Author Archives: Dan Kervick

By Dan Kervick

Brad DeLong proposes that there are, broadly speaking, two camps among economists with respect to what a central bank is and the purposes it should serve: the Banking Camp and the Macroeconomic Camp:

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By Dan Kervick

Some people believe in endogenous money. They believe we live in a monetary system is which money is generated and extinguished as part of the ordinary flow of everyday economic activity. The economy tends to generate the money it needs in order to satisfy the exchange desires and saving preferences of participants in the economy, and to extinguish the money it doesn’t need.

The endogenous money picture is in some considerable tension with the idea that the monetary system is controlled by the government. The alternative exogenous money picture holds that the issuance and destruction of money is a task reserved for government alone, and that the total amount of money present in the economy is therefore a government policy choice.

We can achieve a happy medium between the endogenous money and exogenous money pictures by viewing things this way: Due to a combination of deliberate policy choices and historical contingencies, societies have chosen to institute complex monetary and credit systems in which the generation of the most commonly used means of exchange is primarily a market-driven phenomenon, but one that is heavily regulated and supplemented by government agencies that also issue their own forms of money. We can also note that those latter forms of narrow government money usually play a foundational role in constraining and underpinning the broader forms of money, since they are needed to settle the obligations that are incurred by issuing those broader forms of money.

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By Dan Kervick

Josiah Neely enters into a recent discussion in the economics blogosphere about the potential impact of religious orientation on attitudes toward monetary policy. I find that discussion, which began with a partially tongue-in-cheek Project Syndicate piece by former Moody’s VP Christopher Mahoney, to be a bit tasteless for my tender sensibilities, and I have no intention of entering it myself.  But Neely doesn’t actually spend much time on religious beliefs and instead zeroes in on cultural and political attitudes:

Still, I do think Mahoney has put his finger on one reason why many conservatives and libertarians view monetary expansion with such a jaundiced eye. If there is one economic lesson the Right has internalized, it is Heinland’s aphorism that There Ain’t No Such Thing As A Free Lunch. And attempts to improve the economy by what is often derisively described as “printing money” can at first blush seem like, if not a free lunch, then at least as free lunch money.

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By Dan Kervick

President Obama’s new “vision” for higher education is so crass, so ignoble, so barbarous, and so chilling that it is hard to believe that it could have been written by anyone other than the most vulgar and mercenary corporate suit in his employ.  It is a plan aimed at speeding up the corporate takeover of our higher education system, and transforming it once and for all into nothing but an assembly line for the production of useful human capital.  I will leave it to the reader to scan the philistine details.   For those whose minds, upon hearing the term “higher education”, immediately run to associations with business-world terms such as “bargain”, “investment”, “competition”, “options”, “performance”, “ratings system” … well then, it might be to your taste.

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By Dan Kervick

Brad DeLong has taper anxiety, and is wondering what the Fed is thinking.  He notes that, “real GDP in the U.S. today is and remains at least 5.5% below the path that past history tells us is consistent with stable inflation, and thus with rough balance in the labor market.”

He then reminds the Fed to attend to its responsibilities, given the current political environment:

… when fiscal policy and financial policy are suboptimal it is the responsibility of the Federal Reserve to take proper steps to offset them. Potential harms from accelerating the Federal Reserve’s quantitative-easing asset-purchase policies do not appear major. The actual harm from the disaster of a depressed economy is immediate and dire.

But at this point, does anybody really know what central bank policy would actually be most conducive to getting back to trend growth? Let’s run it down, PowerPoint style, shall we?

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By Dan Kervick

Warren Mosler has made an interesting proposal concerning how we should think about Treasury securities:

… with today’s floating fx/non convertible currency tsy secs (held outside of govt) are logically additions to ‘base money’, as the notion of a reduction of govt reserves (again, gold, fx, etc) is inapplicable to non convertible currency.

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By Dan Kervick

It’s starting to look like QE might be indirectly responsible for a dangerously volatile situation in US financial markets.  And 10-year Treasury notes hit a 2-year high following today’s Fed statement.

But, in my opinion, it’s not the intrinsic nature of the policy itself that has created the danger, but all of the ridiculous and misleading hullabaloo and punditry that has surrounded it. I don’t blame the Fed for using asset purchases to hold down long-term interest rates. But I do blame all of the market pundits and neo-monetarist theorists out there who have grossly misrepresented these asset purchases as something they are not: an all-embracing attempt to manage aggregate demand, gross spending and employment by “pumping money into the economy.”

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By Dan Kervick

In my recent post Escaping from the Friedman Paradigm, I noted the following remark by Paul Krugman on the way monetary policy ordinarily functions when interest rates have not fallen to the zero bound:

… people are making a tradeoff between yield and liquidity – they hold money, which offers no interest, for the liquidity but limit their holdings because they pay a price in lost earnings. So if the central bank puts more money out there, people are holding more than they want, try to offload it, and drive rates down in the process.

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