Massive monetary accommodation

I tried working on a similar piece over the Christmas break. It was about how pro bono banking patriot Jamie Dimon praised governor Rick Snyder of Michigan for not just “throwing money at a problem.”  One of the problems Governor Snyder did not throw money at was the problem of getting the children of Flint Michigan unleaded water that would not reduce their IQs.

Governor Snyder is now building a legal war chest in the event that he joins other state officials and faces criminal indictment over this issue.  While he is “not worried”, it seems he is willing to “throw money” at some issues but not at others.  This is not something that pro bono banking patriot Jamie Dimon mentioned while making his businessmen-know-best case for fiscal prudence in his “interview” last month.

Alas, it is also not something that warrants a separate post, as that would be a bit repetitive. I assume you get by now that I believe that the corporate media are a bunch of quislings and suck ups, to generalize, and that their hanging on Jamie Dimon’s every predictably self-serving utterance is mostly just evidence of that.


Pro bono banking patriot Jamie Dimon plus a doubling of the SAAR fixed Detroit.

So I the point is, I don’t got much new here.  While I am “working” on my more serious piece, I figure I will use this post as a place to hold my usual random half thoughts.  Here is the first of those.

Via VoxEu, I see Donato Masciandaro explaining why central banks like to show a bit of inertia in moving interest rates, balance sheet size or policy instruments.  Sadly, I got only as far as this passage before bailing:

 In the aftermath of the severest recession since WWII, the Fed faces extraordinary challenges in designing and implementing monetary policy. The overall result has been massive monetary accommodation with interest rates close to zero, coupled with an exceptional expansion of the Fed’s balance sheet.  The Great Recession ended in June 2009, but seven years on, the Fed is still delaying the process of returning to normal. Expansionary monetary policy has been implemented long after the recession ended, raising questions over the drivers and consequences of monetary inertia – in this case, reluctance to leave the ultra-expansionary monetary status quo to start a policy of interest rate normalisation.

 I don’t see the point of calling calling what the Fed (or others) have done as “massive accommodation” or “ultra-expansionary”, although I would credit the second of those two descriptions as at least meaning something.  Accommodation is strategically meaningless and designed for plausible deniability in the event of… … well what has actually happened.

During this expansion in the US, headline inflation inflation – and various measurs of its underlying trend – have run about ½ a percentage point a year below target and the unemployment rate (not shown) has taken almost a full decade to renormalize.  If this is the result of ultra stimulus, I would hate to see “normal” monetary policy.


Lines from origins are designed to highlight chronic misses to downside, not to imply necessarily that the Fed should make up for bygones, although I am not personally opposed to that. Incidentally, I have noticed that the bias in the trimmed mean PCE deflator is very sensitive to sample. Perhaps more on that later.

I know a standard retort to this.  Monetary policy cannot be assessed in a vacuum and economic results would have been a lot worse were it not for the central banks’ efforts. I agree with the spirit of that, but insist that it does not go nearly far enough.  Monetary policy is what is produces.  And if it does not produce the results associated with stimulus, then it has not been stimulative.

My point here is not to get bogged down in a pointless debates about semantics or much worse essences. All these stories are merely emergent, my favorite new concept which I very belatedly learned just last year from Sean Carroll.

But by far the more coherent story here is that in the wake of the crisis, desired savings spiked and the desire to invest in risky projects collapsed, which took down the equilibrium interest rate to below the zero bound. Accordingly, monetary policy was constrained to be insufficiently stimulative. So-called “normalization” of rates would have been lower, not higher, but it was prevented by the zero bound. (Importantly conditions have evolved.  See prior post.)

Is this complicated? It is less than a year ago now that the academic geniuses were all riled up about helicopter money, which was meant to be the way of getting around policy that was otherwise constrained to be too tight. Before that, it was QE.

I ought not generalize, because there are good academics and bad academics. But as a general point, the ease with which these academics cluster around silly ideas is really an embarrassment to the profession.  And it is particularly amusing when they respond to the inevitable result of their being ignored by asking, why why why won’t the politicians and electorate listen to us us technocrats who so clearly know best.

(I spent 25 years trying to resist Wall Street’s anti-intellectual and anti-academic zeitgeist. Not having a PhD, I feared being too critical would seem just like sour grapes. Plus those guys know a lot that I don’t. But  massive monetary accommodation and h money stopped me out. I am now well represented by that scene in Young Frankenstein where Gene Wilder simply embraces his inevitable nature.)