With regard to the comparative point that Steve makes - I wrote a relatively friendly review of Sumner's NGDP targeting proposal (should be online soon, if anyone wants a copy now email me), not because I think it is better than "doing nothing", but because I think it might well be better than "CPI targeting". I'm constantly surprised at how quickly people want to take the theoretical claim that under a desired monetary regime we might expect the banking system to maintain MV stability, to make an inference/accusation that this is a defense of present central bank attempts to do so. Let's all be clear that Hayek's argument should always be viewed as a critique of central banking. And lets give greater attention to the differences between policy debates and regime debates. But even if we agree that farm subsidies should be repealed, it doesn't mean we can't make an informed judgment about whether subsidised prices are likely to be above or below their free market ones, and try to nudge policy in that direction. Given that central banks exist, we can either focus efforts on campaigning for their abolition, or try to push them in the direction of least harm. This is merely a question of whether we're willing to make second-best policy prescriptions (and thus engage with the current policy debate). No one is arguing that we *know* what these prescriptions should be, but provided we feel comfortable labeling certain policies "bad" (of which there is no shortage), we can in large part focus on *un*doing things. Personally I think a "Hayek Rule" would be a marginal improvement compared to the status quo, and that's an intellectual argument that is worth making. It doesn't mean I support the institutions through which a Hayek Rule would be made, nor the knowledge assumptions required to think it would be perfect.

I also would like to hear from former graduates of our program if their experience after their second year conformed with what Mankiw suggests it should --- that is an experience which treats graduate students as the most junior faculty, rather than the most senior students. Agree 100% Pretty much across the board faculty treated us as future producers of economic ideas, rather than consumers.

For now a break - I will probably start up again at some point, but not necessarily here. I've not decided yet, but wanted to emphasise the "golden era" of Filter^ blogging circa 2005-2006 whilst I decide! I might wait for the next thing after twitter, and then jump onto that.

Great post Steve

Thanks, I was referring more to the UK. I'm glad that you've referenced Higgs in both points. I hope that one of the few things mainstream economists take from the crisis is the role of regime uncertainty.

Correct - but not even inactivity, it automatically requests that your renew your password on a routine basis. Having said that, I've remembered it on the last few occasions. I have a memorable word followed by a digit that increases whenever I need to reset it. I'm now on "2", and am evidently able to remember this.

I wouldn't take it too far, and argue that Austrians have nothing to say about the downturn, but note that Horwitz relies a lot upon alternative approaches. That doesn't mean he doesn't provide an Austrian account, but that this then turns into a debate about Austrian uniqueness.

Thanks for the comment Pietro. Whilst I obviously don't agree with Sumner's position, I do think it is worthwhile to engage in the constructive debate about why this is the case. But I'm not sure he'd deny that there a real problems, it's mainly an argument about whether they're an inevitable consequence of the prior inflation or whether they're the result of policy failure. The correct answer to this is surely "both", in which case there's a very important debate about magnitude. And although, as we can see, base money does not always correspond to the total amount of credit available, would you argue that it's irrelevant?

great photo! although it's crying out as a caption contest here's my effort: http://thefilter.blogs.com/thefilter/2010/09/caption-contest-ostrom-and-buchanan.html

Sorry, not sure why this isn't appearing in line, but @Austrian Economist: There's more to Austrian economics than the Mises Institute. If you were an "Austrian economist" - or even a half decent academic - you'd know that. Try these: http://econ.anthonyjevans.com/2010/07/contemporary-pathways-in-austrian-macroeconomics/

There's more to Austrian economics than the Mises Institute. If you were an "Austrian economist" - or even a half decent academic - you'd know that. Try these: http://econ.anthonyjevans.com/2010/07/contemporary-pathways-in-austrian-macroeconomics/

There is some wonderful stuff on the Mises Institute, but note that we're talking about economics here not libertarian political philosophy. Your list confirms that you're not up to speed with the contemporary literature in Austrian economics - again, if you're an academic passing himself off as an Austrian economist you are being misleading. But then presumably this material is samizdat at your place of work, and we should just be grateful that you're able to get to Conservative Home without being sent to a gulag!

@ Will J I think most Austrians would fit somewhere in between. It's possible to take monetary policy out of the hands of the state without necessarily leading to full reserve banking. I recommend Larry White's "Free Banking in Britain", published by the IEA. [http://www.iea.org.uk/record.jsp?ID=115&type=book]

@ Nick Fraser I'd suggest you read the Austrian accounts of the Great Depression - I recommend Larry White's recent article [http://economics.sbs.ohio-state.edu/jmcb/jmcb/07056/07056.pdf] in particular.

@ Austrian economist You seem to associate Austrian economics purely with think tanks and blogs. If you are indeed an academic I'd suggest you familiarise yourself with the literature. Or at least chose a more accurate pseudonym - you may be a supporter but you're clearly not an "Austrian economist".

Brilliant last line Steve! Looking forward to the response...

I've added a bit to that other post to try to explain myself a bit better, but in the main I agree with what you're saying.

Thanks Jim, here's a partial answer to your questions. I think I've been pretty clear over the last few years that I do not favour fiscal stimuli and that I think we should shift the debate away from monetary policy and towards monetary regimes. I also think it's pretty clear that I favour free markets generally, and see no reason why this shouldn't also apply to banking.

Is Jeff really saying that moral hazard arguments are irrelevant? My point would be that it *doesn't matter* whether the bankers had an incentive to run a stress test, unless we have some evidence to suggest that the stress tests they would have run would have been informative. There were plenty of incentives about for people to have correctly anticipated the financial crisis - the fact that they didn't suggests it was primarily a problem of knowledge, not incentives. http://thefilter.blogs.com/thefilter/2010/02/a-crisis-of-incentives-or-a-crisis-of-ignorance.html

http://online.wsj.com/article/SB10001424052748704471504574443600711779692.html#

It's all done through the credit card, although thinking about it I don't think I use a title on that, so the whole thing is probably a figment of my imagination. I can't remember Tyler's reasoning, but i'm broadly sympathetic. I used to book airline tickets with it because I thought it might increase the chance of an upgrade, but then my Dad told me that it just makes it more likely I'll get woken up if there's a medical emergency.

Maybe i'm focusing too much on UK investors, but I can imagine scenarios where pessimism moves people from corporate bonds to gilts without pushing them to invest abroad (since this would bring about new transaction costs). But yes, I take your point.

Perhaps i'm viewing this too homogenously, but what other government bonds (other than gilts) would you expect investors to move to if they are pessimistic about public finances?

Jim - Wow. Am I supposed to stop blogging now?(!)

Policymakers - if there's no rationale for understanding the likely effects of a policy then what's to say it won't cause more harm than good?