Yes, we’d all be better off if the short-long trade was outlawed and banks issued bonds on a liquid market, possibly insured by private counterparties, to their customers, instead of claiming that their money was available on demand. But nobody is actually doing that, or has any incremental incentive to adopt it so long as governments supply free insurance, and we have to consider what second-best options are available. Money has no intrinsic value (I assume we both take this as axiomatic) and the utility ‘money’ provides to civilization comes from increasing the number of positive-sum trades. When people attempting to use money as a guaranteed store of value keep that money instead of spending it, the velocity of positive-sum trades goes down. This doesn’t mean that they’re evil hoarders, though I do think that preferring money as a store of value generally indicates something wrong. But it does mean that supplying more money is a positive-sum move because it increases the number of positive-sum trades occurring, so long as there is significant unutilized capacity.
To the degree that money is used as a store of value, the money supply available for ‘positive-sum’ trades decreases. Let us say that the supply of goods and services on the market stays the same, then with less money available to potentially purchase theses goods and services, the price of the goods and services decreases; microeconomics supply and demand curve. This incentivizes people who are not holding money as a store of value to participate in more positive-sum trades.
Of course, people might end up taking their store-of-value money and investing it, allowing the creation of capital goods that make more efficient production possible. But that’s another story.
Hence the standard belief that reluctance to lower nominal prices, or delay in lowering nominal prices, is key (along with nominal debt contracts) to explaining the observed fact that deflation is destructive of RGDP, which is why Scott Sumner’s blog is called “The Money Illusion”.
This doesn’t mean that they’re evil hoarders, though I do think that preferring money as a store of value generally indicates something wrong.
Well, that’s the core of our disagreement (indeed, my disagreement with anyone who buys into either the Sumner or Krugman view).
Specifically, on what basis can you even begin to make a case that there is “too much” hoarding without a framework for tabulating its benefits? That’s like saying that someone isn’t “eating healthy enough” while only counting the benefits of eating healthy.
And yet (as best demonstrated by the Landsburg link), any time such proponents are asked how to tabulate the relative benefits of hoarding to hoarders against its social costs, the answer is somwhere between silence and “assume we want to get people spending”.
That should be a much bigger red flag for you in the opposite direction.
I don’t think you’re engaging your opponents strongest arguments here. Yes most proponents (even economists or scott sumner) of active monetary policy can’t articulate why it might be a good idea that is solidly grounded, but other people can (myself, nick rowe, other market monetarists or the austrian monetary desequilibriumists), and you should engage the arguments they make.
I know you know of a way to tabulate the benefits because we’ve had extensive discussions about it. The benefits are the marginal utility of holding money (convenience etc.), the costs/benefits are the changes in money holdings you impose on other people when you trade or don’t trade with them.
I don’t think you’re engaging your opponents strongest arguments here. Yes most proponents (even economists or scott sumner) of active monetary policy can’t articulate why it might be a good idea that is solidly grounded, but other people can (myself, nick rowe, other market monetarists or the austrian monetary desequilibriumists), and you should engage the arguments they make.
Hold on—Sumner is the one everyone refers back to when advocating monetary policies he likes, he’s blogged about it for years, at tremendous length, starting from the crisis, he’s become (supposedly) influential in policy circles, and you’re saying I’m attacking a weak point? Sumner is exactly who I should be engaging, which is why it’s all the more saddening that his arguments fail simple checks:
Doesn’t this mean the Fed should be loaning to any ol’ person who can put up the collateral at 0%, not just large banks?
Why is it bad to “hoard” money for a year, but not five days? Why 5% NGDP growth and not some other number?
Why is it a “crisis” when interbank short-term loan rates “spike” from 4% to 6%? That just means their borrowing cost went up in the parts per million. (His entire response to this was something like “yes, ‘for want of a nail’ and all that”.)
If more exchanges are good, why aren’t hyperinflation scenarios (in which people treat money as a hot potato) a social optimum? (Or lesser scenarios that make people trade more than they otherwise would, like bans on home cooking.)
I know you know of a way to tabulate the benefits because we’ve had extensive discussions about it. The benefits are the marginal utility of holding money (convenience etc.), the costs/benefits are the changes in money holdings you impose on other people when you trade or don’t trade with them.
No, those weren’t the main benefits of holding money, and your citing of them means I somehow didn’t communicate the benefits to you. On your specific illustrative examples of convenience in our past discussion, I found them to completely assume away the important social benefits of hoarding.
In short, every example you gave was a case in which people knew in advance what they were going to spend the money on (e.g. having money for the bus). But these are emphatically opposite of the cases where money is most important and uniquely valuable—i.e., when you don’t yet know what you wish to redeem the money for and prefer to keep its option value.
The main benefit of holding money is that it signals the higher social demand for option value, which in turn is indicative of “discoordination”, or the lack of confidence that people can find stable comparative advantages. Money is only the extreme end of a scale that includes goods of increasingly multiple use—but in such scenarios, anything if valued if and to the extend that it will be useful in a broader array of situations.
You can suppress that signal, but only by worsening the economic allocation problem, just as you can suppress spiking oil prices, but only by shifting around the inefficiencies.
So I don’t think anyone, including you, has really engaged with the benefits of hoarding and so don’t have a satisfactory framework for evaluating whether there’s “too much”.
I phrased that badly. You’re not engaging a weak point so much as not steelmanning, which is what you should be doing. Fix your opponents arguments.
Yes, everyone refers to Sumner. He is the popularizer of market monetarism. Yes, Sumner doesn’t produce a defense of his views that is solidly grounded in economics. He is none the less vastly better than most people talking about this.
You should say things like ‘The best arguments for Sumners views are made by Nick Rowe and others (link to work or something) and are sometimes called ‘monetary disequilibrium theory’, however I think that this theory misses the important effect of Discoordination which works like this …’.
Basically no one discussing monetary economics (including the Austrians and others against active monetary policy) manages to ground their arguments in solid theory except Nick Rowe, a couple other market monetarists and the monetary disequilibriumist Austrians. The quality of debate is bad, but that doesn’t mean its OK for you not to engage the strongest arguments.
I found them to completely assume away the important social benefits of hoarding.
And that’s fair enough. I didn’t get that you were referring to that.
However,It is highly misleading to say
I don’t think anyone, including you, has really engaged with the benefits of hoarding and so don’t have a satisfactory framework for evaluating whether there’s “too much”.”
Because monetary disequilibrium is an internally consistent theory which does talk about the benefits of holding money and which can assess whether people hold ‘too much’ or not within the theory. You do not appear to deny this.
As far as I can tell, you additionally claim that this theory does not describe the important effects of Discoordination which provide additional social benefits to holding money. This is well and good! You should acknowledge what monetary disequilibrium theory does do well, and then attempt to improve upon its deficiencies. I’m actually very interested in hearing those arguments!
Your previous posts do not make this at all clear that this is what you were arguing, even to me. Since I probably know more about your views than anyone else other than you, this means they were probably also unclear to everyone else.
You’re speaking language I don’t recognize. This has nothing to do with ‘hoarding’. It’s about sticky nominal prices and fixed nominally priced debt contracts implying that when monetary velocity goes down, monetary supply should be increased to maintain the velocity of positive-sum trade at full capacity. Nothing you’ve said contradicts this, at least not in any language I recognize.
I would say your language is at least as unrecognizable if you’re going to propose measures to stop people from hoar… not spending money fast enough, while saying the problem “isn’t about that” (another red flag term), but instead “really about” this other new thing you just brought up.
Regardless, about that thing: yes, it certainly sucks when you can’t retroactively change the numbers in a contract you signed, and don’t understand how it embrittles your business plan to guarantee a stream of payments like that. However, sane policies should not favor those who failed to plan against eventualities, nor are sane economies predicated thereon.
I’m afraid that you do have to employ the concept of hoarding (or some isomorphic one) when you want to claim that welfare-enhan… positive sum trades are maximized when NGDP grows at n% like clockwork, regardless of how unmoored the economy has become, for some value of n that Sumner pulled out of thin air.
Yes, we’d all be better off if the short-long trade was outlawed and banks issued bonds on a liquid market, possibly insured by private counterparties, to their customers, instead of claiming that their money was available on demand. But nobody is actually doing that, or has any incremental incentive to adopt it so long as governments supply free insurance, and we have to consider what second-best options are available. Money has no intrinsic value (I assume we both take this as axiomatic) and the utility ‘money’ provides to civilization comes from increasing the number of positive-sum trades. When people attempting to use money as a guaranteed store of value keep that money instead of spending it, the velocity of positive-sum trades goes down. This doesn’t mean that they’re evil hoarders, though I do think that preferring money as a store of value generally indicates something wrong. But it does mean that supplying more money is a positive-sum move because it increases the number of positive-sum trades occurring, so long as there is significant unutilized capacity.
To the degree that money is used as a store of value, the money supply available for ‘positive-sum’ trades decreases. Let us say that the supply of goods and services on the market stays the same, then with less money available to potentially purchase theses goods and services, the price of the goods and services decreases; microeconomics supply and demand curve. This incentivizes people who are not holding money as a store of value to participate in more positive-sum trades.
Of course, people might end up taking their store-of-value money and investing it, allowing the creation of capital goods that make more efficient production possible. But that’s another story.
Specifically, then they wouldn’t be using money as a store of value anymore since they wouldn’t be holding money but securities.
Hence the standard belief that reluctance to lower nominal prices, or delay in lowering nominal prices, is key (along with nominal debt contracts) to explaining the observed fact that deflation is destructive of RGDP, which is why Scott Sumner’s blog is called “The Money Illusion”.
Well, that’s the core of our disagreement (indeed, my disagreement with anyone who buys into either the Sumner or Krugman view).
Specifically, on what basis can you even begin to make a case that there is “too much” hoarding without a framework for tabulating its benefits? That’s like saying that someone isn’t “eating healthy enough” while only counting the benefits of eating healthy.
And yet (as best demonstrated by the Landsburg link), any time such proponents are asked how to tabulate the relative benefits of hoarding to hoarders against its social costs, the answer is somwhere between silence and “assume we want to get people spending”.
That should be a much bigger red flag for you in the opposite direction.
I don’t think you’re engaging your opponents strongest arguments here. Yes most proponents (even economists or scott sumner) of active monetary policy can’t articulate why it might be a good idea that is solidly grounded, but other people can (myself, nick rowe, other market monetarists or the austrian monetary desequilibriumists), and you should engage the arguments they make.
I know you know of a way to tabulate the benefits because we’ve had extensive discussions about it. The benefits are the marginal utility of holding money (convenience etc.), the costs/benefits are the changes in money holdings you impose on other people when you trade or don’t trade with them.
Btw, I don’t remember if you read the write up I did of my simple mathematical model of monetary disequilibrium.
Hold on—Sumner is the one everyone refers back to when advocating monetary policies he likes, he’s blogged about it for years, at tremendous length, starting from the crisis, he’s become (supposedly) influential in policy circles, and you’re saying I’m attacking a weak point? Sumner is exactly who I should be engaging, which is why it’s all the more saddening that his arguments fail simple checks:
Doesn’t this mean the Fed should be loaning to any ol’ person who can put up the collateral at 0%, not just large banks?
Why is it bad to “hoard” money for a year, but not five days? Why 5% NGDP growth and not some other number?
Why is it a “crisis” when interbank short-term loan rates “spike” from 4% to 6%? That just means their borrowing cost went up in the parts per million. (His entire response to this was something like “yes, ‘for want of a nail’ and all that”.)
If more exchanges are good, why aren’t hyperinflation scenarios (in which people treat money as a hot potato) a social optimum? (Or lesser scenarios that make people trade more than they otherwise would, like bans on home cooking.)
No, those weren’t the main benefits of holding money, and your citing of them means I somehow didn’t communicate the benefits to you. On your specific illustrative examples of convenience in our past discussion, I found them to completely assume away the important social benefits of hoarding.
In short, every example you gave was a case in which people knew in advance what they were going to spend the money on (e.g. having money for the bus). But these are emphatically opposite of the cases where money is most important and uniquely valuable—i.e., when you don’t yet know what you wish to redeem the money for and prefer to keep its option value.
The main benefit of holding money is that it signals the higher social demand for option value, which in turn is indicative of “discoordination”, or the lack of confidence that people can find stable comparative advantages. Money is only the extreme end of a scale that includes goods of increasingly multiple use—but in such scenarios, anything if valued if and to the extend that it will be useful in a broader array of situations.
You can suppress that signal, but only by worsening the economic allocation problem, just as you can suppress spiking oil prices, but only by shifting around the inefficiencies.
So I don’t think anyone, including you, has really engaged with the benefits of hoarding and so don’t have a satisfactory framework for evaluating whether there’s “too much”.
I phrased that badly. You’re not engaging a weak point so much as not steelmanning, which is what you should be doing. Fix your opponents arguments.
Yes, everyone refers to Sumner. He is the popularizer of market monetarism. Yes, Sumner doesn’t produce a defense of his views that is solidly grounded in economics. He is none the less vastly better than most people talking about this.
You should say things like ‘The best arguments for Sumners views are made by Nick Rowe and others (link to work or something) and are sometimes called ‘monetary disequilibrium theory’, however I think that this theory misses the important effect of Discoordination which works like this …’.
Basically no one discussing monetary economics (including the Austrians and others against active monetary policy) manages to ground their arguments in solid theory except Nick Rowe, a couple other market monetarists and the monetary disequilibriumist Austrians. The quality of debate is bad, but that doesn’t mean its OK for you not to engage the strongest arguments.
And that’s fair enough. I didn’t get that you were referring to that.
However,It is highly misleading to say
Because monetary disequilibrium is an internally consistent theory which does talk about the benefits of holding money and which can assess whether people hold ‘too much’ or not within the theory. You do not appear to deny this.
As far as I can tell, you additionally claim that this theory does not describe the important effects of Discoordination which provide additional social benefits to holding money. This is well and good! You should acknowledge what monetary disequilibrium theory does do well, and then attempt to improve upon its deficiencies. I’m actually very interested in hearing those arguments!
Your previous posts do not make this at all clear that this is what you were arguing, even to me. Since I probably know more about your views than anyone else other than you, this means they were probably also unclear to everyone else.
You’re speaking language I don’t recognize. This has nothing to do with ‘hoarding’. It’s about sticky nominal prices and fixed nominally priced debt contracts implying that when monetary velocity goes down, monetary supply should be increased to maintain the velocity of positive-sum trade at full capacity. Nothing you’ve said contradicts this, at least not in any language I recognize.
I would say your language is at least as unrecognizable if you’re going to propose measures to stop people from hoar… not spending money fast enough, while saying the problem “isn’t about that” (another red flag term), but instead “really about” this other new thing you just brought up.
Regardless, about that thing: yes, it certainly sucks when you can’t retroactively change the numbers in a contract you signed, and don’t understand how it embrittles your business plan to guarantee a stream of payments like that. However, sane policies should not favor those who failed to plan against eventualities, nor are sane economies predicated thereon.
I’m afraid that you do have to employ the concept of hoarding (or some isomorphic one) when you want to claim that welfare-enhan… positive sum trades are maximized when NGDP grows at n% like clockwork, regardless of how unmoored the economy has become, for some value of n that Sumner pulled out of thin air.