Expect Nothing Less
Bonus post for today to share two graphs I've put up on Twitter -- you can follow this blog here -- both of which connect to the notion that expectations of future demand, and not expansion of the monetary base or an increase in inflation expectations, are the essential ingredient to recovery.
The first graph shows that even the most massive amounts of monetary expansion are ineffective medicine for NGDP expansion. What matters is expectations; growth in the medium run is conditional on expectations -- not on the monetary base or price level.
The second graph shows the extent to which monetary policy seems to have forgotten this. Nominal income growth expectations have been right at zero since the recession, when before that they had been stable at the 5 percent level for decades. The findings come from this study by the Chicago FRB, which I found through this Chicago Magazine article. Paging Scott Sumner...
Also, I'm thinking of reintroducing some more short postings into the mix, like this one, and breaking out from the once-a-day long post format, which I'm getting sick of. Let me know if you have any opinions in the comments, please.