John Cochrane gave a preview of a WSJ oped he wrote in response to something from
James Grant. Permit me to be brief about the utter nonsense from Grant before noting the more worthwhile discussion from Cochrane:
Jim Grant: The Big Flaw in Ph.D-conomics: The Ph.D. standard of monetary management was the topic on the agenda at the July 15 panel at the American Enterprise Institute in Washington. Discretionary central-bank policy conducted by former tenured economics faculty, or by people imbued with the doctrines of those learned people, is the system in place today. We discussants pulled at our chins: Is the system any good at all? It’s a timely, down-to-earth question. Federal Reserve Chairman Jerome Powell, though a lawyer by trade, does business in a building infused with
Sorry but I refuse to go on with this rant as to how people trained in economics do not have perfect forecasting record especially since it is written by someone who co-authored a 1999 prediction that the DOW would soon hit 36000. The entire purpose of Grant’s rant was to advocate a gold standard. Cochrane was kind enough to provide a link to something from
Grep IP entitled:
Judy Shelton, a Goldbug Who Bends to Fit Trump
This WSJ oped is worth the read. Now to what Cochrane contributed:
Pegging the dollar to gold won't stop inflation or deflation. Inflation was already quite volatile in the 19th century, and it would be worse today...In particular, if the value of gold goes up, you have deflation, which many people are worried about today. The gold standard did nothing to stop the sharp deflation of the 1930s.
Quite right and he notes that broader commodity standards face similar problems – which is something Stephen Moore apparently does not get. Cochrane instead advocates that we adopt a CPI target, which means that the Federal Reserve should target a zero percent inflation rate and not the current 2 percent target. Of course, those of us who lived through the Great Recession and also worry that the Wicksellian real interest rate might drop below negative 2 percent are advocating a higher inflation target – not a lower inflation target.
Correction:It seems James Glassman is a popular name. James Kenneth Glassman is the co-authored of DOW 36000 not be confused the chief economist at JPMorgan. Now James Grant - this particular gold bug is a journalist who has his own Grant’s Interest Rate Observer and once suggest Ron Paul should head the Federal Reserve. James Grant also wrote The Forgotten Depression, which I believe has been criticized on this very blog. Glassman - Grant - we need to program to keep these monetary nutcases straight! Sorry for the confusion.
I have two minor issues with this post, while I generally agree with it.
ReplyDeleteThe first involves the title. It may be that you did not intend for it to imply what I see it as implying that Cochrane in "nodding" to Grant was agreeing with him at all. That does not seem to be the case.
The other is the linking of Grant to the failed 20-year old now forecast of the DJi hitting 36,000, which it has yet to do, but probably will eventually, no, I am not forecasting when.
In any casw, the authors of the now-embarrassing book, _Dow, 36,000_ have long become publicly embarrassed fools. However, the authors of that ridiculous book were James Glassman and Kevin Hassett (recently stepped asidde as Trump CEA Chair), but not Jim Grant.
He may have supported their report publicly at the time; although I do not know. But, he was not an author of that silly book.
Barkley Rosser
Thanks for the correction, pgl. I think i criticized Grant's book here. He really gets way too much positive press from outlets that should know better, taken way too seriously by too many.
ReplyDeletehttp://econospeak.blogspot.com/2014/12/is-1921-role-model-for-modern.html
ReplyDeleteIs 1921 A Role Model For Modern Macroeconomic Po licy?
“I am going to join in the piling on of Robert J. Samuelson that Dean Baker and now a few minutes ago my Econospeak colleague, pgl, have been engaging in. But I want to take this a bit further.So, the regrettable RJS in today's WaPo has fallen all over himself praising the new book by Jame Grant, _The Forgotten Depression_, which was also recently the subject of much praise at a Cato Institute Symposium. A number of economists have pushed Grant's line previously, among them Steve Horwitz, Larry White, and Lee Ohanian, with White participating in the Cato Institute hagiographic orgy, although a bit more on that in a minute. RJS is completely suckered in, as noted by Baker and pgl.”
It continues with a very nice review of what really happened in 1921.
A long time ago Christina Romer wrote a paper that argued for a reinterpretation of the 1921 recession. It doesn't support the James Grant view.
ReplyDeletehttps://www.nber.org/papers/w2187.pdf
The paper examines the official Commerce Department estimates of gross
national product for 1909-1928 and finds that they are far inferior to the
less commonly used Kendrick GNP estimates. The paper then derives a revised
version of the Kendrick series that alters significantly the representation
of annual movements in the Kendrick series before 1919. This endorsement of
a revised Kendrick GNP series in place of the official Commerce Department
estimates before 1929 suggests new interpretations of the effect of World
War I on the American economy and the nature and cause of the depression of
1921.
Unlike the nonsense coming from the likes of Judy Shelton, Romer's criticism of the official Commerce Dept GNP data for that period is well grounded.
Romer's paper was written in 1987 - a full 27 years before Grant published his book. It is an excellent discussion of both the data as well as the macroeconomics implications. I wonder if Grant even acknowledged her paper. If he didn't - his book shows how utterly incompetent Grant is.
ReplyDelete