Saturday, April 7, 2012

Sumner on Krugman

Recently I've been bothered off and on by Scott Sumner's insistence that everyone has it wrong but him, and his regular claims that somehow there's a debate between Keynesians and market monetarists over whether monetary policy is wise right now. He strikes me as inventing enemies because... well I'm not sure exactly why - it seems like a dumb thing to do right now.

In light of that, it's worth reading this new post by Scott on Krugman, where he acknowledges Krguman's support of monetary policy and presents the expectations-based argument that Krugman and other Keynesians make now that we're in a liquidity trap (in which the short-term interest rate mechanism of monetary policy is less relevant to talk about).


  1. I get the same impression as you. However, it seems to me that the main difference between them is the framework they use. Notice that Sumner usually doesn't talk about interest rates that much - he focuses mainly on NGDP growth.

    You know Robert Solow once said "Everything reminds Milton Friedman of the money supply. Everything reminds me of sex, but I try to keep it out of my papers". Since market monetarism is focused so much on NGDP growth rates/expectations it's no surprise he talks about NGDP all the time.

  2. BTW Daniel, I think it's about time you change the theme of your blog. The current one, to put it bluntly, sucks ;).

    1. What do you mean by my "theme"? You mean the subject matter? That might change on the margins, but won't that much! I do feel like content has gotten weaker this spring... I just feel like I haven't had the time to think deeply about content.

      Or do you mean the layout? That's probably true.

    2. Yeah the layout isn't the most attractive. I have noticed a correlation between how pretty a blog is and whether I read it regularly - whether that's just me, I don't know. But it's not welcoming the first time you visit.

    3. I've meant layout. The content is fine - I like it very much, but the blog doesn't look good and the comments section is the worst part. Why is everything in bold? It just hurts my eyes. Scott Sumner's blog is much prettier and more readable.

  3. I don't get Sumner:

    - NGDP is the correct indicator of monetary policy. NGDP is low, so monetary policy is tight.

    - The EMH says we don't know better than the market about stock values, so we can't tell if something was a bubble, so the EMH is correct.

    He also refuses to discuss the specific channels that CBs should use to stabilise NGDP, freely admits he doesn't understand banking, appears to think the general public know what the monetary base is, and is against capital controls to keep the stimulus in the domestic economy, leading me to believe he's driven more by an ideological opposition to a role for the state than anything substantive.

    1. Oh please, if you say things like this, please show us your sources.

    2. Sure.

      Here he is on the EMH:

      'It certainly looks like a bubble. But this is also what efficient markets look like. They are erratic. They have peaks and valleys.'

      Efficient markets look erratic, the market looks erratic therefore it is efficient. The entire post is a mess:

      Here he is refusing to discuss transmission mechanisms:

      'We should abandon attempts to find a monetary policy transmission mechanism. It’s too complicated.'

      Here he is on banking:

      'It's true I know little about banking'

      Here he is on the money base and public expectations:

      'In late 2008 the public saw that the Fed was going to let the future (post-liquidity trap) monetary base (assuming no IOR) fall well below previous estimates.'

      Here he is coming out against capital controls:

      'No, that’s not a problem at all. I don’t think much of the QE went overseas. And if it does, they can just print more.'

      Admittedly the NGDP assertion, as phrased, was perhaps my weakest. But read this post:

      There's a lot about how NGDP is the correct indicator but he doesn't really explore why, and never has. The whole thing is circular: the CB controls NGDP so they should control NGDP. In combination with the rest of these faults he says it makes me incredibly unpersuaded by his point of view.


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