Seriously, what does this mean?
The US economy is currently in equilibrium. It’s not a market-clearing equilibrium. It’s not a very good equilibrium. But it is an equilibrium. If it wasn’t an equilibrium, it would be somewhere else. But it isn’t somewhere else, so it must be.
I find this incomprehensibly circular. The beetle is red because if it weren’t red it would be something else, but it isn’t something else, so it’s red. Nick, we must first prove that the bloody beetle is red! Furthermore, ‘proving’ something does not entail making analogies to driving rules or how we manage time, which are both 100% arbitrary, maneuverable human constructs.
Also note that the entire post is about how people who want to know what market monetarists are talking about are somehow crazy for asking. Imagine if engineers had this type of attitude: “heh, so you want to know what we’re making the bridge out of? Doesn’t matter, just believe that it will stand up. God, stop being so concrete! (No pun intended)”.
I’ll give some credit to Rowe – he goes on to try and list some transmission mechanisms, but doesn’t get very far:
1. The Fed clearly announces its target path for NGDP. That’s by far the most important bit. Everything else is secondary. And if the Fed had credibility, that would be enough.
Irrelevant, as credibility depends on transmission mechanisms; expectations can only ever work if there is something to anchor them to. So this one is a no-go, as it depends on the actual transmission mechanisms below:
2. The Fed makes a threat. On the first day the Fed will print $1 billion and use it to buy assets. On the second day the Fed will print $2 billion and use it to buy assets. On the third day the Fed will print $4 billion and use it to buy assets. And the Fed will keep on doubling the amount it prints and buys daily, forever and ever, until E(NGDP) rises to the target path. (And will go into reverse and sells assets if E(NGDP) rises above the target path).
And, if my calculations are correct, just over half way through the month the fed will own every asset in the US economy. Then what? But don’t worry, this won’t materialise because:
3. The Fed puts on its best James Dean (oops, Marlon Brando, thanks Andy) voice and replies: “What have you got?”
There are two rooms at a party. The first room is nearly empty. The second room is nearly full. Because everyone wants to be where everyone else is. Then Chuck Norris enters the second room. He threatens to beat up 1 person at random in the first minute, 2 people in the second minute, 4 people in the third minute, and so on, until the room is empty. This is no longer an equilibrium.
More analogies. But as somebody, somewhere in the blogosphere, once said: if Chuck Norris has no arms or legs, nobody will listen to him.
Why will buying assets actually have an effect on the economy? What if people just hold the money, or put it into banks? What if they don’t want to sell their assets? Do you wonder if people/banks/firms are not spending right now because of the the fact that they are in bad financial positions and facing a lack of demand, and buying their assets (presumably at market prices) wouldn’t change this? Finally, are there any examples of this ever working, on the scale and in the ‘rule-based’ way you outline, in similar conditions to the one the US/UK/EZ economies are in now?
Market monetarists: please tell everyone what you mean, and without using any analogies, either. Because right now your school of thought doesn’t sound like a serious attempt at economics, but an article of faith.
Edit: I’m aware I used analogies here, but there’s a difference.
Think of analogies as a First, analogies where you only replace one or two words are more useful than those that attempt to model complex systems by another complex system. Second, I regard my analogies as tools of communication, rather than a means of proof.