I Call Bullshit

Reddit is a gold mine, I swear. I found Greg Ransom's Stephen Williamson’s “New Monetarism” = F. A. Hayek’s Monetary Economics in a New Bottle with a New Label at Reddit with a link to Taking Hayek Seriously -- where you find a photo of Hayek laughing his ass off!

Here's part of a Hayek excerpt from Ransom's post:

It is necessary to take account of certain forms of credit not connected with banks which help, as is commonly said, to economise money, or to do the work for which, if they did not exist, money in the narrower sense would be required. The criterion by which we may distinguish these circulating credits from other forms which do not act as substitutes for money is that they give to somebody the means of purchasing goods [or securities] without at the same time diminishing the money spending power of somebody else.

I want to focus on a particular phrase at the end of that quote: "without at the same time diminishing the money spending power of somebody else."

If I go to the bank and borrow a dollar, a new dollar is created, one that didn't exist before. So my having that dollar does not at all diminish the money spending power of somebody else, Hayek says.

On the other hand, if I borrow a dollar from you to get a candy bar from the vending machine at work, you can't spend that dollar until I pay you back. So your spending power IS diminished, in this case.

This is the difference Hayek refers to, with that particular phrase.


I followed Ransom's link to the Stephen Williamson: New Monetarist Economics blog, to see this quote at the source:

A New Monetarist thinks that, under current circumstances (a large stock of excess reserves, and the interest rate on reserves - IROR - determining short nominal rates) the inflation rate is determined by the demand for and supply of the whole gamut of intermediated liquid assets - including Treasury debt of all maturities and asset-backed securities. We can't even measure everything we want to in that respect...

So Williamson, the host of the New Monetarist blog, tells us what a New Monetarist thinks, which is that "We can't even measure everything we want to" when it comes to intermediated liquid assets.

But as Williamson says elsewhere, "one person's liability is another person's asset." So if we can't measure the assets, then we can't measure the liabilities. In other words, we can't measure private debt.

It is while expressing concern about inflation that Williamson says we can't measure debt, in his 16 March 2012 post titled Inflation. Even though we can't measure the debt, he is concerned about the inflationary effects of debt.

Now I have to bring you back to Williamson's of 12 July 2012, where in a comment JSR said "leverage was much smaller in 1980" and Williamson shot him down with this one-liner:

"Depends how you measure private debt, I think."

Williamson makes this point while dismissing the claim that the ratio of private debt to GDP was higher in 2007 than in 1980 and while defending his argument that "debt overhang" since 2008 is responsible for neither high unemployment nor slow growth.


In mid-March of 2012, Williamson complained that we can't measure debt, yet he was concerned that there was so much debt it would cause inflation. Four months later, in mid-July, he denied that there was more private debt in 2012 than there was in 1980, and denied that debt was sufficient to create problems.

Bullshit, Williamson. You can't have it both ways.

Your argument is that there's more than enough debt -- or "assets" -- to cause inflation, but not enough to cause unemployment and slow growth. Come to think of it, you are describing the way things were in the 1970s. But debt only grew since then, bud.