I could have called this post "Why I Hate Scott Sumner Talk" but figured that's a little on the nose. What gave me this idea was to paraphrase a recent post he wrote "Why I Hate Keynesian Talk."
I don't know when that bee got up Sumner's butt but he has been particularly uncharitable and snarky towards all things Keynesian lately.
In a way this is perplexing as he seems to have gotten a lot from the current resident Keynesians like Krugman, Yglesias, Delong, and Romer; after all they have all given his proposal for NGDP targeting their seal of approval.
What does he want then, why does he seem to need to spike the ball?
What's particularly interesting is that this is on a backdrop of all this whining about from Sumner and Company that Krugman is being so unfair to ideas he doesn't agree with, he doesn't treat people like Cochrane with the respect he deserves, etc.
Krugman to believe them, refuses to give the other guy's ideas a fair hearing. Yet compare this to Sumner's hatred for "Keynesian talk." Note that the sentiment here is more or less genocidal. He seems to want to see any discussion that he thinks is "Keynesian" wiped from the face of the earth.
In another snarky post yesterday directed at Krugman "Be Careful What You Link to", Sumner claims that Krugman's appeal to Greg Mankiw's paper of 1991 as proof that "Keynesianism is alive and well" is self-defeating-ie, he should have read it first as Mankiw actually dismisses Keynesianism more than he helps it. Sumner quotes from Mankiw:
"For the purpose of analyzing economic policy, a student would be better equipped with the quantity theory of money (together with the expectations-augmented Phillips curve) than the Keynesian Cross. In the United States today fiscal policymakers have completely abdicated responsibility for economic stabilization. Their inability to cope with persistently large government deficits has left them unable to even imagine trying to reach consensus on countercyclical fiscal policy in a timely fashion. All attempts at stabilization are left to monetary policy. When a recession ensues, as it did recently in the United States, fiscal policymakers merely begin discussions of what the Federal Reserve did wrong."
Reading this Sumner is overcome:
"Reading this brought tears to my eyes. A mere 20 years ago we were in a golden age of macroeconomics. Now a new dark age has set in, as the forces of old Keynesianism have made Mankiw’s vision seem like a distant dream."
You really have to wonder what Sumner is after. As he explains it he was all set in 2008 to start writing on the rather exotic topic of neoliberal reforms and cultural values when the current crisis pulled him back into monetary policy.
This crisis evidently has been a major inconvenience to him. I may seem negative about Sumner lately, but that's because quite honestly I don't trust him. I think he has deliberately wanted to open the lines of communication with liberals and Keynesians and while he has won many over he still seems to have the need to kick the Keynesians in the teeth.
I find NGDP targeting an interesting idea but I think it should be clear that his ideas are likely a kind of Trojan horse. I think in general that's what all monetarism is about. It is a surreptitious attack on Keynesianism. It is more palatable for Keynesians in some ways as opposed to the Austrians who basically deny that there is anything to do during a crisis other than allow "the system to self correct."
Monetarism seems to admit that action is needed but that stimulus must come only from the monetary side. In the end though lets face it: just like Austrianism or all other libertarian/conservative economic systems monetarism wants to convince us that market failures can't happen. While from Friedman on monetarism has employed many ingenuous arguments in the end its central premise-market failures don't happen-is wrongheaded.
As regards NGDP, interesting to note that Mankiw already spoke about nominal gross national product targeting-slightly different than nominal gross domestic product but same basic idea. The alternatives to this for him was targeting nominal wages or the price level.
NGDP really goes back to Friedman's demand for a rule to run monetary policy by-in his mind this makes the economy as close to the laissez faire vision as possible. It comes out of the same cloth as John Taylor's inflation targeting rule. While NGDP sounds like a better rule than the Taylor Rule-which I for one really don't like, again any real Keynesian should perhaps be careful.
Sumner is one who believes the Great Moderation was some sort of Golden Age when of course, it was anything but. I like the idea of NGDP better as it seems to make the Fed less single handedly obsessed about low inflation. Yet somehow Sumner claims that over the long run-which Keynes warned us about-we could see a "gentle deflation." Similarly Bernanke's 2% inflation target is considerably lower than the mean inflation rate even during the Great Moderation.
If there's one thing to be on guard against with Sumner, it's his oft repeated claim that the fiscal multiplier should be zero because of monetary policy.
Noah over at Noahpinion calls this claim batty.
Why is this a batty claim? Well, to see why, we must first identify the assumptions that would have to be true for the claim to hold. These are:
"Assumption 1: The Fed canNGDP)."
"Assumption 2: The Fed does choose to control the path of nominal spending in a way that will cancel out any stimulus."
It's a good post, worth the read. The reader Nanute made me aware of it.
Sumner then answered him "Noah Smith Thinks David Romer's Batty" That title is what I don't trust about Sumner-it certainly puts words in Smith's mouth.
Smith is a good place to start in fighting back against this ideology of "fiscal helplessness." To me the object of the game never changes-to make fiscal stimulus something that is unthinkable. In 1991 when Mankiw wrote that paper perhaps it was unthinkable to the mainstream economists-not that they have a monopoly on knowledge, as this crisis has proved, far from it.
This is the mindset that Sumner wants to return us to. The question begs what happened to upset this monetary consensus? Krugman's liquidity trap in 1998 was a major fly in the ointment for the mainstream consensus with Japan's implosion. And of course this current crisis. For this reason Sumner and company are in full revision mode. Again, they have to convince us that market failure is impossible. Right now what caused the crisis? Why Fannie and Freddie, a $7.25 minimum wage, "over regulation"-particularly droll sense of humor that eight years of W. Bush left us over regulated-and Sumner's monetarist gloss of the Fed's failure.
Noah responds to Sumner's answer