Money supply chart of the day
If Matt Yglesias can wonk out with meditations on the velocity of money, then I can wonk out with a chart:
The red line, here, is the total US money supply, and as you can see it’s started leveling off recently. (Source data here.) In fact, in many months it has actually declined — a rare occurrence, historically speaking. The blue bars are the month-on-month change in M2; it declined as much as 0.65% in January 2010, and in the first five months of this year — all that we have data for so far — it has fallen in three and risen in only two. The money supply in April 2010, at $8.5 trillion, was lower than it was in November 2009: it’s almost unheard-of for the money supply to shrink over so many months.
More generally, I’d take issue with Matt’s assertion that the Fed’s response to the crisis has “involved a sharp increase in the M2 money supply”. Yes, M2 rose in the wake of the crisis. But the sharp rise in M2 dates back much further than that — in fact, you can trace it all the way back to the mid-1990s. The red line doesn’t start rising more sharply when the crisis hits, nor do the blue lines get noticeably larger. There’s one big jump in M2 between August 2008 and January 2009, right at the height of the Lehman collapse, during which it rises from $7.79 trillion to $8.32 trillion, a rise of just under 7%. But we’ve seen that kind of thing before: between November 2000 and May 2001, M2 grew by more than 5%, and then between May 2001 and October 2001, it went on to grow another 4% on top of that.
But I do agree with Matt that we should start publishing M3 data again. If America’s economic statistics are “arguably the most robust in the world”, as Emily Kaiser says, then we should be able to know what’s happening to broad money, without using narrower money as a proxy. These things are very wonky, and only one part of a much bigger puzzle. But they’re still important.