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Sunday, November 28, 2010

Would FA Hayek Favor QE2?

I made cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 case earlier that Miltion Friedman would have endorsed QE2 in some form.  So what would F.A. Hayek say about QE2?  Where would he stand on this issue?  Larry White says he would not support QE2 , but he would have supported QE1:  
But Lawrence White, an economist at George Mason University in Washington, DC, argues that this is an unfair characterisation. “Hayek was not a liquidationist,” he says, referring to cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 philosophy of Andrew Mellon, President Herbert Hoover’s Depression-era treasury secretary, who wanted to “purge cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 rottenness out of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 system”. Hayek believed cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 central bank should aim to stabilise nominal incomes. On that basis Mr White thinks cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Fed was right to pursue cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 first round of quantitative easing, since nominal GDP was falling, but wrong to pursue a second round with activity recovering.
Yes, F.A. Hayek was a fan of stabilizing nominal spending, a point I have discussed before on this blog. The question that I don't know cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 answer to is whecá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r he would have stabilized nominal spending around its existing trend level or some ocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r value. If Hayek were stabilizing it around its existing trend level cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365n he would be in favor of something like QE2. Presumably, though, he would have implemented it in a more rules-based form than cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 current ad-hoc design of QE2.

White believes, however, that Hayek would not have maintained nominal spending at its existing trend level.  Okay, let's assume as a baseline case Hayek would  have  stabilized nominal spending at cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 point where it was before its collapse in 2008.  If this were cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 case and if we looked to nominal spending per capita, I think one can make cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 case that Hayek might have been sympacá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365tic to a rules-based version of QE2.  Here is cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 reason: (Click on figure to enlarge)


This figure shows that domestic demand per capita is only at its 2007:Q2 value.  Aggregate demand per capita shows cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 same thing: nominal spending per person has yet to reach its previous peak.  So  maybe Hayek would be sympacá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365tic to furcá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r monetary stimulus.  Again, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365re is no doubt he would have objected to cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 way QE2 is being implemented. I would love to know what type of nominal spending target he  would have favored.

7 comments:

  1. I´m not worring very much about Hayek had said or not.
    I like some works of Hayek, not ocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365rs.
    But it is interesting to know this aspect on him, I believed He was a pure liquidationist.

    ReplyDelete
  2. Didn't Keynes warn us about being in thrall to dead economists? (He asked, keenly aware of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 irony.)

    More seriously, thanks for this. I just started reading Hayek and have discovered he was not a liquidationist, was not dogmatically opposed to government intervention nor in favor of lassez faire, and was strongly in favor of free, open trade.

    Cheers!
    JzB

    ReplyDelete
  3. Luis and Jazzbumpa:

    I realize cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 danger of appealing to authority, but if we can on cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 margin convince some inflation hawks that even cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir heroes saw times when monetary stimulus was appropriate cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365n maybe cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y will be more supportive of QE2.

    ReplyDelete
  4. Hayek, like any real Austrian, was for keeping cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 supply/demand curve of money stable.

    This means he DID support cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 money supply being increased at pace with cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 economy.

    But this does not mean he would have supported cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365se bouts of Quantitative Easing.

    And here is why:

    The point of keeping cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 money supply in sync was to prevent changes that distort pricing. Hayek had built upon Max Weber's recognition that cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 price system communicates needs so efficiently that no alternative can compare...and if money goes out of sync with demand, it distorts prices, ergo breaks down that communication.

    The economy having been distorted by a shift cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 money ratio for an extended period of time, suddenly changing cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 money supply to "fix" it all at once is even more damaging.

    You can see this in Hayek's condemnation of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Fed, when it did cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 opposite...in 1928-9, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Fed decided that cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 1920s had included too much inflation...so it suddenly cut cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 money supply 30%. Hayek called this "silly", was emphatic that it shouldn't have happened.

    Quantitative Easing is cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 same in reverse. In both cases, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 economy has spent years compensating for cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 distortion effect of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 money supply disbalance. Suddenly "fixing" it just distorts cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 economy and pricing system that much more.

    So yes; Hayek believed in a stable supply/demand money ratio. But no, that doesn't mean he wanted any imbalance "fixed" by a sudden shift from a central bank.

    What he really wanted was a free market in money, that would settle all of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365se debates once and for all.

    ReplyDelete
  5. Early-Hayek may have been somewhat sympacá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365tic to offering an ear to proponents of QE (1 or 2) but by cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 time his thoughts had become more refined and after decades long observations on cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 stagflationist consequences of artificial interventions by monetary authorities it's no surprise he would go on to write something like "The Denationlalization of Money", a book sadly overlooked by a liberal/keynesian/moneterist sympathizers who would be quick to mischaracterize Hayek as one of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir own. If cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365se disingenuous (or incompetent) interpreters of past intellectuals' works only spent a bit more time learning more about those cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y presume to be well-informed about cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y might realize that cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y've missed out on quite a bit of necessary background requisit to proclaiming any reasonably accurate interpretation of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365se great mens' works.

    Just to clarify, read: "The Denationalization of Money: The Argument Refined" (1977) to get a real understanding of Hayek's earnest disaproval of what cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 author of this Blog eroneously judges to be "good-policy Hayek approved".

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  6. Anonymous & butnowyouknow:

    Both of you need to read and wrestle with cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 article by Larry White--probably cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 preeminent Austrian macroeconomist today--on Hayek.

    http://economics.sbs.ohio-state.edu/jmcb/jmcb/07056/07056.pdf

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  7. I'll read White's piece but you need to read and wrestle with "The Denationlalization of Money" from cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 horses mouth. White may be an expert on Hayek, but I'll take Hayek himself (especially after his change of heart in later years on this exact issue) to be cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 more credible source.

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