“If you can’t hit the 2% target why introduce a harder one? Because …”

A James Alexander post

I was pleased to report some traction in the Market Monetarist campaign to see inflation targets substituted by, or added to, an NGDP growth target.

One common pushback I’ve received recently is if the central bank can’t hit a 2% target how can it hit a tougher target? It’s a reasonable question.

First, central banks in the US, UK, Euro Area and Japan, don’t want to hit their 2% targets. An odd claim, I know. But on closer inspection they now actually operate a 2% medium term target, crucially based on their own forecasts of inflation. Any time their medium term forecast approaches 2%, or worse moves above it, the noise level about interest rate paths gets very loud. The Fed even raised rates!

This targeting a target has been discussed before here, and is very depressing to economic activity, real and nominal. It ends up with actual inflation consistently below the 2% target. It is rather like most people’s two year out plans, they never seem to quite come off.

Shoot higher, achieve more

Second, moving to a 4% inflation target and missing it by 1-2% is far less damaging than missing a 2% target by 1-2%. Modest 2-3% inflation is consistent with 5% nominal growth, i.e. trend nominal growth. Stable nominal growth is the proper target for central banks, agreed by most people, even central banks.

Central banks wouldn’t have to hit 4% but turning it into a target would enable the market to believe the central banks were happy with 2-3% inflation now. Even four percent inflation, if achieved, would not be terribly damaging either. Market Monetarists are not crazy inflationists, just dull-sounding moderate inflationists, and very hostile to missing lowflation targets. The truth of the matter is that they don´t like the word “inflation”.

Third, simply moving the target obviates the need for the sort of oxymoronic “responsibly promise to do something irresponsible” thing Paul Krugman again suggests in a response to a Tony Yates blog post. No one in markets takes such nonsense seriously.

Central banks do not operate like that, and if they did markets would be worried about other stuff pretty quickly. Just change the target to something more ambitious, but still credible and responsible. It would also end the ridiculously unnecessary, frankly idle, chatter about helicopter drops.

Last an NGDP growth target is a different animal to an inflation target. NGDP is simply aggregate demand or aggregate income. It is what the central banks have almost exact control over. Inflation is a terrifically hard to calculate residual of the difference between easy to calculate nominal demand and terrifically hard to calculate real demand.

The exact balance of any nominal growth between real and inflationary growth is very difficult to divine in real time. It is, nevertheless, very important to understand and to fix if the balance is too much inflation and not enough real. That debate is no concern of the central bank. Inflation is simply the wrong target for them. They control money and therefore the other half of all economic transactions, not output. It’s a powerful tool, use it!

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Mark Carney, “an unreliable boyfriend”? I blame his Dad, George

A James Alexander post

(On the title see here)

Mark Carney is supposedly handsome, but I don’t really feel qualified to comment. One observation I would make is that handsome friends seem to be prone to unreliability. A bit like Hugh Grant, allegedly.

Carney’s lack of commitment was made clear from the day his appointment was announced when it was revealed that the new standard eight-year term for Governors of the Bank of England would, in fact only be five years for him, a special concession he negotiated. Mmm.

At Christmas a puff piece on Carney in the FT was followed two days later by a (related) story indicating he was now willing to make himself available for the full eight years . Mmm. Rather like a Premier League footballer he remains  open to offers. Mmm.

The list goes on

Carney floated the idea of NGDP Targeting back in December 2012 only to never mention it again. Mmm. He has also talked of fairly concrete “thresholds” for monetary tightening over the years, only to ignore them when they are passed through. Mmm. He has talked of “forward guidance” only to see that guidance ripped up as the “forward” time has arrived.

He was reportedly very tetchy at the press conference presenting the February 2016 quarterly inflation report. One tweet from the meeting suggested that he had said all members of the MPC agreed that the next move in rates would be up. I searched for confirmation in the official minutes but could find none. Mmm.

He has now rowed back again, apparently. In regular testimony to the House of Commons Treasury Select Committee he now says that the next rate move could be up or down, that the period to reach the 2% goal could be extended. He has even flirted with negative interest rates, the last refuge of a failed inflation-targeting regime the world over.

Extending the period to reach 2% is not a good idea if the goal is still the Bank of England’s own expectation of 2% inflation two years’ out. The constant threat of tightening every time their medium term range of expectations biases above 2% effectively tightens monetary policy, killing any hope of achieving the objective – thus depressing nominal growth lower and lower.

He is not really fit to be Governor, except that another candidate might be less reactive and more hawkish, like a new Mervyn King, and equally disastrous. An unreliable boyfriend is better than a violent one.

Personally, I blame Carney’s “dad” for this behaviour, Chancellor George Osborne. He needs to set firmer rules of behaviour. Broadening the inflation target regime to one of NGDP growth expectations targeting. A stable path of expected nominal spending, income or output – depending on your school of macro-economics – is all that is required. This stop-start monetary policy of targeting the Bank of England’s own inflation expectations two years out is just self-defeating and ultimately damaging nonsense.

The Fed Should Print Trailers

A Benjamin Cole post

Thanks to the extraordinary insights of blogger Kevin Erdmann, the issue of housing costs and inflation has been brought into better focus. Erdmann recently brought up manufactured housing, or house-trailers, a wonderful topic.

This is no small matter. Housing consumes about 27% of typical household budget, but food only 10% and gasoline less than 4%. See here.

Yet housing is hardly a free market. Zoning out housing density is ubiquitous in U.S. cities, and trailers are criminalized routinely. The result is artificial scarcity, a housing shortage ironically made worse by tight money.

Manufactured Housing

According to the Manufactured Housing Institute, the average cost of a manufactured home in 2014 was about $65,000, and cost about $45 a square foot at retail. The price of a traditional, “stick-built” home was more than double that, or $97 a square foot (yes, that excludes land).

My guess is that in free markets, we would see innovations such as stackable manufactured housing units for urban or close-in suburban settings. Pioneer-types are already experimenting with shipping containers in this way, another type of housing that should be rapidly legalized.

A real-estate entrepreneur could buy a lot in or near a city, drag on some manufacturing housing or shipping containers, and be good to go. When his units filled up, he starts stacking.

Inflation, Money And Trailers

Milton Friedman famously said the inflation everywhere and always is a monetary phenomenon. But there are structural impediments that cause inflation as measured, and property zoning and housing regulations appear to be one. One can drive down “T” in MV=PT, and get to higher “P.” You can blame the central bank for that, but I think you can also blame the guys driving down “T.”

My guess is that Americans are not ready to un-zone property, or stand idly by while the next-door neighbor pulls a couple trailers into the backyard to work as rentals. Voters become greenie-socialist control-freaks in their own neighborhoods, from Newport Beach, Ca. to Brooklyn.

Conclusion  

For the U.S. Federal Reserve to obsess about measured rates of inflation, when there are substantial structural impediments in a major component of measured inflation (that is, housing) raises troubling questions.

To date, the Fed’s announced 2% PCE inflation target rate, which evidently has become a ceiling, appears to be a noose around the economy’s neck, judging from real GDP growth, or from falling NGDP trends.

As cities continuously raise barriers to new housing supplies, one wonders if the 2% inflation target is too low.

One might also ponder why FOMC transcripts are full of jibber-jabber about energy prices, and so rarely touch upon urban housing costs.

Usefulness of “lagging indicators”

That may be the role of industrial production growth presented as YoY growth of the 6-month moving average.

Note that it only turns negative after a recession (as defined by the NBER) has already begun. Sometimes quite a way into the recession (as in the 1973, 1981 and 1990 recessions, for example).

In January the measure turned negative (-0.2) for the first time after the “recovery” was completed almost six years ago.

Lagging Indicator

That´s just one more piece of evidence that goes against the grain of FOMC members, like John Williams who, in a speech yesterday (that sounded more like a “self-help” encounter) concluded:

Despite the Sturm und Drang of international and market developments, the U.S. economy is, all in all, looking pretty good. I still expect to see U.S. GDP growth of about 2¼% for 2016. I still expect unemployment to edge down to about 4½% by late in the year. And I still see inflation edging up to our 2% goal within the next two years. So I’m not down—it all looks good to me.

CPI trending higher, NGDP growth lower – monetary policy must go easy

A James Alexander post

The echoes of 2008 became stronger last week as both headline and core US inflation as measured by the CPI rose faster than expected. It is a very dangerous cocktail when the claque sees inflation yet nominal growth expectations are weak. It caused the Great Recession when central banks misread the situation. Hopefully they will have learned their lesson, but the current tightening bias of the Fed doesn’t give us much confidence.

Go to Twitter and enter “core CPI” and you’d see a welter of inflation hawks trumpeting the now clear upward trend in CPI. These were typical:

“John P. Hussman‏@hussmanjp

Not to bust anyone’s NIRP bubble, but while YOY CPI inflation is 1.34% due to food & energy, YOY core inflation rose to 2.22% in January.

Michael Ashton‏@inflation_guy

I did NOT realize until just now that this month’s 0.29% rise in core CPI was the highest m/m since 2006.

Carl Quintanilla‏@carlquintanilla

Beating estimates in past 2 wks: * core CPI * core PPI * hourly wages * retail sales * Ind. Prod

RETWEETS 30   LIKES 21“

It is hard to disagree with the charts over the short-term.

JA CPI-SR

The longer term is a bit different, of course.

JA CPI-LR

But does it mean the Fed should take act? The markets decided the new information content from the CPI data was virtually nil.

Why were markets so calm?

 1. The Fed looks at the far superior Personal Consumption Expenditure price index or deflator. It is composed of the dozens of individual price index estimates used to deflate nominal spending to derive a supposedly “real” level of spending for each category of goods and services purchased. Compiling these indexes is a task fraught with pitfalls. At least PCE uses actual data on expenditure rather than the CPI surveys of consumer expenditure as a starting point. It also includes items bought on behalf of consumers by their employers like healthcare and insurance. It also estimates the financial benefit of services not paid for, like banking.

PCE has historically run 0.5% lower than CPI and been far less prone to volatility. The PCE deflator much more quickly captures substitution effects, as consumers switch purchases from higher priced goods and services to lower ones, or like today (probably) switching spending from energy and goods sectors in deflation to housing, healthcare and education – increasing the pace of service sector inflation? Looking just at the service sector will be very misleading.

The housing element of CPI remains a minefield as Kevin Erdmann constantly reminds us. Artificial shortages abound and have significant effects. Artificial demand in education thanks to state-subsidised loans  also leads to price pressure, and we all know about restrictive practices in medicine.

 2. The Fed has made it clear since the market turbulence that it caused will be incorporated into its future actions.

 3. Nominal growth is still horribly weak. Core CPI may be trending up but nominal Personal Consumer Expenditure, i.e. not deflated, remains stuck in a 3% trend – down from the 4%-5% trend achieved towards the end of QE3 when nominal spending peaked at 4.96% in August 2014.

 I remain unconvinced that PCE will move up meaningfully towards any higher trend in CPI. Nominal growth, historic and expected, remains just too low. And, of course, active monetary policy is clearly biased towards tightening.

And here we may get a horrible echo of 2008 where nominal growth expectations are flat or falling but the claque of inflation hawks is fretting about cost-push inflation. The Fed should ignore the claque and laser-lie focus on nominal growth expectations, but will they?

The other echo of 2008 comes from the accounting identity that if inflation really is rising and nominal growth really is weakening then the counterpart has to be in weakening RGDP and weakening productivity. And this is precisely what we are seeing. RGDP is weak and so is productivity.

I am a bit more more sanguine about productivity, even if arithmetically it is shown to fall. It may not be falling as the deflator may be too high, underestimating real growth, and thus productivity growth. Why is this?

First, because it is so fiendishly difficult to directly measure productivity, especially in our service-sector dominated world. There are hardly any detailed temporal or cross-border studies of productivity by industry segment, just windy, useless, macro level stuff by country. Output of physical stuff is relatively easy to measure in both nominal and real terms, as long as the quality of the stuff doesn’t change too much: a bushel of wheat, a barrel of oil, a table. But think of a college degree, a cable subscription or a visit to the dental hygienist and things get trickier.

Quality issues are very, very tricky to gauge. It should be for economic historians and politicians to argue about the quality of the nominal growth, the balance between real and inflation within the nominal figure.

Second, it will have got very difficult with the rise of the web to really figure out what is happening to the real economy. It is important to figure it out, but is really hard. Diane Coyle wrote this thought-provoking piece on Digitally Disrupted GDP recently:

 Digital technologies are having dramatic impacts on consumers, businesses, and markets. These developments have reignited the debate over the definition and measurement of common economic statistics such as GDP. This column examines the measurement challenges posed by digital innovation on the economic landscape. It shows how existing approaches are unable to capture certain elements of the consumer surplus created by digital innovation. It further demonstrates how they can misrepresent market-level shifts, leading to false assessments of production and growth.

Third, we think it will rise once the nominal economy begins to run hot again. Why should businesses invest to economise on labour when labour is so plentiful? Why should businesses invest when sales are so weak and expected to remain so?

“Join the dots”

A James Alexander post

Call me a conspiracy theorist but when three unrelated beasts of the global financial establishment all start talking about the same, previously unfashionable, thing it’s a bit of a coincidence. Maybe Larry’s put it in the agenda of next week’s G20? If it’s not, it should be.

George Osborne:

The MPC have revised down their forecast for real GDP growth and CPI inflation in the short term, implying weaker nominal growth. This, combined with threats from the international environment, mean we face the risk of a weaker outlook for nominal GDP. If realised this could present challenges for tax receipts in the future, and reinforces the importance of delivering our plan to achieve a surplus on the public finances by the end of the Parliament.

Bank of America Merrill Lynch:

3. Cut rates back to near-zero and strong guidanceif the equity market drops into a full bear market (or there is some other equivalent financial tightening) or if growth seems to be slowing to a sustained 1%, the Fed would likely cut and remain on hold until the financial/economic weakness reverses. They could introduce a nominal income growth target or price level target to signal an accommodative path for rates well into the future.

Larry Summers:

But monetary-policy makers need to acknowledge much more explicitly that neutral real rates have fallen substantially and that the task now is to adjust policy accordingly. This could include setting targets for nominal GDP growth rather than inflation, investing in a wider range of risk assets, making plans to allow base rates to turn negative, and underscoring the importance of avoiding a new recession.

Is the FOMC about to split? Sooner the better

A James Alexander post

If it’s possible for the Supreme Court to become supremely politicized, why not the FOMC too? No area of US government is free of it.

In an election year it seems odd that the FOMC should be taking such huge risks with the economy by actively tightening monetary policy. NGDP growth is slowing horribly, and expectations have fallen too – judging by equity markets, bond yields, TIPs yields and the US dollar. The Non-Manufacturing ISM, 80% of the economy was weak, joining the already weak industrial sector.

Of course it’s even odder that the Chair is an avowed Democrat, but Yellen has long since gone native, just like Bernanke, forgetting all their pro-growth dovish bias in favor of the instinctive anti-inflation hawkishness of the Fedborg.

However, there is hope for an optimist like me. The recent minutes of the FOMC’s January meeting contained this snippet:

a few participants noted that direct evidence that inflation was rising toward 2 percent would be an important element of their assessment of the outlook and of the appropriate path for policy.

Apparently these were voting members putting down a strong market. This looks like a growing revolt of the doves.

The doves will have had their numbers and morale swelled by the arrival of Neel Kashkari. He seems a very lively  and worthy successor to Kocherlakota. He’s also young but battle hardened in actual, real, electoral politics. He doesn’t sound at all like his ultimate ambition is to be absorbed by the Fedborg into grey’dom and inflation doom-mongering. He seems in a hurry to make his mark. Officially, he’s a Republican, but doesn’t sound like the usual right wing inflation nutcase.

Doves will also have been boosted by the exit of the always-wrong Richard Fisher as his replacement seems much more balanced, and Texas needs a boost now, anyway.

The rest of the minutes was the usual dreary on the one hand this, on the other that. The epitome of the Fedborg, it’s “Policy Normalization” program only gets two mentions, thankfully.

It would all be funny,if it weren’t so tragic.The fact that the Fed can’t look in the mirror and see that its constant reiteration of being “data dependent”, is  just a constant feedback loop. They just can’t see that they cause the data to move, thinking it somehow has nothing to do with them (i.e. exogenous).

Not even someone as smart as Tim Duy can see the irony of what he correctly identifies as what is going on:

The Fed will take a pause on rate hikes. An indefinite pause. The sooner they admit this, the better off we will all be. Indeed, the sooner they admit this, the sooner financial markets will calm and the the sooner they would be able to resume hiking rates. 

What? Resume hiking rates? How stupid does he think the market is? Well, maybe it was duped once, but surely not twice.

That is why it is so hard to predict a recession, because it is so hard to predict when the madmen who are in a constant feedback loop will realize they are in it and change their behavior.

Come on George, stand up for NGDP Targeting

A James Alexander post

It has been noted already by Market Monetarists and others that George Osborne and his UK Treasury team are concerned about the low level of expected Nominal GDP growth in the UK. The latest January 2016 CPI figures showing just 0.3% YoY growth will only worry them more. The correct inflation number for policy should be the GDP Deflator, not CPI, but it is also pitifully low and dragging down both RGDP and NGDP.

JA NGDPLT-UK

But whose responsibility is NGDP growth? It is no good Osborne worrying about it and then doing nothing. The Treasury sets the targets for Bank of England monetary policy.

Monetary Policy Framework: The Bank’s monetary policy objective is to deliver price stability – low inflation – and, subject to that, to support the Government’s economic objectives including those for growth and employment. Price stability is defined by the Government’s inflation target of 2%. The remit recognises the role of price stability in achieving economic stability more generally, and in providing the right conditions for sustainable growth in output and employment. The Government’s inflation target is announced each year by the Chancellor of the Exchequer in the annual Budget statement.

Is Mark Carney concerned by low NGDP growth? Not at all by the sound of it. He is still obsessed by managing to the Bank’s own forecast for CPI two years out, and keeping that forecast below 2%. He has UK the monetary policy set firmly for tightening. The evidence was crystal clear in this exchange  at the February press conference:

 Sam Nussey, Nikkei: Governor, with the BOJ having joined the ECB Switzerland, Sweden, Denmark, and having used negative rates, do you see negative rates as part of the BOE’s arsenal and could you envisage a situation in which they would be used?

 Mark Carney: Well let me start that discussion we had at the MPC was whether now was the right time to raise interest rates. And the judgement, as you’ve seen nine to nil, was that now was not the right time to raise interest rates, but we had a forecast – we have a forecast – which requires some increases in interest rates in order to sustainably achieve the inflation target.

And the markets understand this tightening bias, just look at UK stock markets and UK government bond yields. Sterling has been relatively weak vs the even tighter USD, and on rising trend vs the EUR although weak just recently.

The result is both lower and lower NGDP growth and lower and lower NGDP growth expectations.

Something has to change and it has to be led by Osborne and the Treasury. Central bankers change little once in office.

Osborne wants to follow his instinct and balance the budget by 2018 despite the most vocal mainstream macro-economists urging him not to. It’s sad that most are crypto-Corbynites, but that is social science academia for you, there are no jobs for free-marketers. It’s an increasingly closed shop for anyone not a socialist. Fortunately, students, and more importantly voters, aren’t so dogmatic. Our university social science departments will become like old theology colleges, with the professors just chatting amongst themselves.

Yet when Osborne ordered an inquiry into possible changes to the inflation target mandate he meekly accepted the macroeconomic consensus that there was no need to change, in fact it would be a bad thing. To his credit the crypto-Corbynites are amongst the most sympathetic to NGDP Targeting, but he shouldn’t let that worry him – they much still prefer big deficits over monetary policy.

Osborne needs to show some leadership about NGDP Targeting and not just the deficit. He should keep the CPI target if he has to, but combine the price stability and growth and employment targets into one NGDP Target. It really isn’t that difficult to understand.  He and his advisers can read some of the answers to the very weak mainstream macro criticisms here and here .

The ONS might need to raise its game a bit, but calculating NGDP really should be easier, faster and more reliable than RGDP. They should relegate the very tricky Output method of calculating GDP to the third choice (like in the US) and promote either the easier Expenditure method to first place (like in the US) or Income. The Output method was preferred once upon a time when advanced economies grew, dug or made stuff (i.e. agriculture, mining, manufacturing). The output of the dominant services sector cannot be so easily measured.

Market Monetarism & Divine Coincidence

Tyler Cowen wrote How tight is monetary policy now?, and some remarks on ngdp and market monetarism:

Given that I don’t see monetary policy as so tight right now, I suggested that if we have a recession it was likely to be a risk premium recession.  The big uptick in gold prices is consistent with this view, though hardly proof of it.

So what is the context here?  I am worried that if the United States has a recession this year (still unlikely, in my view, but maybe 20%?), that recession will be blamed on “tight money.”

To get more specific yet, I am very much a fan of the ngdp rule approach to monetary policy, but I am uncomfortable with one strand in market monetarist thought.  I worry when low ngdp growth is blamed for low growth rates of real gdp.

I don´t understand Tyler. After all, in Chapter 12 of his Modern Macroeconomic Principals textbook “Business Fluctuations and the Dynamic Aggregate Demand-Aggregate Supply model”, we see variants of this chart (AD is given by the growth of NGDP as in m+v=p+y, (where lower case letters denote rates of growth):

TCowen_1

From the chart, you see that a fall in NGDP growth results in lower RGDP growth (and lower inflation).

Nick Rowe commented in Targeting, Tautologies, and Double Divine Coincidence  concluding:

  1. Now what is really weird is that the real world did in fact seem to be a place where double divine coincidence were true.Until it wasn’t. An outside observer, who did not know that central banks were targeting inflation (OK, it was CPI not GDP deflator inflation), and who mistakenly thought they were targeting NGDP instead, would infer from the data that stabilising NGDP did indeed seem to be consistent with stabilising RGDP, and that the NGDP version of divine coincidence were true. Furthermore, that outside observer would see no reason to change his mind since the recent recession. It is the P version of divine coincidence that has failed empirically, when we look around the world. The NGDP version of divine coincidence is hanging in there.

He had written up on that a few years back:

Inflation targeting seemed to work pretty well, and the theory about why it worked pretty well came after, not before, the policy itself. But any outside observer, who looked at the data, but didn’t know that the Bank of Canada said it was doing IT, could equally well have asked: “Why does PLTwork pretty well?” or “Why does NGDPLT work pretty well?”. But nobody asked those questions, of course. Since the Bank of Canada said it was doing IT, it must be IT, rather than PLT or NGDPLT, that seemed to work pretty well. With hindsight, we were daft, because we let the Bank of Canada frame the question for us.

All we know from 1992-2008 data is that either IT or PLT or NGDPLT seemed to work pretty well, but we don’t know whichIt took a shock to let us see the difference.

Since IT seemed to work pretty well, and I never thought that maybe it was PLT or NGDPLT that seemed to work pretty well, I became a supporter of IT.

Then the facts changed.

And I had provided some illustrations in 3 Dogs, two didn´t bark.

And this post provides what I believe is great visual evidence in favor of the NGDP version of “divine coincidence”, which I reproduce here:

TCowen_2

TCowen_3

 

Michael Woodford Endorses A Tax-Cuts-And-QE-Regime

A Benjamin Cole post

Since becoming a devout Market Monetarist, I have pondered not the goal but the how—how does the U.S. Federal Reserve and federal government meaningfully target nominal growth in GDP at an appropriate level, i.e. NGDPLT?

It may be that plain-vanilla QE, without the straitjacket of interest on excess reserves, would be effective. It appears QE was effective in the United States, especially the open-ended QE 3, even when hamstrung by interest on excess reserves.

But I have also been curious about marrying QE to tax cuts, such as a tax holiday on Social Security and Medicare taxes (the FICA taxes), with the lost revenues supplanted by the bonds obtained through QE. The FICA tax cut scheme has the additional benefit of lowering the cost of employment (remember, employers pay half of FICA taxes) at the very time that unemployment is a problem.

Michael Woodford

I had assumed my tax cuts+QE scheme would never appeal to serious economists, as it is suspiciously close to monetizing the debt, if not outright money-printing to run the federal budget.

But it turns out the highly regarded and deferred to Michael Woodford, the Colombia University professor, also backs tax cuts+QE!  Woodford has accolades too numerous to mention, and gets invited to the Kansas City Fed’s annual Jackson Hole confab as a speaker.

In a 2013 interview for VOX, the policy portal for the Center for Economic Policy Research, Woodford said of a QE-and-tax-cuts regime:

“I believe that one could achieve a similar effect, with equally little need to rely upon people having sophisticated expectations, through a bond-financed fiscal transfer, combined with a commitment by the central bank to a nominal GDP target path (the one that would involve the same long-run path for base money as the other two policies).

The perfect foresight equilibrium would be exactly the same in this case as well; and as in the case of helicopter money, the fact that people get an immediate transfer would make the policy simulative even if many households fail to understand the consequences of the policy for future conditions, or are financially constrained. Yet this alternative would not involve the central bank in making transfers to private parties, and so would preserve the traditional separation between monetary and fiscal policy.”

True, Woodford leaves open whether the “fiscal transfer” is tax cuts or direct spending. But I think most economists would concur that leaving money in the private sector is better than public spending, and so we can say, ceteris paribus, Woodford endorses tax-cuts+QE.

Conclusion

Back when the U.S. space program was in the early and televised days, NASA did not refer to the Atlas or Gemini or Mercury rockets as “blasting off.” Too cartoon-y. So, NASA used the words “lift off” to describe a launch, even though “blast off” is more correct.

Woodford appears the very epitome on erudition and intellect, deeply committed to his craft. But obscurantism is everywhere.

What Woodford is saying is, “Print money and finance federal deficits with it.”

He also says no promise should be made to unprint the money.

So…why is Michael Woodford not the Chairman of Federal Reserve?