If I were Dante Alighieri and Adam Smith (or Ricardo or Keynes) were Virgil guiding me through the concentric circles of economic theory hell, I would place Ken Rogoff in the 1st circle --Unoriginality instead of Dante's Limbo -- and Larry Summers in the 5th circle -- Vainglory instead of Dante's Wrath.
(I would reserve the 9th and innermost circle -- Odium for Dante's Treachery -- for the likes of Harald Uhlig and John Cochrane and others of their ilk.)
I was a guest at the NBER Macroeconomics Annual in Cambridge, Mass., on April 15 2016 and Summers was delivering the keynote address. Unsurprisingly, given the date, the subject of his talk was Crises in Economic Thought, Secular Stagnation and Future Economic Research, a title so pompous and self-invoking that it would invite scorn if it came from anyone other than Summers, but because that is precisely what we have come to expect from him it was probably not challenged by the organizers.
I am not sure if Ben Bernanke was at that dinner but Rogoff and Robert Gordon were. Rogoff sounds smarmy now as he writes this work of popular economics (which you have reviewed and praised here) about the threats to the primacy of the US dollar and relates it to our recent inflationary episode and places the blame squarely on our fiscal mess. Yet, he was a prime proponent for a hyperactive monetary policy (along with Willem Buiter, who might also have been there that evening) throughout the 2010s – QE, aggressive forward guidance, and negative nominal policy rates (NIRP).
Let us remind ourselves what NIRP was supposed to do and Rogoff, even more than Buiter, called for a steady escalation of pressure on inert savings balances through ever more negative rates, which he saw as the problem then. By making future money balances lose value against present money stocks, while prices of goods and services remained the same, we were mobilizing inflation expectations implicitly. The possibility that this might become self-defeating and could perversely make the liquidity trap worse because when the cost of money becomes negative households target the quantity of saving for future spending, and rather than inciting current spending they increase precautionary savings -- a quasi-Fisherian explanation --and so depress effective demand, seems not to have occurred to him.
Now many years later, Rogoff is being artful in his rewriting of history, using both selection and confirmation biases to make his latest case. While all along calling for engendering inflation through reckless use of monetary policy, he has conveniently changed the subject and put fiscal activism in his sights, while also proclaiming piously to be concerned about the dollar’s paramount reserve currency status. There was not a chirp from him throughout those years about the hundred-year trend of rising “long term component of US government interest rates”.
As for his observation that “there is a lot of inertia in academic economic research.”, well we we have a prime example of that in the man himself. As far as I am concerned, he will remain in the First Circle of Hell for his unoriginal thinking.
And after a full reading, I feel I have nothing to add to your analysis, nor do I find anything I can disagree with. I do wish that as economists we could all be more open to self-reflection. For example, yesterday I would have loved it if Powell had said at Jackson Hole, you know our 2020 revision of the monetary framework? Obviously a big mistake, so let's scrap it. Instead we got something like "it was appropriate at the time, and then Covid hit"... But in order to be honest, a man needs to know he'll get a fair hearing -- definitely not Powell's situation now.
Anyway, the algorithm does not allow me to like your comment a second time, but know it is much appreciated.
I'm breaking protocol and liking your comment + replying briefly before reading your whole comment because your first two paragraphs are just too good and enjoyable and I need to acknowledge that! (even though I disagree with your innermost circle of course)
A great and persuasive summary. During this past year I have often been stunned how differently Marco and I see things, specifically wrt Trump’s policies, so it was a real pleasure to read this and rediscover how much we agree on. I’ll be heading right down to the book store (yep, the physical one!) to get my copy.
If I were Dante Alighieri and Adam Smith (or Ricardo or Keynes) were Virgil guiding me through the concentric circles of economic theory hell, I would place Ken Rogoff in the 1st circle --Unoriginality instead of Dante's Limbo -- and Larry Summers in the 5th circle -- Vainglory instead of Dante's Wrath.
(I would reserve the 9th and innermost circle -- Odium for Dante's Treachery -- for the likes of Harald Uhlig and John Cochrane and others of their ilk.)
I was a guest at the NBER Macroeconomics Annual in Cambridge, Mass., on April 15 2016 and Summers was delivering the keynote address. Unsurprisingly, given the date, the subject of his talk was Crises in Economic Thought, Secular Stagnation and Future Economic Research, a title so pompous and self-invoking that it would invite scorn if it came from anyone other than Summers, but because that is precisely what we have come to expect from him it was probably not challenged by the organizers.
I am not sure if Ben Bernanke was at that dinner but Rogoff and Robert Gordon were. Rogoff sounds smarmy now as he writes this work of popular economics (which you have reviewed and praised here) about the threats to the primacy of the US dollar and relates it to our recent inflationary episode and places the blame squarely on our fiscal mess. Yet, he was a prime proponent for a hyperactive monetary policy (along with Willem Buiter, who might also have been there that evening) throughout the 2010s – QE, aggressive forward guidance, and negative nominal policy rates (NIRP).
Let us remind ourselves what NIRP was supposed to do and Rogoff, even more than Buiter, called for a steady escalation of pressure on inert savings balances through ever more negative rates, which he saw as the problem then. By making future money balances lose value against present money stocks, while prices of goods and services remained the same, we were mobilizing inflation expectations implicitly. The possibility that this might become self-defeating and could perversely make the liquidity trap worse because when the cost of money becomes negative households target the quantity of saving for future spending, and rather than inciting current spending they increase precautionary savings -- a quasi-Fisherian explanation --and so depress effective demand, seems not to have occurred to him.
Now many years later, Rogoff is being artful in his rewriting of history, using both selection and confirmation biases to make his latest case. While all along calling for engendering inflation through reckless use of monetary policy, he has conveniently changed the subject and put fiscal activism in his sights, while also proclaiming piously to be concerned about the dollar’s paramount reserve currency status. There was not a chirp from him throughout those years about the hundred-year trend of rising “long term component of US government interest rates”.
As for his observation that “there is a lot of inertia in academic economic research.”, well we we have a prime example of that in the man himself. As far as I am concerned, he will remain in the First Circle of Hell for his unoriginal thinking.
And after a full reading, I feel I have nothing to add to your analysis, nor do I find anything I can disagree with. I do wish that as economists we could all be more open to self-reflection. For example, yesterday I would have loved it if Powell had said at Jackson Hole, you know our 2020 revision of the monetary framework? Obviously a big mistake, so let's scrap it. Instead we got something like "it was appropriate at the time, and then Covid hit"... But in order to be honest, a man needs to know he'll get a fair hearing -- definitely not Powell's situation now.
Anyway, the algorithm does not allow me to like your comment a second time, but know it is much appreciated.
I'm breaking protocol and liking your comment + replying briefly before reading your whole comment because your first two paragraphs are just too good and enjoyable and I need to acknowledge that! (even though I disagree with your innermost circle of course)
More once I've read the rest
A great and persuasive summary. During this past year I have often been stunned how differently Marco and I see things, specifically wrt Trump’s policies, so it was a real pleasure to read this and rediscover how much we agree on. I’ll be heading right down to the book store (yep, the physical one!) to get my copy.
Healthy disagreement is a great fuel for growth ;)
speaking of which, great to see the Sunday Wrap is back and now on substack --> https://independenteconomics.substack.com/. !
🙏🙏🙏