Saturday, February 9, 2013
Sumner on the Difference Between MMers and NKers
He takes another look at what Krugman's said in the past regarding monetary policy and comes up with yet another elaboration on the difference between Market Monetarism and New Keynesianism:
"It’s harder than most people assume to pin down the difference between new Keynesianism and market monetarism. Perhaps we are simply more confident that the BOJ can succeed if it tries."
Often Sumner makes mountains out of molehills when discussing what this difference might be and when looking at Krugman's comments on monetary policy. Here he admits it's not quite the gaping canyon he sometimes makes it seem .
One way I think that Krugman would certainly differ from Sumner and MM is the transmission mechanism. For Sumner if the Fed says it will target a NGDP trend of say 4.5% or 5%,-or whatever; he insists the exact number is not that important-it will hit it as long as it has credibility and not all that much is needed for it to obtain credibility. Here is Sumner speaking to a commentator at Money Illusion:
"Geoff, Under NGDPLT the Fed would buy much less than today."
I doubt Krugman would agree that it's this simple. So this is one way that he'd be "less confident" than the MMers. As longtime Diary of a Republican reader and commentator Greg said:
"The thing is, GDP as it is currently reported, IS nominal! We dont report a real number (number of units sold say) we report number of units x price. Its the price that is important and becomes "the" number. This obsession with NGDP implies that we currently arent reporting NGDP. Now, it might be that the fed does not target it per se, but that is certainly the metric they look at to determine if the economy is moving in the direction they wish. So the only way the fed can directly affect prices of things which contribute to GDP in our economy (which are newly created output, not secondary or used items) is to actually buy those things themselves. If they want new house prices to rise, they need to buy new houses (or give the money to someone and tell them to buy new houses). If they want new car prices to rise same thing. Thing is if they actually engage in this activity, which our congress has currently expressly forbidden, they will be conducting fiscal policy."
"As Sumner and Rowe see it fiscal policy conducted by CB is monetary policy. They just want to call it a different name cuz they dont like fiscal."
That part about the GDP that we currently use already being nominal is an idea I've never heard before, but is interesting. However, he's certainly right that what's called "fiscal" or "monetary" policy with the MMers is a very political question in a way that it isn't for Krugman or Delong or probably for a Mike Woodford either. But you also see just how "confident" Sumner is that the CB can move mountains by this claim that it actually would have to do very little if it declared a NGDPLT target-he's said that it would be less than it's doing now.
Krugman for his part has found the idea of a NGDPLT target attractive for the reason it has seemed like it could be attractive to me: it might make somewhat higher inflation politically acceptable. However for Sumner and fellow MMers, it's more about making anything called "fiscal stimulus" less politically acceptable.
P.S. Greg also had a succinct description of what I've written about before-the Sumner method.
Yes, I had a little fun with Sumner in the post entitled Sumner: EMH now proven. Greg sums it up well:
"First, Sumners post assumes that those three arguments represented the ONLY arguments one could use against EMH, second he assumes that those arguments really were a refutation of EMH and thus disproving them was proof of EMH."
"Yes the state of the science as practiced by Sumner is dismal...... he's no scientist he's a political hack interested only in turning fiscal policy into something conducted by the fed...... and calling it monetary policy."
I really loved the banality of that piece by Sumner: ok, so you guys were right back in 2010 but now you're not.
P.S.S. I had an interesting discussion in the comments section with the reader Tom Brown about gun control. Turns out he has a history with firearms, including so-called assault weapons. While he admits that selfishly he'd rather not have to give them up he does recognize the need to do something in the face of all these mass shootings. I'll write a post about his comments soon as it's a fresh perspective from someone who's clearly a decent, responsible guy and who has used so-called assault weapons-a somewhat arbitrary designation that we make for political reasons-like the MMers do with "fiscal" vs. "monetary" policy.
In his opinion what's most a problem with the "assault weapons" is the ability to shoot so many rounds per magazine clip. Clearly if the Newton shooter hadn't been able to shoot so many rounds without reloading he would have killed far less kids and educators.