David Andolfatto asks Sumner about his empirical/theoretical basis in ascribing NGDP as the answer to our problems:
"Proponents of NGDP targeting, however, like Scott Sumner and David Beckworth, for example, seem to believe very strongly in the vast superiority of a NGDP target–not just as a policy that would mitigate the effects of future business cycles–but also as a policy that should be adopted right now by the Fed to cure (what they and many others perceive to be) an ongoing “aggregate demand deficiency.”
"What I am curious about is not that they believe this, but how strongly they believe in it. I respect both of these writers a lot, so naturally I am led to ask myself how they came to hold such a strong belief in the matter. What is the theoretical underpinning for NGDP targeting? And what is the empirical evidence that leads them to believe that an NGDP target right now is a cure for whatever ails us right now?"
"One way to seek answers to these questions is to spend hours perusing their past blog posts. I’m sure they must have answered these questions somewhere. But I figure it will be more efficient for me to just state my questions and have them (or somebody else) point me in the right direction for answers."
"My approach to economics is very different from that of my thesis adviser (who was Robert Lucas.) I think one does actually have to peruse those thousands of old blog posts to get a sense of why I am so confident. That’s because I think the situation is very complicated, and must be examined from multiple perspectives. For instance, I believe that more NGDP right now would modestly lower the unemployment rate, which would cause Congress to shorten the maximum number of weeks people can collect unemployment insurance, which would lower the natural rate of unemployment. I don’t recall seeing that argument in any Lucas models. It’s not that I think there is any single overwhelmingly persuasive case for faster NGDP growth, but rather that there are many arguments, of varying persuasiveness, all pointing in the same direction."
So how satisfying an answer is this? Couple of things strike me about this response of his. First, saying "read all my previous posts" is not very satisfying. I don't find it a good answer. He says that there is no single overwhelmingly persuasive case but don't good theories usually give us a little more? The single case that he is able to come up with off the cuff I don't find very persuasive-that it would modestly lower unemployment which would lead Congress to shorten the maximum number of weeks of unemployment insurance lower the natural rate of unemployment."
First of all it's not a theory. And he provides not a shred if empirical evidence for any of the assumptions he makes. On what basis does he have that it would "modestly lower the unemployment rate?" And that if Congress were to lessen the number of weeks of unemployment insurance this would lower the natural rate of unemployment?
He says he can't come up with a single, overwhelmingly persuasive reason but the reason he does come up with speaks volumes about his own assumptions. He believes that unemployment benefits are a major reason for the demand shortfall.
This returns us to something we discussed here at Diary of a Republican Hater recently-that the debate of "fiscal" vs. "monetary" policy is a definitional and political issue as much as anything. Let's be clear-Sumner desires to cut unemployment benefits. Now if he or one of his Republican friends were to propose this in the fiscal/political sphere there would be a lot of political blowback.
But in the form that these arguments that Sumner puts it-in the area of monetary policy-a seemingly "technocratic" debate he's able to propose things that he would get criticized quite pointedly for if he were arguing in the fiscal/political sphere. This is why I call Sumner's approach "monetary activism." In judicial activism things can be accomplished that aren't able to be achieved in the political sphere. Sumner's agenda is the same thing using monetary policy.