Another hit piece on Keynesianism. I don't know what he wants-its not like all the leading New Keynesians from Krugman to Delong to Yglesias to Christina Romer haven't been pretty supportive all getting behind hs main issue, NGDP targeting at the Fed.
Yet here is another missive. http://www.themoneyillusion.com/
What bee is up his bonnet? Today he takes issue with a recent post by Siren Wren-Lewis over at mainly macro http://mainlymacro.blogspot.com/2012/01/mistakes-and-ideology-in-macroeconomics.html?showComment=1326298995418#c5057264706304806600
Here is the offending passage out of Wren-Lewis
. "Imagine a Nobel Prize winner in physics, who in public debate makes elementary errors that would embarrass a good undergraduate. Now imagine other academic colleagues, from one of the best faculties in the world, making the same errors. It could not happen. However that is exactly what has happened in macro over the last few years. Where is my evidence for such an outlandish claim? Well here is Nobel prize winner Robert Lucas:
“But, if we do build the bridge by taking tax money away from somebody else, and using that to pay the bridge builder — the guys who work on the bridge — then it’s just a wash. It has no first-starter effect. There’s no reason to expect any stimulation. And, in some sense, there’s nothing to apply a multiplier to. (Laughs.) You apply a multiplier to the bridge builders, then you’ve got to apply the same multiplier with a minus sign to the people you taxed to build the bridge.”
To this Sumner fires back with this snarky rejoinder,
"I’m not sure if Wren-Lewis knows this, but Nobel Prizes are frequently awarded to people who don’t believe the Keynesian model (Lucas, Prescott, Friedman, Hayek, etc.) So if this is the right analogy, then Wren-Lewis (and Krugman?) is suggesting that the academy in Sweden is continually awarding Nobel Prizes for the economic equivalent of alchemy. In that case the Nobel Prize is a joke, and Wren-Lewis was wrong to use it as an indicator of academic prestige."
This is a characteristic response out of Sumner which is why I tend to be pretty careful when reading his arguments. While his posts are interesting he has an agenda and he is not above using cheap and underhanded methods to achieve it. To argue essentially that Lucas has a Nobel Prize so that one has two choices-either admit the Nobel Prize is a joke or that Lucas' every argument is worthy of the highest respect. Like Sumner often does, he gives us a false choice.
By the way I find it misting that he mentioned Hayek as an example of a Nobel Prize winner-he certainly didn't win any Nobel Prizes as a macroeconomist-even Friedman and company wouldn't allow him near the economics department at Chicago.
Sumner like all the freshwater economists are very sensitive to the slightest criticism of their views by Keynesians. Yet it's Sumner for example who is on record recently in saying that Keynesianism is "mind numbingly stupid" that he finds it "wholly illogical" and that he "hates Keynesian talk."
While I agree that one can't judge the quality of an economist simply by whether he agrees with Keynesianism or not I do think it's fair to argue that anyone that wants to criticize Keynesianism need to at least understand Keynesianism which Sumner seems not to.
He also declares that Lucas taught him Keynesianism which shows the problem right there. It must have been hard to grasp with all that giggling.
One issue of Sumner I really take issue with is his definition of savings which to me seems very inadequate.
" the part of income not “spent” is saved, which means it’s spent on investment projects. Remember that S=I, indeed saving is defined as the resources put into investment projects. So the tax on consumers will reduce their ability to save and invest."
That is certainly not the Keynsian definition of savings which might shows why Sumner finds it so "mindnumbing." It's not that Keynsianism is mindnumbing but that Sumner's mind coming in is numb from a misguided definition of savings like that. He is not confused by Keynesianism, he comes into Keynesian arguments confused.
UPDATE: Sumner just answered my questioning his definition of savings in the comment threat with this answer:
" S=I is not a theory, it’s an identity. As far as I know it’s assumed true in every single macro textbook."
See this is what I mean by misleading answers. Here is what I answer him with:
"S=I is an identity in the way in accounting that debits=credits. This doesn’t mean that debits and credits are the same thing or that savings and investments are."
"Savings is one thing, investment is another. If I own a company and invest in new equipment or hire workers that is an investment. If I leave it in retained earnings that is saving not investment. An accounting identity is not to say they are identical in a nonaccounting way"
"In accounting debits=credits + owner’s equity. But debits, credits, and owner’s equity are distinct things."
What else do you need to question his good faith?