Saturday, August 11, 2012

Scott Sumner really needs to stop this

I've said in the past that Scott Sumner is probably starting to do more harm than good in getting solid monetary stimulus, because he tries to make it look like the advocates of monetary stimulus are a small group of rebels that everybody else disagrees with. This is good for Sumner's image, I guess. The problem is that the public and policymakers (probably for good reason) don't usually like following a small embattled group of rebels when it comes to rational policy grounded in good science.

But Sumner sure does like to look embattled and alone.

Recently this came up with respect to Brad DeLong's record on monetary policy, and predictably Sumner ends up promoting a nonsense history of it all. He selectively quotes Brad twice to make him sound like he was saying something he wasn't.

The first is this post by Brad criticizing Gary Becker - not for supporting monetary policy but for criticizing fiscal stimulus. Brad alleges that "monetary policy has shot it's bolt". Pretty damning huh? Except the part that Sumner fails to quote is Brad saying this directly before the "shot it's bolt" sentence: "The difference between now and 1982 was that back in 1982 the interest rate on Treasury bills was 13.68%--there was a lot of room for the Federal Reserve to cut interest rates and so reduce unemployment via monetary policy. Today the interest rate on Treasury bills is 0.03%--there is no room for the Federal Reserve to cut interest rates, and so monetary policy is reduced to untried "quantitative easing" experiments."

In other words, not that monetary policy broadly speaking is useless but that what you might call the interest rate mechanism is no longer in play. He is clearly using "monetary policy" to refer to traditional monetary policy. This is the old Krugman argument about monetary expansion in a liquidity trap: not that it's no good. Monetary policy is very desirable in a liquidity trap. But a major mechanism through which monetary policy usually works (the interest rate) is unavailable, so it is weaker, less predictable, and lots of credibility issues are introduced. This and the zero lower bound make fiscal policy much more viable. That's very different from Sumner's claim that Brad was discounting monetary policy. Very different. And all Sumner had to do was not selectively quote.

The next instance of selective quotation is this post by Brad on Cochrane. This one is really outrageous on Sumner's part. He quotes Brad saying we "can't do any more of it", and tells us that Brad is talking about monetary stimulus, which he is - but only of certain sort. Again let's look at what Sumner decided not to quote Brad saying:

"I distinguish between policies of:

  1. Pure inflation--the government prints up a lot of money and spends it to expand the outside monetary base and the total nominal value of outstanding assets to drive the price level up and induce a flight from nominal assets to real commodities.
  2. Monetary stimulus--the central bank buys short-term safe government bonds for cash.
  3. Credit stimulus--the central bank or the finance ministry do other things to increase the capitalization or otherwise improve the functioning of financial intermediaries or to reduce the amount or improve the characteristics of the credit-market assets that the private sector must hold.
  4. Fiscal policy--the government borrows and spends.

I think I know how to analyze (1), (2), and (4). I think we shouldn't do (1) (at least not yet). I think we have done (2) and can't do any more of it and expect it to have any effect. I think we should do (3) and (4) in some linear combination--but I have a hard time thinking about (3) because I am Bear of Little Brain."

Gee! Number one looks an awful lot like what Sumner wants, doesn't it? And it looks an awful lot what we would call "monetary stimulus". Once again "monetary stimulus" is used to refer to traditional monetary policy working through the interest rate. If Sumner actually quoted all of what Brad said, it would have been clear that once again Brad is saying the typical interest rate mechanism of open market operations isn't working like it usually does. But he still has other monetary policies on his list - specifically his first policy! Now, he does say we shouldn't do "pure inflation" just yet, because as before it's highly uncertain and there are important credibility problems for central bankers in doing this. But Brad doesn't rule the first suggestion out nor does he say that we "can't" do that one (the way we can't do traditional monetary stimlus). It is the same argument as before. It is the Krugman argument for Japan. Credible commitment to inflation by the Fed would be fantastic but it's going to be tough and would be a lot easier if we did fiscal stimulus as well.

Once again - that's very different from what Sumner is claiming Brad and other Keynesians think. And once again, if Sumner didn't quote selectively, this would be blatantly obvious.

Brad keeps it brief in his statements in the other two links Scott provides (here and here), but he specifically cites the zero lower bound in the first one (suggesting that he is once again only refering to traditional manipulation of the interest rate). In the second one he quotes Jacob Viner, and I find it interesting - and a cautionary tale about what to expect from less traditional policies out of the Fed. He's quoting Viner pointing out that the Fed couldn't keep up with private credit contraction, which suggests that the Fed was running into the same credible commitment problems that Krugman has warned against repeatedly.

It's one thing to say "we need to target NGDP". Yes, that would be lovely, Scott. Nobody is disputing that. I could just as easily say "we need to target 3% percent unemployment". No arguments there! But a particular NGDP level is a goal. It is not an instrument and it is not a policy lever. Because of credibility problems or other obstacles it's quite reasonable to say that your policy lever (open market operations, for example) or your instrument (short term rates or reserve requirements) might not achieve the policy goal. This was Viner's concern and it's the Keynesian concern now.

We have tried it. We are afraid it's not going to be as successful as Sumner hopes. And we are stressing this point because there is the option of fiscal policy which can help monetary policy get traction and actually assist in pulling us out of this.

Now Sumner may dispute that argument. He may choose to remain the monetary Pollyanna. That's fine - we need enthusiastic boosters. And that gives him something to legitimately argue about with the monetary Cassandras out there. It's true, Brad is not as sanguine about the Fed as Sumner. But it's really not helpful for Sumner to be promoting this idea that Keynesians are somehow anti-monetary-expansion. If you tell the public and policymakers that a major, mainstream faction of economists thinks expansionary monetary policy is bad or useless you are going to reduce the likelihood of expansionary monetary policy. I fear that's what Sumner is doing right now.

22 comments:

  1. Daniel, what Scott is complaining about is DeLong and Krugman giving the impression that there was nothing more that monetary policy could do in the circumstances of the time. If you make statements such as:
    The fact that monetary policy has shot its bolt and has no more room for action is what has driven a lot of people like me who think that monetary policy is a much better stabilization policy tool to endorse the Obama fiscal boost plan.
    then that is the impression you are going to give.

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    1. But that's only part of the post!!!!

      That's my whole point. If you read what Sumner decides to quote it does sound like they're saying monetary policy is no good at all.

      If you read the whole post, though, they're clearly obviously not saying that.

      If you were to find someone familiar with Krugman and DeLong but who had never heard of any of the market monetarists and you asked them "do Krugman and DeLong support expansionary monetary policy?" the answer would be "yes, of course they do".

      It's market monetarists quoting single sentences like this that makes the support for moentary expansion sound fractured.

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  2. You clearly have no idea what the word "clearly" means. 99% of non-economists would read those DeLong posts as saying monetary policy could do no more. Plus, is there any possible defense of http://delong.typepad.com/sdj/2009/02/why-we-need-a-big-fiscal-boost-program.html ?

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    1. Well I pretty much said that with that post - that it's a one liner type of post and you have to read it in the context of everything else Brad writes (specifically that his references to monetary stimulus are always traditional monetary stimulus - through the interest rate channel).

      But 99% of non-economists who keeps up with Brad's blog would say he supports monetary stimulus. Only the market monetarists are muddying the waters on that one.

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  3. So Scott Sumner writes:

    "Suppose we picked on Paul Krugman or Brad DeLong. Then we’d dig up quotations from early 2009 insisting we needed fiscal stimulus because the Fed was out of ammunition...."

    And then later cites the January 19, 2009 post of Delong's. And you claim this is "nonsense" and imply ("needs to stop this") that Sumner is way out of bounds.

    Really? I don't see anything where that January 19, 2009 post of Delong's isn't exactly what Sumner says it is. When you write Delong "is clearly using 'monetary policy' to refer to _traditional_ monetary policy" that is simply false. Maybe you could argue "Delong means to" do that, or somesuch, but "clearly?" Delong's mention of unconventional monetary policy omits to give his readers any sort of impression that unconventional monetary policy is a good idea. And Delong is a very good writer, quite capable of using adjectives, like yourself, to distinguish between monetary policy writ large and specific aspects of monetary policy.

    With three of the four quotes, it's sure hard to see how you have any point at all; with the fourth one, the one you characterize as "really outrageous" (which of course indirectly suggests the other three are outrageous, which ... okay) you have a point: instead of "we needed fiscal stimulus because the Fed was out of ammunition" Sumner should have written something like "because the Fed was out of conventional ammunition and unconventional policy wasn't a good idea."

    Also, consider again what Sumner was saying. His (explicit) point wasn't to criticize Delong for saying we these things - his point was you could trot out quotes like this.

    If you really want to defend Delong, what should you do? I think you should find early `09 blog posts from Delong that give a more nuanced view. It's been my impression that Delong has greatly changed his tune over the past three years, from posts like these four that strongly downplay the scope for Fed policy to actively pushing the Fed to do more. (Each post moving his position conjoined with the obligatory Robert Waldmann "no no no the Fed can not do more" anguished comment).

    But maybe this is wrong. Maybe Delong was saying the same thing in early 2009 that he's saying now. If you could show that, it would mean that Sumner's quote exercise, while feasible, was ultimately pointless....

    Finally the overall frame of this post I find sort of odd. First, you criticize Sumner for trying "to make it look like the advocates of monetary stimulus are a small group of rebels that everybody else disagrees with," then you go through the disagreements between Sumner and the Keynesians (he thinks unconventional MP will work fine; they are much more skeptical), then we get the "_it's really not helpful_ for Sumner to be promoting this idea that Keynesians are somehow anti-monetary-expansion."
    This is sort of befuddling, because in this exercise we are adducing quotes by Delong that are, well, in one long word _anti-monetary-expansion_!

    Go through them one by one. January 19: "monetary policy is reduced to untried 'quantitative easing' experiments." January 27: "I think we shouldn't do [monetary expansion] (at least not yet)." February 9: "monetary policy is already tapped out...." March 3: "We are doing expansionary monetary policy--but that we have done all the expansionary monetary policy that we can, and we do not think that it is enough to keep us out of a depression."

    So you would characterize Delong as pro-monetary-expansion or even neutral-on-the-monetary-expansion-thing back in early `09? Sumner should "_really stop_" leaving us with these bizarro false impressions?

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    1. re: " I don't see anything where that January 19, 2009 post of Delong's isn't exactly what Sumner says it is."

      Try this: "there is no room for the Federal Reserve to cut interest rates, and so monetary policy is reduced to untried "quantitative easing" experiments."

      Now silly old me thinks this is saying that the Fed can't move interest rates down but it can work through quantitative easing. It is true in 2009 he's more leary of that and gets more confident over time.

      But that's nothing like what Scott is claiming Brad is saying.

      You tell me how else to read that sentence. It's very simply constructed, so I don't know how else you could read it. That's all I can get out of it.

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    2. re: " his point was you could trot out quotes like this."

      Well that's a dumb point.

      Yes, you can selectively quote and make DeLong sound like he's saying something he wasn't saying in the post.

      So?

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  4. I agree with you Daniel, Krugman and Brad should be his natural allies yet for some reason he's obsessed with nitpicking them in very nasty ways even though they generally have nothing but nice things to say about him. Scott seems to hate the word "Keynesian" and anybody who calls themselves one regardless of how similar their views are to his.

    As Noah Smith says, maybe its for the centrist street cred?

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    1. Sumner nasty? Krugman and DeLong are probably the most nasty econ bloggers out there. They consistently treat their intellectual adversaries as "idiots" at best and "evil and cruel" at worst.

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    2. "Krugman and DeLong are probably the most nasty econ bloggers out there."

      They certainly are, but they always get a pass here because Daniel agrees with them.

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    3. You know, I've always had a lot of respect for your Current so it's a shame to see you say things like this that make me lose it a little.

      Krugman isn't a "nasty econ blogger". He rarely attacks people themselves - usually just their ideas. And if he's attacking a person it's usually a politician. Given the sort of thing he gets called, the way he comports himself on his blog is commendable. He's no worse than Scott Sumner.

      DeLong, I have ALWAYS acknowledged, gets into the ad hominem more. I've never denied that because I agree with him. I mention it a lot (pretty much every time people ham-fistedly try to make the point that you're ham-fistedly trying to make right now). I think a lot of his insulting is just gimmick (if you take "stupidest man in the world" literally you might actually be in the running). But I do know it's not all gimmick. I've always said that.

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    4. Well, I agree with you about Sumner.

      Anyway, let's concentrate on the economic issues rather than the people. We all spend far too much time talking about the people in my view.

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  5. I don't understand the big fuss here. Brad's comment "monetary policy is reduced to untried 'quantitative easing' experiments" pretty much sums it up. He correctly recognized that monetary policy could do more, but he doubted the wisdom of doing so. Brad's view was nuanced, but in a way that proved costly for the economic recovery.

    So Scott points out the costs in a post, and Brad has a hissy fit because Brad must always be right? Brad accuses Scott of not doing work? Must we whitewash the historical record and pretend that there was not bipartisan skepticism of monetary stimulus, all to assuage Brad's ego?

    I for one am glad that DeLong and Krugman have come around to less equivocal support of monetary stimulus. But Brad is playing a political game here trying to claim that he was for it when he was actually unsure about it, because he wanted to make sure he could co-opt monetary policy in the service of his own political agenda before fully endorsing it.

    How can DeLong write things like "The fact that Gary Becker does not know that monetary policy has shot its bolt makes me think that the state of economics at the University of Chicago is worse than I expected" and claim that he supported monetary stimulus (for non-partisan ends)? Maybe DeLong should be writing an apology to Gary Becker rather than criticizing Scott Sumner...

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    1. This clearly is a matter of perspective because it seems to me that Scott is in a perpetual hissy fit on this issue.

      Look, if at the time there was an active argument because Scott was optimistic and DeLong was pessimistic about monetary easing that would be fine. And maybe they could agree on a fiscal monetary combo. Or maybe not.

      But two things are very clear:
      1. Brad did not think monetary stimulus was a bad idea in 2009, and
      2. Brad does not think monetary stimulus is a bad idea now

      So why does Scott continue to insist otherwise??? It's making it sound like there's not a large consensus for monetary policy when there is, and that's dangerous.

      The other crazy thing is that whenever Scott pulls out statements about interest rates and how interest rates can't go down he says something about how monetary policy can still work on demand through expectations and lowering real interest rates.

      Didn't Krugman say that back in the 1990s and hasn't he been saying that through this crisis???

      Even when Scott talks about Keynesians' concerns about interest rates he provides Krugman's answer!!!!

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    2. re: "Must we whitewash the historical record and pretend that there was not bipartisan skepticism of monetary stimulus, all to assuage Brad's ego?"

      I really have no interest in assuaging Brad's ego. You are clearly confused about what my argument and goal is here.

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    3. Hi, non-economist here, who's been reading DeLong & Sumner since at least 2009 (DeLong for years, Sumner since whenever Tyler Cowen first started recommending him). The key points seem to be as Daniel has laid them out. As someone lacking the technical background, I understood Delong (back in 2009) to be saying: 1) We've tried a lot of conventional monetary policy and it isn't doing enough & 2) We could try some other things (like QE) but not just yet. Later (after other things were off the table politically/failed to provide the stimulus we'd like) it was the time to try those things that DeLong said we shouldn't do "yet". I've always read Sumner as a *compliment* to the policy suggestions of DeLong, not that they were at odds, which is why I was surprised when I read the Sumner post saying "DeLong's changed his tune, I've been consistent" because that's not the impression I got from reading both.

      So the claim "But Brad is playing a political game here trying to claim that he was for it when he was actually unsure about it, because he wanted to make sure he could co-opt monetary policy in the service of his own political agenda before fully endorsing it" sounds like nonsense, because there's a very simple explanation: DeLong & Sumner ranked the potential policy remedies differently in 2009, and are now much closer together.

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    4. "You are clearly confused about what my argument and goal is here."

      Is it your goal that we should endorse Keynesian economists if we hope to get support for monetary stimulus?

      It's funny, because there are several neo-cons on Scott's blog arguing that we should endorse gutting public sector employees before we can get support for monetary stimulus. And then there are the regional Fed presidents who think we should "lower the rates and broaden the base" as a precondition for monetary stimulus.

      Everyone seems to endorse monetary stimulus, but only if they can get their way politically first. And that's precisely the problem: where is the unequivocal support for fixing the economy FIRST?

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  6. PhantomStranger wrote: "DeLong & Sumner ranked the potential policy remedies differently in 2009, and are now much closer together."

    Yes, that is correct, but how did they end up closer together? Hint: Sumner didn't move.

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  7. I'm not so interested in this who-said-what debate, but a few comments on the meat of it...

    The whole "unconventional/conventional" monetary policy debate is smoke-and-mirrors. Central banks change the discount rate and they buy and sell bonds using OMOs, through those means they change the interest rate and the quantity of broad money. They don't precisely control either of those two variables. Targeting interest rates is one way of using those tools they have available to them. Targeting the quantity of money is another (and targeting the exchange rate a third). At various times central banks have used both strategies, it's silly calling only one "conventional", though it's true that interest rates have been preferred in the past few decades.

    I don't think anyone really thinks that monetary policy only works through changing the interest rate. It's also important that any injection of money increases prices, though of course it may not increase the prices of NGDP components immediately. Let's suppose that tomorrow the Fed were to buy all the outstanding government bonds. The interest rate may not fall or rise, but would prices rise? Of course they would because asset prices would rise sharply and make some people very rich, they would then spend.

    Of course there's lots of politics here, different people are enriched by fiscal stimulus as by monetary stimulus, and that causes a lot of the argument. My problem with the whole thing though is the fascination with annual GDP.

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  8. As a defense of Brad DeLong this is not very persuasive.

    Let me start with the second comment first. Scott quotes Brad as saying that "I think we have done [monetary stimulus--the central bank buys short-term safe government bonds for cash] and can’t do any more of it and expect it to have any effect." You point out that in the same post Brad mentions the possibility of "the government print[ing] up a lot of money and spend[ing] it to expand the outside monetary base and the total nominal value of outstanding assets to drive the price level up." Which is fine, except that Brad says he is against doing this. So as a defense of DeLong, it's kind of on the level of showing that your client couldn't have robbed Bank A because he was busy robbing Bank B at the time.

    It's the same story with the first comment. Brad says that because of the zero bound "monetary policy is reduced to untried 'quantitative easing' experiments." He then says that "monetary policy has shot its bolt and has no more room for action." Does that sound like an endorsement of quantitative easing?

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    1. I don't know why people keep making this point as if I didn't make the same point in my post.

      Yes, a lot of people - including Brad - felt in 2009 that fiscal stimulus was going to be more helpful than more monetary stimulus. Right. If we could argue over the competing efficacy of monetary, monetary plus fiscal, or fiscal hold off on monetary at different stages of the crisis that would be a productive discussion and there would be genuine disagreements to discuss.

      But let's not pretend, as Scott does, that the argument was that no more could be done or that it was a bad idea. The argument was that there are commitment problems associated with monetary stimulus that made it not the best choice at the time.

      If your point is only that Scott and Brad would argue that, I think you're absolutely right.

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  9. 'I really have no interest in assuaging Brad's ego.'

    Could have fooled me (and I'm guessing I'm not alone).

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