Matt Yglesias has a knack for great headlines. I subscribe to his RSS feed, but try as I might, I find it pretty near impossible not to click on his stories. Such was the case this afternoon when he offered up, Turkeys vs. Hummingbirds in Contemporary Central Banking. I really had no idea what he was talking about, but it turned out to be really simple. When it comes to monetary policy, people are broadly divided into hawks and doves. Yglesias thinks we should move the discussion to hummingbirds and turkeys.
Hawks are now and forever more worried about inflation. Doves, in the current economic environment, are not worried about inflation at all. Yglesias claims that there are currently no hawks because everyone knows inflation is not a problem. Oh grasshopper! That can’t be what he really thinks. There is literally a whole industry that does nothing but explain that inflation may be low now, but this could change instantly and we could be back in the 1970s—or worse. What’s more, there are huge numbers of people (admittedly, more on the margins) who claim that inflation is high, it is just an evil Obama conspiracy to trick us all to believe that inflation is low. Have you not seen what’s happening to the price of milk?! I’m sure that among the people who Yglesias trusts, it is the case that “we are all doves.” But in the policy debates, there are a hell of a lot of hawks and they are well connected and vocal.
The key point about hummingbirds and turkeys is their ability to fly. So Yglesias claims that turkeys are those who say that nothing the Federal Reserve can do will help the economy in the current situation. Hummingbirds believe that the Fed can stimulate the economy by raising inflation expectations. Here again I think he is wrong. There are some people—most notably Karl Smith—who are clearly hummingbirds but by and large everyone in the dove camp would probably qualify as “hopeful turkeys.”
Let me explain where I’m at in this discussion. I’m as close to a turkey as one can get. Control of interest rates are at least 90% of the power of the Federal Reserve. Those rates are now effectively at 0%. I don’t think there is much the Fed can do. But I don’t know this for sure. So the Fed should be doing everything it can do. There is a way this can work. It’s all about expectations. If people saw the Fed acting aggressively to stimulate the economy, it might convince people that things really would get better and so inflation would increase. The point is that I don’t think turkeys can fly but they might. (A better analogy would be chickens which can get off the ground but can’t really fly.)
I think it would be more correct to say that there are three types of people when it comes to monetary policy. First, there are hawks who just know that inflation is already terrible or will soon be. Second, there are turkeys who think inflation cannot be affected by the Fed. And third, there are hummingbirds who think that the Fed can get the economy back on track all by itself. As far as I’m concerned, hawks and hummingbirds are faith based communities. Meanwhile, the poor continue to suffer and the Fed does as little as it possibly can.