markets were signaling that money was too tight. And I understood that the central bank could and should have used monetary policy for that compensated the drag on the economy (particularly the NGDP) caused by other factors such as a decline in the real estate market.

I am sometimes associated with the advocacy for NGDP targeting. But many economists are in favor of NGDP targeting (much more so than when I started blogging). It is the controversial claims that make my blog distinctive.