Category Archives: Monetary Theory

Economics Humor

Posted on December 18, 2015 | Comments Off on Economics Humor

fed rate hike of 2015

Click the image to enlarge.

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Posted in Economics, General Foolishness, Monetary Theory

Towards a Humbler Monetary Policy

Posted on December 1, 2014 | Comments Off on Towards a Humbler Monetary Policy

Is it possible for opposite policies to both be wrong? Over at the Washington Examiner, I argue that it is. The U.S. is ending its quantitative easing program just as Japan is ramping its up. Those seemingly opposite policy paths are rooted in the same mistaken philosophy. I argue instead for a humbler monetary policy:

 Both Yellen and Kuroda should move their focus away from stimulus, exchange rates and constant tinkering, and toward stability, honesty and predictability in their price systems. Easing of $1.66 trillion has had almost no effect on the U.S. economy. How reality will stack up against the Bank of Japan’s predictions, no one knows.

Along the way there are discussions of Keynesian liquidity traps, the Taylor rule, NGDP targeting, and Bitcoin. The larger point is that central bankers are barking up the wrong tree. Instead of manipulating various economic indicators, they should concentrate on creating a stable, predictable, and honest price system that enables more investment, better investment decisions, and more innovation. Entrepreneurship, not interest rate tinkering, is what causes economic growth and mass prosperity.

Read the whole thing here; see also a facsimile of the print edition here, starting on p. 26.

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Posted in Economics, Monetary Theory, Publications

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No Triple Mandate for the Fed

Posted on November 5, 2014 | Comments Off on No Triple Mandate for the Fed

In a recent speech, Fed Chair Janet Yellen sent a signal that the Fed might be considering expanding its mission to include reducing economic inequality. Seeing as the Fed already has a dual mandate, this would amount to a triple mandate. Over at the American Spectator, Iain Murray and I explain why that wouldn’t work as planned, and instead offer a humbler vision for the Fed:

 If there is a guiding principle to effective Fed policy, it is that simplicity is beautiful. A complex, contradictory, unpredictable, and unstable triple mandate does the poor no favors. If the Fed seeks to maintain a stable, predictable, and honest price system as its sole monetary policy objective, it will do more to lift people out of poverty than any double or triple mandate.

Read the whole thing here.

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Posted in Economics, Monetary Theory, Publications

How Regulations Cause Inflation

Posted on March 18, 2014 | Comments Off on How Regulations Cause Inflation

Over at GuerillaEconomics.com, I have a short piece explaining how regulations cause inflation:

Imagine a simplified economy that consists of just two things: 100 dollars and 100 apples, with the price of an apple being one dollar each. If new regulations pass that make it harder to produce apples, the next year there are only 90 apples produced. Their price goes up from $1 to $1.11.

Read the whole thing here.

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Posted in Economics, Monetary Theory, Publications, regulation

OC Register on Yellen as Fed Chair

Posted on January 31, 2014 | Comments Off on OC Register on Yellen as Fed Chair

I didn’t see this until today, but earlier this month the Orange County Register was kind enough to cite me in an editorial about Janet Yellen shortly after her confirmation vote.

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Posted in Economics, Media Appearances, Monetary Theory

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Two Cheers for Tapered Quantitative Easing

Posted on January 2, 2014 | Comments Off on Two Cheers for Tapered Quantitative Easing

The Federal Reserve made waves when it announced it was rolling back its quantitative easing program. Looking more closely, one finds it’s actually a very minor policy change, moving from $85 billion to $75 billion per month. Over at the Washington Times, I encourage the Fed to taper back the rest of the QE program, and point out that the Fed may be sending a subtle political message about how presumptive incoming Fed Chair Janet Yellen will approach inflation:

Johns Hopkins University economist Steve Hanke argues that Ms. Yellen is more hawkish on inflation than her dovish reputation suggests. The tapering announcement seems to confirm Mr. Hanke’s thesis. As the Fed’s current vice chairman, she already has significant say on Fed policy. She has publicly supported the new Basel III reserve banking standards, which would require banks to hold more of their capital in reserve. That would decrease the amount of money in circulation — the exact opposite effect of quantitative easing — and help keep inflation in check.

There are plenty of problems with the Basel III standards, but this would be one positive effect. Read the whole thing here.

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Posted in Economics, Monetary Theory, Publications

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All I Want for Christmas Is an End to Quantitative Easing

Posted on December 20, 2013 | Comments Off on All I Want for Christmas Is an End to Quantitative Easing

This short video from Remy and Reason.tv is both amusing and enlightening, though, as the description notes, “The value of Remy’s soon-to-be Christmas classic can only be determined after adjusting for inflation.” Click here if the embed doesn’t work.

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Posted in Economics, Monetary Theory

Towards a More Transparent Fed

Posted on October 31, 2013 | Comments Off on Towards a More Transparent Fed

Iain Murray and I have a piece in today’s American Spectator breaking down the new paper we co-wrote with John Berlau about questions we would like Janet Yellen to answer, whether in her confirmation hearing or elsewhere. The main point is transparency:

Transparency is essential for a public body that takes trillion dollar decisions. We need to know what she feels about the possibility of auditing the Fed. Indeed, Senator Rand Paul has already announced that he will place a hold on her nomination until he sees some progress with his Federal Reserve Transparency Act bill — something that Senate Majority Leader Reid used to support. If and when Professor Yellen does come before a confirmation hearing, Senators need to make her views on these questions transparent to the nation too.

Read the whole thing here. The full paper is here.

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Posted in Economics, Monetary Theory, Publications

Questions for Janet Yellen

Posted on October 29, 2013 | Comments Off on Questions for Janet Yellen

janet yellen
The Federal Reserve is arguably the government’s most important agency, even if it is (nominally) independent. It has control over the price system, the most fundamental part of any economy. It also exercises significant power over the banking sector, and in recent years has taken to doing large favors for Wall Street. These are all reasons why Janet Yellen’s nomination for Fed Chair needs to be carefully vetted. To that end, my CEI colleagues John Berlau and Iain Murray and I put together some questions about several facets of the Fed’s mission we would like to Yellen answer, whether during her confirmation hearing or elsewhere. You can read the short WebMemo here. Here is one of our questions about inflation:

Many observers expect you to pursue an inflationary stimulus, and believe this is likely a reason for your nomination. If your actions are already expected, will markets not take these expected price level changes into account in advance? If so, do you believe this would blunt the employment impact of any monetary expansion? Would you respond to these pre-existing expectations with an unexpectedly high inflationary policy?

As John, Iain, and I write, Yellen’s credentials are not in question. But the policies she might pursue as Fed Chair are. Read more here.

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Posted in Business Cycles, Economics, Monetary Theory, Publications

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CEI Podcast for August 22, 2013: Germany Legalizes Bitcoin

Posted on August 22, 2013 | Comments Off on CEI Podcast for August 22, 2013: Germany Legalizes Bitcoin

bitcoins
Have a listen here.

Vice President for Strategy Iain Murray discusses Germany’s decision to legalize Bitcoin, a controversial digital currency. With the euro’s future up in the air, competing currencies are one way to ensure monetary stability in case the worst happens.

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Posted in CEI Podcast, Economics, International, Monetary Theory