So on Sumner’s blog about Krugamn on liquidity traps, he says that MM’s are somewhere between extremes and engage in a battle on two fronts.
For six years Paul Krugman has been engaged in an intellectual war against the forces of evil on the right. Those who claim that monetary stimulus would lead to high inflation. Over that same period I’ve been engaged in a three-way struggle; market monetarism against the forces of misguidedness on both the left and the right.
I consider myself more intellectually fluid than to be boxed in on one side or another, being currently in the market monetarist camp because it accurately describes monetary reality, as far as I can tell. Really, that is what matters to me above all else. I am not on anyone’s “side” but mine; and at least I like to think that I’m smart enough to figure out what would benefit me the most without hurting everyone else.
We’ve taste-tested the extremes. I am old enough to remember the latter half of 1970’s. Though I was a child, I remember my parents concern for money and discussions about it over the dinner table. It is but one anecdote of how I know that nearly the entire narrative of the inflationistas is wrong. Inflation does not inspire people to be irresponsible, unless being convinced into buying gold Krugerrands at peak prices is their idea of behaving irresponsibly. I wrote a post about how I learned what a Krugerrand is and how my parents lost a ton of money on them here. Rollercoaster-ride inflation such as the 1970’s makes them feel uncertainly poor in the short run. But it isn’t the inflation – it’s the rollercoaster ride of nominal instability.
My father was a construction worker in single-family homes in Southern California when population growth there was taking off during the early 1970’s. He was never without a job until 1981. My mother made most of the clothes for my sister and me. We had a huge vegetable garden and orchard, a barn with chickens, and raised some of our own meat. My dad used to keep a safe in his closet that was stuffed to the brim with cash.
I suppose it was this kind of upbringing that got me through the worst of the Great Recession – making do with what I have or can grow and filling in the corners with things that I can buy. But I had nearly forgotten it until the crash of 2008 and finding myself in a bad situation. And of course, I wasn’t the only one who had forgotten it. My parents haven’t lived that way since 1985. Sometimes I wonder what they thought later on, looking out the back window at the fruit trees they no longer tended. Perhaps relief that they didn’t have to be such misers.
Then, we’ve taste-tested persistently tight money since 2008. I don’t have to reiterate what that feels like. But the household reaction to it is nearly identical because they both have the same cause – nominal instability.
The moderate position of market monetarism is nominal stability via stabilizing income at the macro level so that people generally do not have to feel the kind of uncertainty that motivates them to live a double life of half productivity and half subsistence farming.
For the life of me, I can’t seem to figure out what is so terribly wrong with that that the demagogues on both sides of the spectrum have such a problem with. Perhaps it is just too difficult to scare people into accepting their political agendas without uncertainty in income that hits so close to home– can’t let a crisis go to waste.
And so we have the left and the right, and the third front – average people. What do we tell them?
Well, Sumner humiliates them and tells them to buzz off. He certainly has a right to do that. But I think that Ray Lopez represents just the kind of person, victim of the demagogic extremes, he needs to talk to. Milton Friedman went on the talk show circuit. He talked to anyone who would listen. When asked why inflation was so bad, he replied that it was bad because people had not pressured the politicians into making it stop. He said that solving the problem starts at the ballot box – but doesn’t end there. And guess what. They heard him. New Keynesianism wasn’t born out of nothing. It was born out of the response to a changing political reality. (And no, I am not suggesting that Friedman was the father of New Keynesianism – it was one of those unintended consequences.)
Today, just exactly where is the Milton Friedman of our generation?
I think I hear crickets chirping.
PS: I am very sad to hear the news about the latest victims of political demagoguery – two NYPD officers were shot execution-style while in their cruiser, robbing their families of sons, husbands, and fathers. My prayers and thoughts are with their families. I have made a donation to the Patrolmans Benevolent Association’s Widows and Children’s Fund on their behalf.