Roger Farmer’s Prosperity for All

I have just read a review copy of Roger Farmer’s new book Prosperity for All, which distills many of Roger’s very interesting ideas into a form which, though readable, is still challenging — at least, it was for me. There is a lot that I like and agree with in Roger’s book, and the fact that he is a UCLA economist, though he came to UCLA after my departure, is certainly a point in his favor. So I will begin by mentioning some of the things that I really liked about Roger’s book.

What I like most is that he recognizes that beliefs are fundamental, which is almost exactly what I meant when I wrote this post (“Expectations Are Fundamental”) five years ago. The point I wanted to make is that the idea that there is some fundamental existential reality that economic agents try — and, if they are rational, will — perceive is a gross and misleading oversimplification, because expectations themselves are part of reality. In a world in which expectations are fundamental, the Keynesian beauty-contest theory of expectations and stock prices (described in chapter 12 of The General Theory) is not absurd as it is widely considered to be believers in the efficient market hypothesis. The almost universal unprofitability of simple trading rules or algorithms is not inconsistent with a market process in which the causality between prices and expectations goes in both directions, in which case anticipating expectations is no less rational than anticipating future cash flows.

One of the treats of reading this book is Farmer’s recollections of his time as a graduate student at Penn in the early 1980s when David Cass, Karl Shell, and Costas Azariadis were developing their theory of sunspot equilibrium in which expectations are self-fulfilling, an idea skillfully deployed by Roger to revise the basic New Keynesian model and re-orient it along a very different path from the standard New Keynesian one. I am sympathetic to that reorientation, and the main reason for that re-orientation is that Roger rejects the idea that there is a unique equilibrium to which the economy automatically reverts, albeit somewhat more slowly than if speeded along by the appropriate monetary policy, on its own. The notion that there is a unique equilibrium to which the economy automatically reverts is an assumption with no basis in theory or experience. The most that the natural-rate hypothesis can tell us is that if an economy is operating at its natural rate of unemployment, monetary expansion cannot permanently reduce the rate of unemployment below that natural rate. Eventually — once economic agents come to expect that the monetary expansion and the correspondingly higher rate of inflation will be maintained indefinitely — the unemployment rate must revert to the natural rate. But the natural-rate hypothesis does not tell us that monetary expansion cannot reduce unemployment when the actual unemployment rate exceeds the natural rate, although it is often misinterpreted as making that assertion.

In his book, Roger takes the anti-natural-rate argument a step further, asserting that the natural rate of unemployment rate is not unique. There is actually a range of unemployment rates at which the economy can permanently remain; which of those alternative natural rates the economy winds up at depends on the expectations held by the public about nominal future income. The higher expected future income, the greater consumption spending and, consequently, the greater employment. Things are a bit more complicated than I have just described them, because Roger also believes that consumption depends not on current income but on wealth. However, in the very simplified model with which Roger operates, wealth depends on expectations about future income. The more optimistic people are about their income-earning opportunities, the higher asset values; the higher asset values, the wealthier the public, and the greater consumption spending. The relationship between current income and expected future income is what Roger calls the belief function.

Thus, Roger juxtaposes a simple New Keynesian model against his own monetary model. The New Keynesian model consists of 1) an investment equals saving equilibrium condition (IS curve) describing the optimal consumption/savings decision of the representative individual as a locus of combinations of expected real interest rates and real income, based on the assumed rate of time preference of the representative individual, expected future income, and expected future inflation; 2) a Taylor rule describing how the monetary authority sets its nominal interest rate as a function of inflation and the output gap and its target (natural) nominal interest rate; 3) a short-run Phillips Curve that expresses actual inflation as a function of expected future inflation and the output gap. The three basic equations allow three endogenous variables, inflation, real income and the nominal rate of interest to be determined. The IS curve represents equilibrium combinations of real income and real interest rates; the Taylor rule determines a nominal interest rate; given the nominal rate determined by the Taylor rule, the IS curve can be redrawn to represent equilibrium combinations of real income and inflation. The intersection of the redrawn IS curve with the Phillips curve determines the inflation rate and real income.

Roger doesn’t like the New Keynesian model because he rejects the notion of a unique equilibrium with a unique natural rate of unemployment, a notion that I have argued is theoretically unfounded. Roger dismisses the natural-rate hypothesis on empirical grounds, the frequent observations of persistently high rates of unemployment being inconsistent with the idea that there are economic forces causing unemployment to revert back to the natural rate. Two responses to this empirical anomaly are possible: 1) the natural rate of unemployment is unstable, so that the observed persistence of high unemployment reflect increases in the underlying but unobservable natural rate of unemployment; 2) the adverse economic shocks that produce high unemployment are persistent, with unemployment returning to a natural level only after the adverse shocks have ceased. In the absence of independent empirical tests of the hypothesis that the natural rate of unemployment has changed, or of the hypothesis that adverse shocks causing unemployment to rise above the natural rate are persistent, neither of these responses is plausible, much less persuasive.

So Roger recasts the basic New Keynesian model in a very different form. While maintaining the Taylor Rule, he rewrites the IS curve so that it describes a relationship between the nominal interest rate and the expected growth of nominal income given the assumed rate of time preference, and in place of the Phillips Curve, he substitutes his belief function, which says that the expected growth of nominal income in the next period equals the current rate of growth. The IS curve and the Taylor Rule provide two steady state equations in three variables, nominal income growth, nominal interest rate and inflation, so that the rate of inflation is left undetermined. Once the belief function specifies the expected rate of growth of nominal income, the nominal interest rate consistent with expected nominal-income growth is determined. Since the belief function tells us only that the expected nominal-income growth equals the current rate of nominal-income growth, any change in nominal-income growth persists into the next period.

At any rate, Roger’s policy proposal is not to change the interest-rate rule followed by the monetary authority, but to propose a rule whereby the monetary authority influences the public’s expectations of nominal-income growth. The greater expected nominal-income growth, the greater wealth, and the greater consumption expenditures. The greater consumption expenditures, the greater income and employment. Expectations are self-fulfilling. Roger therefore advocates a policy by which the government buys and sells a stock-market index fund in order to keep overall wealth at a level that will generate enough consumption expenditures to support maximum sustainable employment.

This is a quick summary of some of the main substantive arguments that Roger makes in his book, and I hope that I have not misrepresented them too badly. As I have already said, I very much sympathize with his criticism of the New Keynesian model, and I agree with nearly all of his criticisms. I also agree wholeheartedly with his emphasis on the importance of expectations and on self-fulfilling character of expectations. Nevertheless, I have to admit that I have trouble taking Roger’s own monetary model and his policy proposal for stabilizing a broad index of equity prices over time seriously. And the reason I am so skeptical about Roger’s model and his policy recommendation is that his model, which does after all bear at least a family resemblance to the simple New Keynesian model, strikes me as being far too simplified to be credible as a representation of a real-world economy. His model, like the New Keynesian model, is an intertemporal model with neither money nor real capital, and the idea that there is an interest rate in such model is, though theoretically defensible, not very plausible. There may be a sequence of periods in such a model in which some form of intertemporal exchange takes place, but without explicitly introducing at least one good that is carried over from period to period, the extent of intertemporal trading is limited and devoid of the arbitrage constraints inherent in a system in which real assets are held from one period to the next.

So I am very skeptical about any macroeconomic model with no market for real assets so that the interest rate interacts with asset values and expected future prices in such a way that the existing stock of durable assets is willingly held over time. The simple New Keynesian model in which there is no money and no durable assets, but simply bonds whose existence is difficult to rationalize in the absence of money or durable assets, does not strike me as a sound foundation for making macroeconomic policy. An interest rate may exist in such a model, but such a model strikes me as woefully inadequate for macroeconomic policy analysis. And although Roger has certainly offered some interesting improvements on the simple New Keynesian model, I would not be willing to rely on Roger’s monetary model for the sweeping policy and institutional recommendations that he proposes, especially his proposal for stabilizing the long-run growth path of a broad index of stock prices.

This is an important point, so I will try to restate it within a wider context. Modern macroeconomics, of which Roger’s model is one of the more interesting examples, flatters itself by claiming to be grounded in the secure microfoundations of the Arrow-Debreu-McKenzie general equilibrium model. But the great achievement of the ADM model was to show the logical possibility of an equilibrium of the independently formulated, optimizing plans of an unlimited number of economic agents producing and trading an unlimited number of commodities over an unlimited number of time periods.

To prove the mutual consistency of such a decentralized decision-making process coordinated by a system of equilibrium prices was a remarkable intellectual achievement. Modern macroeconomics deceptively trades on the prestige of this achievement in claiming to be founded on the ADM general-equilibrium model; the claim is at best misleading, because modern macroeconomics collapses the multiplicity of goods, services, and assets into a single non-durable commodity, so that the only relevant plan the agents in the modern macromodel are called upon to make is a decision about how much to spend in the current period given a shared utility function and a shared production technology for the single output. In the process, all the hard work performed by the ADM general-equilibrium model in explaining how a system of competitive prices could achieve an equilibrium of the complex independent — but interdependent — intertemporal plans of a multitude of decision-makers is effectively discarded and disregarded.

This approach to macroeconomics is not microfounded, but its opposite. The approach relies on the assumption that all but a very small set of microeconomic issues are irrelevant to macroeconomics. Now it is legitimate for macroeconomics to disregard many microeconomic issues, but the assumption that there is continuous microeconomic coordination, apart from the handful of potential imperfections on which modern macroeconomics chooses to focus is not legitimate. In particular, to collapse the entire economy into a single output, implies that all the separate markets encompassed by an actual economy are in equilibrium and that the equilibrium is maintained over time. For that equilibrium to be maintained over time, agents must formulate correct expectations of all the individual relative prices that prevail in those markets over time. The ADM model sidestepped that expectational problem by assuming that a full set of current and forward markets exists in the initial period and that all the agents participating in the economy are present and endowed with wealth enabling them to trade in the initial period. Under those rather demanding assumptions, if an equilibrium price vector covering all current and future markets is arrived at, the optimizing agents will formulate a set of mutually consistent optimal plans conditional on that vector of equilibrium prices so that all the optimal plans can and will be carried out as time happily unfolds for as long as the agents continue in their blissful existence.

However, without a complete set of current and forward markets, achieving the full equilibrium of the ADM model requires that agents formulate consistent expectations of the future prices that will be realized only over the course of time not in the initial period. Roy Radner, who extended the ADM model to accommodate the case of incomplete markets, called such a sequential equilibrium, an equilibrium of plans, prices and expectations. The sequential equilibrium described by Radner has the property that expectations are rational, but the assumption of rational expectations for all future prices over a sequence of future time periods is so unbelievably outlandish as an approximation to reality — sort of like the assumption that it could be 76 degrees fahrenheit in Washington DC in February — that to build that assumption into a macroeconomic model is an absurdity of mind-boggling proportions. But that is precisely what modern macroeconomics, in both its Real Business Cycle and New Keynesian incarnations, has done.

If instead of the sequential equilibrium of plans, prices and expectations, one tries to model an economy in which the price expectations of agents can be inconsistent, while prices adjust within any period to clear markets – the method of temporary equilibrium first described by Hicks in Value and Capital – one can begin to develop a richer conception of how a macroeconomic system can be subject to the financial disturbances, and financial crises to which modern macroeconomies are occasionally, if not routinely, vulnerable. But that would require a reorientation, if not a repudiation, of the path on which macroeconomics has been resolutely marching for nigh on forty years. In his 1984 paper “Consistent Temporary Equilibrium,” published in a volume edited by J. P. Fitoussi, C. J. Bliss made a start on developing such a macroeconomic theory.

There are few economists better equipped than Roger Farmer to lead macroeconomics onto a new and more productive path. He has not done so in this book, but I am hoping that, in his next one, he will.

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24 Responses to “Roger Farmer’s Prosperity for All”


  1. 1 Rob Rawlings February 24, 2017 at 5:14 pm

    I’m going to have to read this again to understand it more fully, but I have a question on

    ‘ There is actually a range of unemployment rates at which the economy can permanently remain; which of those alternative natural rates the economy winds up at depends on the expectations held by the public about nominal future income’

    I’m not really seeing how this really differs from the standard natural rate theory. At any point in time the unemployment rate will be determined by many variables including expectations held by the public about nominal future income. If anything changes to any of these variables – the natural rate changes. This seem equally true of the standard concept of the natural rate as of the one that Roger is claiming as distinct.

    Am I missing something ?

  2. 2 Dwayne Woods February 25, 2017 at 12:10 pm

    Anwar Shaikh’s recent book is more convincing. Unfortunately, the writing is not fluid and clear in the way Farmer.

  3. 3 Basil H February 25, 2017 at 1:23 pm

    Great post (even if I don’t agree with everything here!).

  4. 4 Harry Chernoff February 25, 2017 at 7:43 pm

    The recommendation that the Fed stabilize the economy via equity futures sounds a lot like the market monetarists and Scott Sumner’s NGDP level targeting via a Fed-stabilized NGDP futures market.

    This sounds plausible until the global financial sector shows up, leverages the perceived stability as much as the credit system (including shadow banks) will allow, and then does really well until Minsky’s Financial Instability Hypothesis comes into play. Or, as Oaktree’s Howard Marks likes to say, “markets abhor certainty.”

    Please comment on this.

  5. 5 Frank Restly February 26, 2017 at 8:40 am

    David,

    “Roger therefore advocates a policy by which the government buys and sells a stock-market index fund in order to keep overall wealth at a level that will generate enough consumption expenditures to support maximum sustainable employment.”

    1. Is Roger referring to government purchases of this index fund paid out of tax revenue or direct Federal Open Market Committee purchases?

    2. How does Roger address the fact that a lot of equity is held in tax deferred / retirement savings accounts that cannot be drawn upon to fund expenditures? FOMC purchases of equity may increase net worth, but that increase may not translate into additional consumption.

    3. How does Roger address the political and legal implications of purchases of equity:

    https://www.federalreserve.gov/aboutthefed/section14.htm

    What Roger is advocating is not permissible under current law. Why would Congress allow it?

  6. 6 Frank Restly February 26, 2017 at 9:08 am

    Harry,

    “This sounds plausible until the global financial sector shows up, leverages the perceived stability as much as the credit system…”

    Why would the financial sector leverage up (borrow money) when they can instead just print off a couple trillion new bank shares and have the central bank purchase them? The same could be said of company or individual that wants additional money – just create your own company (no employees or production required) and print off shares from your home computer.

    And so, isn’t this just thinly veiled direct monetary expansion (helicopter money)? Me, Inc. selling shares to the central bank would be no different than the central bank dropping stacks of $100 bills onto my front lawn.

  7. 7 Harry Chernoff February 26, 2017 at 9:49 am

    Frank:

    Two entirely different concepts. A central bank GDP growth stabilization program via buying/selling equity futures (Farmer) or NGDP futures (Sumner) is not helicopter money. Moreover, even in these theoretical programs, the central bank is buying/selling at the level of the entire market or the entire economy, not individual companies diluting their shareholders in the way you’re describing.

    I’m addressing the claim Minsky made that stability is destabilizing, equivalent to Marks’ comment that markets abhor certainty. This type of stability breeds excess leverage. That is the history of markets. Unfortunately, conventional economics modeling ignores banking, private bank credit creation, and leverage. It’s a big reason the conventional models always trend towards equilibrium (even it’s a subpar equilibrium) even with sticky wages and prices and never explode in destructive and non-linear ways, like 2007-2009.

  8. 8 Frank Restly February 26, 2017 at 10:25 am

    Harry,

    “Two entirely different concepts. A central bank GDP growth stabilization program via buying/selling equity futures (Farmer) or NGDP futures (Sumner) is not helicopter money.”

    Certainly it is. Your presumption is that equity or NGDP contracts represents a claim on real assets or future positive cash flows.

    Companies / individuals can sell equity while maintaining a negative cash flow and having zero real assets – see Nasdaq circa 1999-2000. Many of those companies never turned a profit and went defunct. Farmer seems to be saying that the central bank should support those companies as long as they are part of some index.

    It is unclear from what I have read on NGDP contracts – whose liability is an NGDP contract – is it a central bank liability, is it a tax payer liability, is it someone else’s liability?

    “Moreover, even in these theoretical programs, the central bank is buying/selling at the level of the entire market or the entire economy, not individual companies diluting their shareholders in the way you’re describing.”

    There is not a single index out there (SP500, Wilshire 5000, NASDAQ, etc.) that encompasses the “entire economy”. So I presume that some index would be created to encompass every incorporated enterprise out there – small or large.

    It’s a simple question – as part of this “entire economy” index, my company named “Me, Inc.” doesn’t employ anyone and doesn’t produce any goods. Why shouldn’t I print off a couple of trillion shares knowing the central bank will be buying them when they buy the index that “Me, Inc.” is part of?

  9. 9 Ilya February 26, 2017 at 11:24 am

    Fantastic post! Roger farmer sounds like what you would get if you converted Scott sumner to Keynesian economics. But I have two questions.

    First, could George selgin respond with the theory and history of free banking that economies do, contrary to farmer, naturally return to their natural rate of employment? After all, you know about this literature.

    Second, likewise, couldn’t a mainstream economist argue that if you take out your stopwatch and wait enough time then eventually prices and wages and debt contracts will adjust. There is no theoretical reason why this can’t be so. It’s just a matter of time. In fact, that’s what economists teach in Econ 101 about supply and demand, predicts that just this will happen given enough time.

  10. 10 Harry Chernoff February 27, 2017 at 8:36 am

    Frank:

    I’ll comment on two major misconceptions.

    First, the essential distinction between what Farmer or Sumner are proposing and helicopter money is that the central bank buy/sell stabilization policy is literally buy & sell. Helicopter money is defined as a permanent. There is no sell. For me, the best technical discussion of everything leading up to helicopter money (if one chooses to go there) and what the risks are is Adair Turner’s Between Debt and the Devil.

    Second, Sumner proposes NGDP futures as the metric for central bank stabilization. That is exactly the entire economy index that you correctly claim does not exist today. Farmer’s proposal, if I understand it correctly, would be more narrow but there is no reason the third-party creators of any widely tradable index (e.g., Standard & Poors) would want your trillion-share-issuance scam as part of their index. There is also no reason the central bank would want to make those securities part of anything it buys. This also assumes the central bank has much more liberal buy/sell authority than today.

    My criticism is that if we start with a legitimate index comprising legitimate securities and the central bank is successful in stabilizing NGDP growth by buying and selling the index or the underlying securities, that in itself will be highly destabilizing in the way Minsky described. It has nothing to do with helicopter money or scam securities issuers.

  11. 11 David Glasner February 27, 2017 at 11:04 am

    Rob, I think the difference is in the assumption about how expectations are formed. In the standard version, there is a unique equilibrium “ground out by the equations of the Walrasian general equilibrium system. If the expectations are inconsistent with the equilibrium, then expectations change until the unqiue Walrasian equilibrium is achieved. In Roger’s version, expectations don’t change and the equilibrium is maintained indefinitely.

    Dwayne, I’ll have to have a look at it. But, it’s a big book.

    Basil, Many thanks. Curious to hear about what you disagree with.

    Harry, I think that Scott and Roger do have a lot in common. Roger discusses the similarities and differences between himself and Scott in the final chapter.

    Frank, I assume that he is talking about money creation or destruction to buy and sell shares in the index fund.

    I’m not sure how Roger would handle the issue of tax deferment. To some extent people could finance consumption by borrowing against equity, but I agree that not everyone is in a position to do so.

    I assume that Roger is proposing that Congress enact whatever enabling legislation would be necessary to allow his proposal to be implemented. Presumably they would do so only if they were convinced by Roger’s argument.

    Ilya, Thanks. On your first question, it would not surprise me if George would argue that under a free banking system and otherwise appropriate institutions, markets would be self-correcting. I think that free banking has some nice properties, but I don’t regard it as a cure-all. In my book on free banking, I discussed potential instability from inefficient price level behavior. As I have gotten older, and possibly wiser, I have become more skeptical of the stability properties of free banking and market economies, there being no economic theory that shows that an entire economy can ever find or even approach a potential equilibrium state. There may be no theoretical reason why it can’t, but there is no theoretical reason that it will. The analogy to a single market is just an analogy, not a logical proof.

  12. 12 richclayton3 February 27, 2017 at 11:47 am

    Frank, in various publications including this book, Farmer is pretty clear that he wants the central bank to pick an equity index (he usually chooses the S&P 500 for his data analysis) and then to target a particular PE ratio for that index. So, in order for an individual company to exploit this policy approach, it would have to be included in the relevant index, and maintain its membership in that index, and either have a small enough impact on the index’s PE ratio such that it does not trigger selling rather than buying by the CB when the exploiting company issues lots of new equity even as its net income/free cash flow/whatever is stable or falling. Maybe that could happen, but there would be immense risks to this strategy, including expulsion from the index (and there a small but far from insignificant amount of churn monthly in the widely used equity indexes), and opposition from shareholders (almost all states would require an equity issuance on such scale to be approved by shareholders, I believe).

  13. 13 richclayton3 February 27, 2017 at 11:49 am

    Henry, I’m a big Minsky fan, but I don’t really see why having a major equity index trade only in a narrow range around its historically average PE ratio would be destabilizing. What am I missing?

  14. 14 Benjamin Cole February 27, 2017 at 10:36 pm

    First-rank blogging. Kudos to David Glasner.

    “There is actually a range of unemployment rates at which the economy can permanently remain; which of those alternative natural rates the economy winds up at depends on the expectations held by the public about nominal future income. The higher expected future income, the greater consumption spending and, consequently, the greater employment.”

    I like this idea, which fits in with this simple idea: Higher wages will attract more people into the job market.

    Populations are malleable, we know that.

    Women can enter the workforce or not; people can retire early, or late. The norm can be teenagers work, or they do not work. The 40-hour workweek can supplant the 48-hour week as a norm, and then the 60-hour-a-week professionals develop a new norm.

    Also, SSDI rolls can reach 9 million, with another 4 million on VA disability.

    And yes, men can become dispirited, take drugs and play video games.

    And so…

    “Roger therefore advocates a policy by which the government buys and sells a stock-market index fund in order to keep overall wealth at a level that will generate enough consumption expenditures to support maximum sustainable employment.”

    This one throws me.

    Why not simple helicopter drops to offset tax cuts on the middle- and lower-classes. Not because those classes are virtuous, but because they will spend the money. I suggest FICA tax cuts offset by printing up money and giving it to the Social Security fund. A helicopter drop ion the Social Security fund.

    This would also lower the cost of employment (remember, employers kick in half) and increase demand for labor.

    Adair Turner has been doing some interesting writing on helicopter drops.

  15. 15 Harry Chernoff February 28, 2017 at 6:47 am

    Rich:

    If the central bank pegged the growth rate in any asset class as a way to stabilize NGDP growth, the incentive on the financial side of the market would be to leverage up that stable asset class as much as possible.

    Consider, for example, how mortgage REITs operate. Right now, a typical mREIT invested in long-term agency MBS is leveraged about 7x on a spread between long-term yield and short-term funding costs of about 1.5%. It’s a perpetual money machine so long as the spreads are relatively stable and the slope of the yield curve doesn’t change too much in a short-period of time.

    If the central bank pegged all of these variables and guaranteed their stability as a means of stabilizing NGDP growth, why would any mREIT stop at 7x leverage? It wouldn’t. This is somewhat analogous to what the Fannie and Freddie were doing (at more like 50x leverage) leading up to the financial crisis. Fannie and Freddie were certain that the housing, mortgage, and funding markets were stable and would remain so indefinitely. And of course, as soon as there were any risks to stability, the excess leverage throughout the banking and shadow banking system blew up in a hurry. The system could not have imploded the way it did if leverage had been much lower.

  16. 16 Frank Restly February 28, 2017 at 10:32 am

    Harry,

    “First, the essential distinction between what Farmer or Sumner are proposing and helicopter money is that the central bank buy/sell stabilization policy is literally buy & sell. Helicopter money is defined as a permanent.”

    That permanence is a simple matter of choice. The central bank can drop a stack of $100 bills on my back porch and I can chose either to pick them up and use them (permanent money) or set a blow torch to them (non permanent money). Likewise, the central bank can buy $100 of shares from me and I can chose either to never buy them back (permanent money) or buy them back (non permanent money).

    The essential distinction between permanent money and non-permanent money is the legal protection given to creditors. As a share seller, I am under no legal obligation to ever buy those shares back. As a debt seller (borrower), I am under a legal obligation to buy that debt back (pay it off).
    Hence borrowed money (that must legally be paid back) is considered non-permanent and money from the sale of shares is considered permanent.

    “Farmer’s proposal, if I understand it correctly, would be more narrow but there is no reason the third-party creators of any widely tradable index (e.g., Standard & Poors) would want your trillion-share-issuance scam as part of their index.”

    Of course I wouldn’t come out and say that I am running a scam company. Even in the Standard and Poors there are companies that are operating at a loss as well as companies that run at a profit. Are those companies that are losing money all running scam operations? How does the central bank know the difference between companies that have are underdeveloped or have hit a rough patch and companies that are shams?

    “My criticism is that if we start with a legitimate index comprising legitimate securities and the central bank is successful in stabilizing NGDP growth by buying and selling the index or the underlying securities, that in itself will be highly destabilizing in the way Minsky described. It has nothing to do with helicopter money or scam securities issuers.”

    I understand your criticism completely. My own criticism lies along two lines – first central bank purchases of securities within an index (like the SP500) may provide a degree of favoritism for companies within that index. My second criticism is that such a system is ripe for fraud.

  17. 17 Henry February 28, 2017 at 9:44 pm

    Frank,

    I’d be happy to buy shares in your Me Inc. company.

    I have $5 billion in Monopoly money – how many shares could I buy?

  18. 18 Frank Restly February 28, 2017 at 10:15 pm

    Harry,

    Each Monopoly set contains $20,580.00 in “funny” money – and so $5 billion in Monopoly money constitutes all of the money from about 243,000 Monopoly games. If you happen to have the full Monopoly sets (all 240+ thousand of them), I would be happy to trade shares in Me, Inc. for those full sets.

    Each Monopoly board game retails for about $12 U. S. ($2.91 million total for all 243,000 sets). I figure I could undercut the market, sell them at $7-$9 per set, and still walk away a millionaire.

  19. 19 Henry March 1, 2017 at 12:21 am

    Frank,

    Now you have me worried. Are you saying my Monopoly cash hoard is counterfeit?

    My man in Cairo assured me that they were all genuine freshly minted M$500 bills (they fill a very large chest). He seemed more than happy when I provided him with the title to the Gold Gate Bridge in San Francisco in exchange.

    I tell you what, issue me with a million Me Inc. shares and I’ll throw in the title to the Panama Canal as a sweetner (you keep the chest for nothing too).

  20. 20 Frank Restly March 1, 2017 at 3:33 pm

    Harry,

    Interesting site:
    http://www.themarysue.com/monopoly-money-value/

    There are a lot of M$500 bills in M$5 billion dollars worth of monopoly money (10 million of them to be precise). Monopoly money is 4″ Long x 2.25″ Wide. That equates to about 100 million square inches of paper (about 64,500 sq meters). The stock of paper used for Monopoly money weighs about 75 grams / sq meter. And so you are talking about 4875 kilograms (10,747 lbs or about 5 tons of paper).

    http://www.recycle.cc/freepapr.htm

    Scrap paper is selling for between $130 and $150 per ton.

    So the scrap value of that M$5 billion dollars in Monopoly money is about $650-$750 dollars.

    I can print that share certificate of 1 million shares on a single sheet of 8 1/2″ x 11″ paper – you have a mailing address I can send it to?

  21. 21 Henry March 1, 2017 at 9:08 pm

    Frank,

    BTW, Harry is the guy making the sensible posts.

    I forgot to tell you that the M$5 billion is the ex bank vault value. You’ll have to carry the shipping costs. I can throw in the title to the Eiffel Tower, on top of everything else, to ease the pain.

  22. 22 Frank Restly March 2, 2017 at 9:41 am

    Henry,

    “BTW, Harry is the guy making the sensible posts.”

    Has it occurred to you that fraud does happen in the real world? Obviously I am giving an extreme example, but given the incentives borne from a central bank purchasing equity shares, it is conceivable.

  23. 23 Henry March 2, 2017 at 9:40 pm

    Hi Frank,

    Of course fraud is always an issue. However, creating shares in Me Inc. is a little far fetched. Farmer’s idea is also far fetched, but not quite as much as yours. 🙂


  1. 1 Richard Lipsey and the Phillips Curve Redux | Uneasy Money Trackback on March 2, 2017 at 11:40 am

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About Me

David Glasner
Washington, DC

I am an economist in the Washington DC area. My research and writing has been mostly on monetary economics and policy and the history of economics. In my book Free Banking and Monetary Reform, I argued for a non-Monetarist non-Keynesian approach to monetary policy, based on a theory of a competitive supply of money. Over the years, I have become increasingly impressed by the similarities between my approach and that of R. G. Hawtrey and hope to bring Hawtrey's unduly neglected contributions to the attention of a wider audience.

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