I quite enjoy Sumner's monetary blog The Money Illusion-the name is a reference to Irving Fisher. Yet a recent article just made me end up asking just what is his point. He seems to be criticizing a piece by Matt Yglesias over Ben Bernanke in a piece called "No Ben Bernanke Does Not Have a Secret Plan to Stifle Stimulus."
What this dispute seems to amount to is that Sumner seems to be saying that Keynesians are barking up the wrong tree by asking for more fiscal stimulus as it will only be counterproductive. His reasoning is what strikes me as caustic in the extreme. The argument seems to be that while Sumner will admit that a fiscal stimulus could work, it would still counterproductive as this would would mean that Bernanke would therefore not do any thing to stimulate the economy through monetary policy. The logic seems to be that Bernanke will pick up the slack if the government is unable to come up with any more stimulus. But if it does the Fed will stand aside and when the stimulus increases borrowing costs and inflation, will tighten up.
This I must say is a very creative conservative reason not to do a stimulus-it could work but then there will be no monetary stimulus. Sumner's basic premise seems to be assuming that a monetary as opposed to a fiscal stimulus will get us the same basic bang for the buck, however, the monetary method is preferable as it doesn't lead to more debt and deficits. This concern with debt and deficits I see as a misnomer. There is no reason to be concerned about them in the short term as Bernanke himself as recently said.(I see the fiscal concern with deficits as misplaced as the monetary concern with inflation; Sumner rightly mocks the latter but seems to be taken in by the former). Here it is out of his own mouth: “putting in place a credible plan for reducing future deficits over the longer term does not preclude attending to the implications of fiscal choices for the recovery in the near term.”
Here Bernanke is coming to the Republican Congress and-speaking as both a Republican and monetarist hinmself-telling the GOP to stand down on all the austerity. Sumners is not arguing so much that fiscal stimulus is wrong or that Bernanke doesn't want it-this is the basis for the rather paradoxical title about Bernanke not having a secret plan to stifle stimulus but that if there is a fiscal stimulus there will be no monetary stimulus. This seems to be Sumners' position in a nutshell: he agrees with Keynesians like Krugman and Yglesias that there is a need for more stimulus and that the inflation hawks are wrongheaded but-rather caustically if not perversely-is arguing that monetary stimulus is preferable to fiscal and that it is a zero sum game.
I think Sumner may be right about Bernanke, that he tends to do monetary stimulus in the face of no fiscal stimulus but dials it back when there is. My quarrel is his notion that those of us who want stimulus must simply take one or the other and since it is either/or we should choose monetary. I for one believe we need both: what would be optimum right now would be QE3 by Bernanke and for Congress to pass Obama's jobs bill. Sumner may be right that with Bernanke's mindset you won't get both. But I don't share his preference for monetary over fiscal, I don't agree what the former is always preferable. I don't think there necessarily is a sharp preference overall; surely some situations may favor one or the other but in principle both are suitable.
If we do face the situation Sumners claims we are in where we got to choose either fiscal behind door number one or monetary behind door number two I say we should choose door number 1. Why? Because door number 2 is the passive choice. It requires we do nothing and as we can't force the Fed to ease we have no way of ensuring he honors this "bargain" we have foisted on him. We're presuming that if we do no fiscal stimulus he will ease in some way; but this is merely a presumption even if a plausible one.
There is no way to enforce this presumption. On the other hand maybe we have presumed wrong and he will ease even after a stimulus. I don't necessarily think this all that likely but I do think in this sort of situation-an emergency-you make the choice that gives you as much control over your own situation as possible. You don't demure from the only active thing you can do in favor of expectantly waiting for the Zizekean Other to rescue you like you are a cat waiting on your owner to feed you. Take the active choice. As far as being dependent on the Fed to do the right thing maybe Barney Frank is on to something with his plan to cut back on the Fed's vaunted independence. The Fed's independence is from us not from private banks. The initial Federal Reserve Act of 1913 was supposed to be a Faustian bargain between those who wanted it a private institution and those who wanted it public. If it is incapable of effecting the right policies in an emergency then maybe this bargain was too tilted to the private side after all. Some kind of plan that either requires that at least some of the Fed Governors be Senate confirmations or cuts the number of Governors down might be just the medicine. I myself would be partial to a bit of both: maybe cut it to three and have three confirmed before the Senate and three "independent."