I just lost a massive post on this and I'm mad and not going to rewrite it.
- Scott Sumner has critiques here, here, and here.
- I think he adequately shows that Cochrane has a more nuanced view.
- I think he still can't defend Fama writing things like this in the post that kicked off this "Dark Age of Macro" stuff back in 2009: "The problem is simple: bailouts and stimulus plans are funded by issuing more government debt. (The money must come from somewhere!) The added debt absorbs savings that would otherwise go to private investment. In the end, despite the existence of idle resources, bailouts and stimulus plans do not add to current resources in use. They just move resources from one use to another. And bailouts and stimulus plans only enhance future incomes when the activities they favor are more productive than the activities they displace."
Fama reiterates the point later. It doesn't look like a slip of the tongue. And it's telling that Sumner can dig up Cochrane offering more nuance but not Fama. This is disconcerting because we know that (1.) Fama is not alone, (2.) Fama is a celebrated Chicago professor - not some hack, and (3.) politicians think like this. Whatever the gulf between Sumner on the one hand and Krugman and DeLong on the other, it is considerably narrower than the gulf between Sumner and Fama and I don't know why Sumner feels the need to keep attacking Krugman and DeLong when there are people that hold positions like this that are considerably more egregious.
- Sumner argues that fiscal policy is just roundabout monetary policy and that Chicago-types speak a different language that essentially presupposes the Fed is doing its job. Fine. But Sumner agrees that the Fed is not doing it's job, right? He's been pounding that point for almost two years now. If that's the case, then again - why is he piling on the people supporting fiscal policy? Shouldn't he be saying "hey - I think fiscal policy is roundabout monetary policy but we need all the help we can get because the Fed appears to be uninterested in doing its job".
- I don't personally agree that fiscal policy is just roundabout monetary policy. We think the money demand schedule flattens out. So as the nominal interest rate gets lower monetary policy becomes less effective. There are two options (1.) create lots of inflation so low nominal interest rates aren't high real interest rates anymore, or (2.) if the real interest rate can't come down to meet investment demand at a full employment level, why not move investment demand up? Fiscal policy is roundabout monetary policy only if you're looking at the bond creation facet of fiscal policy. But there's also a direct demand facet to it.