George Selgin Profile picture
Monetary economist and historian, Director of @CatoCMFA, and NGDP mug collector. I promise not to waste our time by saying things you expect me to say.
Carlo antonini Profile picture Gary Black Profile picture James Hudson Profile picture John L. Chapman Profile picture 4 added to My Authors
2 Apr
My first, and most complete effort to explain why a stable NGDP path is better than a stable P path is here:…
Don't let the title mislead you: when I write it in the 90s I was responding to the then-popular Monetarist ideal of a stable price level. So I compared it to a policy that had NGDP grow steadily with weighted factor input. That would mean deflation roughly = -TFP growth rate.
Read 10 tweets
1 Apr
Some fun facts you probably didn't know about the gold standard:

(1) It's heyday was the the middle ages:
(2) It was abolished by the Federal Reserve Act:
Read 12 tweets
28 Mar
Sometimes I welcome a tweet despite heartily disagreeing with it. This one serves the very useful purpose of exemplifying just where many bitcoiners' understanding of monetary economics goes awry.
Basically, whether an asset serves *any* of the three listed "monetary" roles has NOTHING to do with its market value. I repeat: Nothing; nada, zilch, diddly-squat.
Of course, an asset has to retain or gain value over time to be a decent store of value. But an asset can achieve an arbitrarily high value yet fail to meet this requirement. That's as obvious as saying that, no matter how high it's price gets, it might yet fall.
Read 8 tweets
27 Mar
Especially in its post-1970s US revival, Austrian economics has been identified with free-market ideology. This identification explains both its popular success and its poor reception by the academy and among professional economists generally.
It also explains why self-styled "Austrian economists" are now a dime a dozen. To successfully market oneself as such among the booboisee, one need only denounce the Fed and gov't generally, and sing the praises of AU or BTC; no need to know much economics, Austrian or otherwise.
The difference between Austrians economists who have earned the right to refer to themselves as such and the rest is as great as that between qualified surgeons and peddlers of snake oil.
Read 8 tweets
26 Mar
(1) "Near zero" isn't zero; therefore (2) the question remains whether the SLR requirement with reserves exempted is or isn't sufficiently high. It isn't true, therefore, that the case for reverting to the old formula is a no-brainer. 1/2
In fact there are plenty of studies suggesting that the social or welfare costs of bank capital requirements aren't zero. See, e.g.,… and… (I could offer many other sources).
Finally, unless debt and equity finance are perfect substitutes for banks, more capital invested in banks means less capital invested elsewhere. This surely is a potentially relevant social cost of minimum capital requirements that's distinct from any reduction in bank lending.
Read 5 tweets
26 Mar
I heartily agree with @alexwsalter and @smithdanj1's claim that having the Fed "stabilize total dollar the best we can do when it comes to fighting recessions."

On the other hand,...
I'm taken aback by their claim that "We now know the Fed has a great deal of control over the price level, but much less over employment" and that it only "uses the 'full employment' part of its mandate to justify irresponsible behavior."
Surely, if "we" have learned anything this past decade, it's (1) that far from proving itself very capable of controlling the price level, the Fed has not even been able to achieve its inflation rate target and (2) that it has also tended to underestimate "full employment."
Read 7 tweets
17 Mar
Thread: Those urging central banks to issue digital currencies, even or especially as an alternative to privately-supplied alternatives, need to consider the risk that by doing so they will hinder future payments innovations.
They should start by asking why so many nations still rely upon grubby paper currency, when the technologies that make various digital alternatives possible--technologies almost all of which have been private sector innovations--have been around for some time.
They should consider the possibility that it's only because central banks drove commercial banks out of the business of issuing currency during the 19th and early 20th centuries, ending their ability to innovate in that field, that paper currency has persisted for so long.
Read 8 tweets
15 Mar
No stimulus check yet? Don't (just) blame your bank: blame your banker's bank. As this 2019 op-ed by NACHA's CEO Jane Larimer explains, "ACH payments can only be settled when the Federal Reserve’s settlement service is open."… 1/6
The Fed's services are closed on weekends and holidays, so any payment request sent on such days, or too late on a Friday, can take days to et credited to the recipient's account. For years NACHA and others have urged the Fed to settle payments 24/7/365. 2/6
Yet even a modest increase in those services' weekday hours, which NACHA also urged and Larimer expected to see completed in March 2020, was delayed another year by the Fed. It's now scheduled for next week:… 3/6
Read 6 tweets
26 Feb
"The Fed’s systems can take days to settle transactions. Other central banks, including those of Europe, Brazil and Mexico, do so instantly, something the Fed doesn’t anticipate doing until 2023." Quite true. But a couple points deserve attention.… 1/4
First, the Fed's legacy payments systems, based on Fedwire, won't simply disappear once FedNow launches. Many payments will still depend on Fedwire. Legacy systems and FedNow will operate side-by-side. 2/4
Second, as @Aarondklein and I observed a year ago, payments made on the legacy systems don't have to take "days" to settle. That many do at present is a consequence of limited Fedwire and NSS operating hours.… 3/4
Read 5 tweets
24 Feb
This has long been my view. The FRA authorizes Fed provision of paper currency, but does not otherwise allow it to supply retail payments media; in particular it does not allow it to compete directly w/ commercial banks by taking retail deposits.
Furthermore, the Fed account plans I've seen typically assume that they would bear interest at or very close to the IOR rate. Besides posing the risk of beggaring private financial intermediaries, that procedure would have the Fed thumb its nose at the 1980 Monetary Control Act.
Fed policy, informed by the MCA, calls for it to generally avoid changes that "would have a direct and material adverse effect on the ability of other service providers to compete effectively with the Federal Reserve in providing similar services."…
Read 10 tweets
22 Feb
Thread: Northern Ireland's First Trust Bank, one of the world's few remaining commercial banks-of-issue, will exit the paper currency business in 2022, leaving only three surviving Irish note-issuing banks:
Elsewhere, Scotland and Hong Kong also have three commercial banks-of-issue each. That's 9 surviving private note-issuing banks. What few may realize is that, little more than a century ago, currency systems based on multiple, private banks-of-issue were the norm.
Still fewer people realize that many of these competitive currency systems were remarkably stable and efficient. The Scottish system, for instance, had a far better 19th-c. record than England's, where the Bank of England enjoyed many exclusive privileges:…
Read 14 tweets
21 Feb
File under: Lies, damn lies, and statistics. Because it was an unusually sudden and steep downturn, to really get a sense of the severity of the "Roosevelt Recession," one has to look not at the annual GNP or GDP data, but at monthly measures, like Industrial Production. 1/n
Here's what the latter series looks like. As you can see, it shows that the '37-'38 recession did in fact undo a big part of the '33-'37 recovery, which had itself been disappointingly slow and (by early 1937) far from complete. 2/n.
Note how, setting aside the spring '33 "boomlet" (reflecting firms' attempts to build inventory in advance of coming NRA controls), there's no real progress until the NRA, the New Deal's keystone recovery program, lapses in '35. That's no coincidence:… 3/n
Read 9 tweets
8 Feb
Thread: Fed officials are now saying that they'll be able to launch FedNow in 2023 rather than later:…
It's understandable that they should do everything possible to accelerate FedNow's launch: RTP, FedNow's private-sector rival, has been operating since 2017, and its network now covers well over 70% of all U.S. bank deposits, with new depository institutions joining every week.
Universal or "ubiquitous" coverage was one of the key objectives of the Faster Payments Task Force est. by the Fed in 2015. The Clearing House's RTP system answered that Task Force's recommendations. By late 2018 it had 50% network coverage.
Read 19 tweets
6 Feb
Unfortunately, the errors of the past, however persistent, don't absolve fiscal and monetary authorities from responsibility for avoiding, or trying to ovoid, serious errors in the opposite direction. Life would be easier if they did. But they don't. 1/n
It's particularly unwise, IMHO, to suggest that ANY positive stimulus, now matter how large, is worth trying because of past inflation undershooting. According to this logic, why not $5 trillion; or $10, or...whatever?
Of course, many politicians will wring their hands at the prospect of piling-on to any such gravy train. They like "doing more" for their constituents. The macro consequences of excessive stimulus aren't their problem. But for that very reason, someone has to look out for those.
Read 5 tweets
27 Jan
It's dandy that 100 DIs have agreed to take part in FedNow's pilot program. That's about as many as are now directly connected to RTP (w/ many others using it through correspondents). And some of the top 15 banks are conspicuously absent from the list. 1/n…
Absent are Bank of America, U.S. Bancorp, Truist, PNC, the TD Bank Group, State Street Corp., and Fifth Third Bank. All save State Street are connected to RTP. So even if FedNow started now and all banks on its list connected, RTP would the bigger network by a long chalk. 2/n
And of course FedNow won't actually be ready to launch for 3 more years: in the world of payments innovations, that's an eon! 3/n
Read 5 tweets
27 Jan
As this claim has met with some resistance, allow me to expand upon it with examples, both fictional.
Suppose, for the first, that I go into my district Federal Reserve bank, find one of its cash tellers (yes, the Fed has tellers), present her with a $20 Fed note, and say, Here is one your liabilities, for $20. I'd like those now."
Of course in reality the teller would call security--itself evidence that the $20 is no ordinary IOU! But suppose instead she doesn't. Instead, she says, "No problem." Then an awkward pause ensues.
Read 7 tweets
27 Jan
An answer, in a thread, because others may gain something by it.
The first thing you must do, if you wish to understand the value of an irredeemable fiat money like today's USD, is to entirely expunge the word "backing" from your economics vocabulary. Trust me, it is good for nothing but mischief.
It's true that the dollars the Fed creates are, for accounting purposes, "liabilities." It's also true that, the market value of the liabilities of most financial firms, such as ordinary banks, depends on the value of the assets backing those liabilities.
Read 18 tweets
20 Jan
Thread: As many may be interested, I'm answering this with a new tweet.
The roots of the "Austrian" claim that fractional reserve banking (FRB) involves fraud or theft trace to the Austrian business cycle theory. According to some versions of that FRB inevitably leads to booms and busts.
In fact that believe is itself wrong, as I first tried to show in The Theory of Free Banking. See also here:…
Read 14 tweets
20 Jan
I have no idea who James Thomas Kesterton, Jr. is or was, but this is yet another bit of fractional-reserve banking mythology, for which there's not the slightest factual foundation. 1/n
From Collins and Walsh (…): "we can find little evidence of large and destabilizing asset bubbles in the Roman created by the fractional reserve banks...was not used generally for such speculative purposes." 2/n
As for financial crises, they occurred in 49-47BC and in 33AD. But had political triggers; sources say nothing about banks' involvement, though its probable that many suffered. The '33 crisis was deflationary rather than inflationary. 3/n
Read 4 tweets
3 Jan
The claim that no currency can thrive w/out taxes being levied in it strikes me as one that can be entertained only for as long as it takes to think about it. In fact, the difference between "public receivability" and "Walmart receivability" is more of degree than in kind.
Not that I say "more of degree." Of course, the gov't differs from Walmart in being able to compel people to make payments to it. But it doesn't follow that whatever media it receives for such payments will become "money," or that media it refuses cannot be money.
Pls. read "Note" for "Not."
Read 8 tweets
17 Dec 20
Thread: This brief @PilkingtonPhil note on Gunnar Myrdal's _Monetary Equilibrium_ is indeed very good. That work (which helped earn Myrdal the Nobel he shared w/ Hayek) Some follow-up remarks here.
As Phil notes, Myrdal was a member of the Stockholm School, whose contributions to monetary theory built upon the work of Knut Wicksell, the school's founder. In By 1931, when _Monetary Equilibrium_ appeared, a (polite) rift had separated the school in two.
The rift began with a debate between Wicksell and David Davidson concerning the sort of price stability implied by a policy of keeping interest rates at their "natural" levels. Wicksell of course claimed that this would result in stable _output_ prices.
Read 14 tweets