I have a bunch of things to attend to over the next month or so, so there will be few (if any) posts. I plan on working (the real job), taking a couple of trips (work- and non-work-related), thinking about a problem Cameron Murray suggested, and finishing up the first draft of the book (see here; I've been spending some time away from the draft, hoping to come back to it with new eyes).
I will also continue to be baffled by the stock-flow accounting advocates (see comments here and here). It seems more and more to be a paradigm akin to market monetarism to me. Market monetarism exists in order to deny the effectiveness of fiscal stimulus [as a primary policy tool]; Stock-flow accounting exists to deny the existence of any weakly-emergent properties of macroeconomies. Everything they seem to say is inconsistent with this picture:
Not this model, mind you, but the existence of this picture. The weakly-emergent travelling wave cannot exist -- even though this kind of weakly-emergent structure is perfectly consistent with strict accounting of the variables.
All I get in response are attempts to teach me accounting! Trust me -- accounting "theorems" don't quite rise to the level of Stokes' Theorem; this stuff is not complex except in vocabulary. I have degree in math with particular emphasis in topology and differential geometry. The discrete point set on which accounting is defined can't be more complex that the typical topology of the Cantor set. However, the main issue is that "you don't understand accounting" isn't particularly responsive to the question: Why are there no weakly-emergent (e.g. field) quantities in systems that obey accounting principles?
Is there some proof of this? It would be some kind of no-go theorem for certain covering spaces of a space defined by a set of functions on some discrete point set, network, or connected intervals. This is of course not generally true: all of solid state electronics is a counterexample, as well as things like temperature and pressure.
There would have to be something specific about the accounting equations that prevents this. However, accounting operators aren't exactly elliptic differential operators, so I have difficulty imagining a no-go theorem arising from addition and multiplication.
This may sound like I' trying to win an argument by bringing up a lot of high level mathematics, but that's actually what's at issue. Denying weakly emergent quantities is a pretty high level mathematical question about the properties of discrete spaces. I can't imagine it can be answered by double entry bookkeeping.
> Market monetarism exists in order to deny the existence of fiscal stimulus
ReplyDeleteThis is factually incorrect. David Beckworth, probably the 2nd-leading market monetarist, expressly calls for a fiscal backstop e.g. here:
http://ftalphaville.ft.com/2016/02/23/2154053/guest-post-the-fed-is-not-ready-for-the-next-recession/
Key passage:
> How to Make the Fix Credible
>
> As noted above, a NGDP growth path target should create its own
> self-fulling expectations of stable demand growth. One way to
> reinforce this tendency and insure against central bank incompetence
> is to have the U.S. Treasury Department provide an automatic backstop
> for the spending target. This would make the system foolproof.
>
> The way it would work is that once a year the Treasury Department
> would check to see if the Fed was keeping total dollar spending on
> target. If it fell below target, the Treasury Department would
> automatically deposit bonds at the Fed and send the new money created
> by those deposits directly to households. It would continue to do so
> until spending got back up to its targeted growth path.
>
> If total dollar spending were above target, the Treasury Department
> would again deposit bonds at the Fed. But this time the Fed would be
> required sell the bonds to the public, which would take money out of
> circulation. The Treasury Department and the Fed would continue doing
> this until spending fell back down to its targeted growth path.
>
> ...
>
> For conservatives there would be far less need for discretionary
> fiscal policy to respond to the business cycle. That would mean less
> growth of government debt. It would also mean that monetary and fiscal
> policy would be become far more predictable and rule-like.
>
> For liberals there would be far less human suffering since large
> cyclical swings in unemployment would disappear. It would also mean
> more stable wage growth since a total dollar spending target would, in
> effect, also be stabilizing the growth of total dollar income.
Please issue a correction for your incorrect statement about market monetarism.
Somewhat separately, I believe prediction-market-guided NGDP level targeting would make a huge improvement in human welfare, and it's just endlessly frustrating to me that someone of your intellectual power and integrity gets so distracted by Sumner's (admittedly unhelpful) opposition to fiscal stimulus.
Kenneth Duda
Menlo Park, CA
I am uncertain as to the status of what looks like helicopter money being fiscal stimulus per se, but I will update the language to include the phrase "as a primary policy tool".
DeleteMr Duda
DeleteIf you are talking about an NGDP futures market, have you ever contacted a guy named Mike Sankowski, who has actually designed different products for futures markets? He actually has some quite coherent and well thought out opinions on this issue.
As an aside its interesting to me that you feel a need to ask Jason to apologize for what you perceive as a snub to market(ed) monetarism. You also admitted later that you dont think Sumner is correct in his opposition to fiscal stimulus. Why dont you ask him to write a correction somewhere?
Aren't you funding him in some manner?
Hey Jason,
DeleteIf you are interested, here is a link to an outstanding article where Mike Sankowski goes into great detail on NGDP futures, futures markets in general, monetary policy levers and more. Its quite good
http://monetaryrealism.com/scott-sumner-has-a-new-job/
Thanks for the link Greg; I have actually read that and I agree. I have additional theoretical problems with prediction markets as well
Deletehttp://informationtransfereconomics.blogspot.com/2015/01/is-market-intelligent.html
O/T: Jason, how will Brexit affect any UK models you have? ... feel free to answer once you come back from recess. Or never. Your choice! =)
ReplyDeleteThe initial Brexit result with have large "non-ideal" information transfer effects (check out the already apparent currency hit), but will settle back into information equilibrium. It will likely appear as a "nominal shock" in NGDP. I should make up some charts.
DeleteSo you don't see a real effect even in Britain itself?
DeleteI used the phrase "nominal shock" not in contrast to "real shock" but more as a catch-all for shocks to NGDP, which could be to the price level or RGDP.
DeleteMore specifically, I'm referring to a specific IT model -- where nominal shocks seem highly correlated with labor market shocks. Will grab link...
Here it is
Deletehttp://informationtransfereconomics.blogspot.com/2015/08/employment-doesnt-depend-of-inflation.html
Text:
ReplyDelete"Stock-flow accounting exists to deny the existence of any weakly-emergent properties of macroeconomies. Everything they seem to say is inconsistent with this picture:
{picture of roundabout}
"Not this model, mind you, but the existence of this picture. The weakly-emergent travelling wave cannot exist -- even though this kind of weakly-emergent structure is perfectly consistent with strict accounting of the variables."
Not that I know much about stock-flow consistent models, but AFAIK they do not say anything one way or the other about weakly emergent properties of macroeconomics. {shrug} Where do you get that idea?
Bill,
DeleteEach macroeconomic parameter such as GDP, C, I, G, T, …, is an aggregation of selective individual transactions. Here are two points:
1. We can certainly define an aggregation from individual transactions with weakly-emergent (e.g. field) quantities. But that is nothing to do with accounting principles. It is related to the meaning and property of that aggregation for the defined macroeconomic parameter.
2. Accounting principles tell us how to relate to these aggregate macroeconomic parameters by an equation with the same quantity for all time periods. That's invariant property of dynamics among macroeconomic parameters.
In Jason’s example, that aggregation of transactions in the networked nodes with weakly-emergent properties has some problems in practice.
1. It is not a computable procedure in general. We do not have realistic data for all transactions.
2. What is the meaning (or purpose) of that aggregation?
3. How is related to other well-defined macroeconomic parameters? It is not compatible with GDP aggregation.
"Stock-flow accounting exists to deny the existence of any weakly-emergent properties of macroeconomies."
ReplyDeleteWhy in the world do you say that?
Stock flow accounting has a focus on the property aspects of money. "Accounting" is the method of tracking where property is in existence.
Stock flow accounting would not deny the existence of the weak wave because waves are a time phenomena, describing the movement of property in a time frame. "Accounting" simply follows the simple existence of property.
Let's consider an example: If money exists, then it must have been created. Once created, it must exist until "uncreated". Accounting follows the existence of any money that has been created.
Physics relates energy and mass. In a somewhat similar fashion, money can either exist or not exist.