Response to Karl Smith

I recently did a post entitled: “No Soul-Searching on the left?

Karl Smith responded as follows:

Scott Sumner complains that liberals are suddenly changing their tune on monetary policy. Perhaps, but this is the time to make love not distracting infighting.

I don’t have to remind Scott that he and I live a life that is virtually recession proof. Millions of Americans do not. This isn’t the time to be alienating anyone who might help our cause.

And just for the record, since I didn’t make the initial list

TUESDAY, MARCH 18, 2008

100 Basis Points

I am off to the state legislature this morning so no faux statement. However, I still maintain that there is no tightrope. The Fed has to be focused on preventing the liquidity trap and jump starting credit markets as soon as possible.

Moreover, M1 is flat and credit contracting. This should be leading to an effective decline in the money supply. Ultimately that is deflationary.

The statement should have some nod to commodity prices and risks but the predominate concern is stability in financial markets and the outlook for growth. In short, look out below, we are heading for 1% as fast as is prudent.

POSTED BY KARL SMITH AT 10:23 AM

I’m afraid I wasn’t reading blogs at that time, and regret overlooking Smith.  More importantly, I now think the title of my post was needlessly inflammatory.  From the reader comments I got the impression that people thought I was attacking the left, or comparing them unfavorably to the right.  That’s not quite what I intended; there is now more support for monetary easing on the left than the right.  I didn’t ask the right to do any soul-searching because it’s hard to find people on the right who have changed their minds.  But soul-searching was a bad metaphor, I meant something closer to “re-evaluating one’s model.”

The purpose of my post was to suggest that those on the left might want to re-evaluate their basic approach to monetary economics, which I think is distorted by an excessively Keynesian worldview.  I provided a very long list of people who were aware that the Fed could do much more in late 2008 and/or early 2009.  It was all the people I could recall at the time.  And the list was almost entirely center right to right.  How did that happen?  How did this group end up talking about the potential for monetary policy before those on the left?  Why were there no nominations for those empty Fed seats for over a year, with almost no complaints about that state of affairs from those on the left?  It was meant to be constructive criticism.

I expect my fellow bloggers to be mature, and to not get defensive when faced with constructive criticism.  In other words I expect them to be like Matt Yglesias, who posted this a few days after my post:

Beyond Fed condemning, though, let me observe that I think I’ve been ahead of the curve among progressives in calling attention to the importance of this topic and that despite that fact I was behind the reality curve. The Great Recession has revealed lack of capacity for engaging with monetary issues to be a major institutional weakness of the progressive movement.

That’s exactly the point I was trying to make.  But in the real world there are all kinds of personalities.  Smith’s right that some of my language was needlessly provocative.  The most important thing right now is to look for allies who will help us change Fed policy.


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24 Responses to “Response to Karl Smith”

  1. Gravatar of Robert Robert
    23. September 2010 at 06:20

    Yglesias endorsed further monetary action in early 2009, when this blog was new and Krugman was saying in every column “monetary stimulus won’t work”.

    “I’ve been ahead of the curve among progressives in calling attention to the importance of this topic” is certainly accurate, so it’s probably easier for him to admit he should have focused on the issue sooner than it is for others who would be admitting more of a mistake.

  2. Gravatar of Fred Geisler Fred Geisler
    23. September 2010 at 07:20

    For what it’s worth, Brad DeLong asked his readers, back in late August, what he’d been wrong about.

    http://delong.typepad.com/sdj/2010/08/mark-my-beliefs-to-market-time.html

    Noticing that you were wrong needs to be the first step in re-thinking anything.

  3. Gravatar of CJ CJ
    23. September 2010 at 07:50

    Maybe the first step in getting people to react maturely to constructive criticism is–as you say–stopping, before hitting the publish button, to ask whether your point is obscured by overly cute and needlessly inflammatory language. This is a point I mentioned before in your “The arrogance of the here and now” post a couple of months ago. Your response at the time had been the same as your response now–that you think everyone else needs to just grow up and deal with your choice of words and instead react to the content of those words: “People should never take it personally when their ideology is criticized.”

    I wonder if you haven’t had your personal ideology casually disrespected by people you respect often enough, or this issue would maybe make more sense to you as a commentator. Constructive criticism involves constructive word choice.

  4. Gravatar of Benjamin Cole Benjamin Cole
    23. September 2010 at 08:16

    It is regrettable that monetary easing is becoming a political issue, with the “right-wing” seemingly in the anti-QE camp, mostly for antiquated reasons.

    The comments and Wall Street Journal editorial by Richard Fisher, Dallas Fed President, that he has been rendered impotent by Obama’s left-wing economic constructs, was particularly injudicious. (Fisher said that due to Obama’s reg and tax policies, monetary expansionism would just lead to inflation, but no growth–an incredibly corrosive affirmation of institutional impotence).

    There are right-wingers out there, at the AEI and George Mason, calling for QE. We need to build bridges to them.

  5. Gravatar of OGT OGT
    23. September 2010 at 08:27

    I think you’re right in saying you’re original post wasn’t clear in its intent. I didn’t understand what you were getting at until I read your responses to some of the comments.

    You’re also right in asking those with New Keynesian models whether they’ve reevaluated those models. I am sure Krugman has not, given that he still feels the fiscal stimulus did not do enough to move V in order to hit escape velocity and lift short term rates above zero.

    I guess as the stimulus unwinds we’ll get part of the counter-factual case for practical policy questions if not modeling ones, is there a Bernanke ‘Put’ at 1% inflation? And is the independent Fed willing and able to do enough to make that ‘Put’ good?

    I am not sure their answers would entirely please you, De Long and Martin Wolf, for example, seem to be moving toward Minsky-ite models, with bounded rationality. Economic History is certainly back in vogue and the separation of finance and macro is being questioned. There are, of course, some good general answers to your question in the Economics by Invitation forum at the Economist website that you sometimes participate in, here’s Thoma’s:

    http://www.economist.com/economics/by-invitation/guest-contributions/now_new_questions_will_be_asked_old_models

  6. Gravatar of Morgan Warstler Morgan Warstler
    23. September 2010 at 12:28

    It might be interesting to really get down into WHY progressives reach first for the fiscal lever before they grab for the monetary lever.

    From 30K feet, the conservative approach of NO to both is consistent and understandable…. after all both seek to re-distribute wealth from the savers to the spenders, from the haves to the have-nots.

    And as we’ve learned, our favorite conservative monetarist (the only good kind) Milton Friedman WOULD ONLY endorse monetary easing:

    1. enough to offset a loss in V.
    2. and he’d be careful to see an increase in V as a problem to be dealt with as well.
    3. and he’d be careful to question a growth path in GDP that was unsustainable.

    But man o’ man: wouldn’t it be great if the SUMNER TOOK OVER the neo-liberal wing of the Democrat party???

    Imagine a world where Dems support a balance budget, but advocate QE whenever unemployment falls below 6%.

    Then Scott would deserve that Nobel.

  7. Gravatar of JimP JimP
    23. September 2010 at 13:42

    More on the Fed statement:

    http://wallstreetpit.com/45592-whats-the-fed-signaling

  8. Gravatar of JPIrving JPIrving
    23. September 2010 at 14:19

    If one is a left winger why advocate for monetary stimulus before you’ve had a shot a fiscal stimulus? After all almost no one understands that MV=PY, just make noise about zero bounds and damn the consequences

    Sort of analogous to how the righwingers on the FOMC are dooming Obama’s presidency while blowing smoke about long term inflation risks. All while TIPS spreads are weak.

    Does anyone honestly believe Krugman wouldn’t be willing to tolerate a few quarters of high unemployment if it meant the left would win an important election or get support for a huge spending package and more statism? Cognitive dissonance is a powerful thing.

  9. Gravatar of JimP JimP
    23. September 2010 at 14:30

    And more on the statement:

    http://www.economist.com/blogs/freeexchange/2010/09/monetary_policy_3

  10. Gravatar of scott sumner scott sumner
    23. September 2010 at 14:46

    Robert, Yes, Yglesias has been much better than most other progressives, and much more willing to admit that progressives as a group are behind the curve on this one.

    BTW, I was also behind the curve, as I didn’t begin calling for monetary stimulus until October 2008, and in retrospect it was badly needed in September. I wish I had started paying attention sooner, and got the blog up sooner.

    Fred, I agree.

    CJ, You said;

    “Maybe the first step in getting people to react maturely to constructive criticism is-as you say-stopping, before hitting the publish button, to ask whether your point is obscured by overly cute and needlessly inflammatory language. This is a point I mentioned before in your “The arrogance of the here and now” post a couple of months ago. Your response at the time had been the same as your response now-that you think everyone else needs to just grow up and deal with your choice of words and instead react to the content of those words: “People should never take it personally when their ideology is criticized.””

    I went back and looked at what you wrote in that earlier post. I found you compared making generalizations about what liberals believe to be as offensive as making generalizations about what blacks believe. I actually don’t see any problem in making generalizations about what blacks believe, for instance their political views in America tend to be more Democratic than Republican. But let’s say you are right, and that what I just said was very offensive. Your comment would still have been a complete non sequitor, as a black person is defined by race, and a liberal is defined by a set of beliefs. How can one not make generalizations about what liberals believe? If one cannot, then in what sense can one even define the concept of “liberal.”

    You said;

    “I wonder if you haven’t had your personal ideology casually disrespected by people you respect often enough, or this issue would maybe make more sense to you as a commentator. Constructive criticism involves constructive word choice.”

    I get dissed every day. Earlier today someone in the comments called my views “laughable.” I think it’s wise to avoid those terms, but I am mature enough not to let it bother me. I chuckle when DeLong calls me names. I certainly don’t get upset when people make generalizations about what libertarians believe, although I may strongly disagree.

    Benjamin, Yes, and the great irony is in the list I provided in the other post. There were quite a few people calling for monetary stimulus in 2008 and early 2009, almost all of them were at least slightly to the right of center. And now it is viewed as a left-wing policy.

    I think people need to think about the implications of that pattern, which are very interesting and very revealing. In my mind it shows that policy views reflect both positive and normative beliefs, and this is what has led to the “strange-bedfellows” phenomenon.

    OGT, I’m not surprised that people sometimes fail to get my point, I’m too close to my own thoughts, and often race ahead with some idea without properly explaining where I am going.

    It’s unfortunate that there is no term for the group of people I cited, those who believe that NGDP growth is determined by the interaction of money supply and demand. “Monetarist” would be a nice term, but it carries to much other baggage. In 1971 Nixon said “we’re all Keynesians now.” I would like those on the left to now say “We’re all XXXXXXXXXXs now” Where ‘XXXXXXXXXXs’ is the term for those who believe monetary policy can and should determine NGDP growth. What shall we be called?

    Morgan, Don’t hold your breath on me getting a Nobel. :)

    Thanks JimP, He is probably right that there are several signals being sent.

  11. Gravatar of scott sumner scott sumner
    23. September 2010 at 14:51

    JPIrving, In fairness to Krugman, he was advocating monetary stimulus in early 2008, when it would have increased the chances of a McCain Presidency.

    JimP. Thanks again, that’s a good post.

  12. Gravatar of Morgan Warstler Morgan Warstler
    23. September 2010 at 15:11

    Scott, when liberals support a Balance budget Amendment because they view taregeting NDGP as the only legitimate form of Government stimulus – you will deserve a Nobel Prize.

    Maybe that’s how you should frame your research, you are the guy who convinces liberals to give up on Fiscal Stimulus… that’s HUGE.

  13. Gravatar of CJ CJ
    23. September 2010 at 15:22

    “a black person is defined by race, and a liberal is defined by a set of beliefs”

    This is not quite true. Being black can be defined by race and being liberal can be defined by a set of beliefs. But being black or being liberal can also be defined by self-identified membership in a black community or a liberal community. (And yes, I do literally mean that being black or white can be a self-identification made independent of skin color. I do not mean this facetiously; it’s a real issue in at least some mixed race communities. This is why the remark that seemed like a non-sequitur to you didn’t seem so to me.) When you make remarks about “liberals” as a shorthand for “people that believe X”, you’re talking–possibly down–to people who identify as liberals rather than the people that believe X.

    And, now that I read it again, I realize I didn’t mean that you haven’t had your personal ideology casually disrespected enough. I meant you haven’t had the things you self-identify casually disrespected enough by people you respect. And in any case, that was an intemperate remark for me to make. I’m just frustrated that you seem to be ignoring the larger point. That when being offered constructive criticism, people appreciate a Tyler Cowen-esque tone far more than a Brad DeLong-esque tone. Or, apparently, a Scott Sumner-esque tone. Ideally they’d be able ignore the tone, but ideally economics would be rendered moot by a sudden disappearance of scarcity in all things as well.

  14. Gravatar of jazzbumpa jazzbumpa
    23. September 2010 at 15:31

    Scott –

    Your original post was —

    1) Snarky. Mine are, too. But, that’s OK – I’m a nobody, writing for my own amusement, so who cares? But you want to be taken seriously and influence policy. Like it or not, you need to operate to a higher, and let’s come right out and say it – more mature – standard.

    2) Rambling. It took forever to get to your point.

    3) Wallowing in self pity. I don’t think I need to tell you where.

    The sum of all this is very close to sniveling. I know this is harsh, but you also said this:

    I expect my fellow bloggers to be mature, and to not get defensive when faced with constructive criticism.

    Go back and reread your post in the light of this expectation. Then have a beer or something and reread it again. As many times as it takes.

    Seriously, get the chip off your shoulder, and get over your Krugman fixation. Neither does you any good.

    This is tough love, and you need it. Now, get back to work.

    Cheers!
    JzB

  15. Gravatar of MikeDC MikeDC
    23. September 2010 at 15:40

    (Fisher said that due to Obama’s reg and tax policies, monetary expansionism would just lead to inflation, but no growth-an incredibly corrosive affirmation of institutional impotence).

    Just for argument’s sake, is it impossible that Fisher is right? Basic econ tells us the incentives to hire workers and the incentives for folks to work have been weakened. How does more money fix that?

    Even though I’m convinced enough to give monetary expansion a shot, I still don’t see that it works or works quickly at a micro level. I’d like someone to explain to me how, exactly, more money -> more employment when other incentives are pushing people away from hiring.

  16. Gravatar of Bonnie Bonnie
    23. September 2010 at 17:50

    There are far more serious things to be worried about than for those with a dog in the fight to spend time having a meltdown over a title of a blog, but I think they either didn’t read the post or misunderstood. I got the feeling when I read the supposedly inflammatory post that it was an attack on the right and an expression of disappointment toward the left regarding how things have been handled. I understand it because many are feeling a bit pessimitic right now, but at least Prof. Sumner told them how they can fix it. All they have to do is try it. And why not? There is nothing to lose and quite a lot to be gained once everything else has been tried.

    Even though I am a classical liberal of the Jeffersonian sort, I can say that I get absolutely no pleasure from how it has turned out so far and I sympathize with the folks who had all the best intentions to do something extrodinary to improve our lot and had problems pulling it off. Most are extrodinary patriots and deserve an A++ for effort because there could have been a million other things they could have been doing and chose to try to solve this problem for the country instead. It is no easy thing laying it all out there in a very public way and having the spokes person for the left over promise, which he did do and that is not the fault of the rest.

    They played a large role in keeping the banking system standing, and while there are pros and cons of it that can and likely will be argued for decades, it was more than likely a good thing. I don’t think they get enough credit considering that during periods of severe financial distress our political system and societal cohesion is vulnerable; and even though I don’t agree with their policies or economic theories, they provided needed leadership to keep us from coming completely unglued during the crisis for which they are owed a debt of gratitude. All I saw on the right was Republicans running for cover, John McCain trying to laugh it off, and the best Bush could do was send Paulson begging for money which just contributed to the already mounting mob mentality public mood (like I have never before witnessed — and I am no spring chicken).

    Where I part ways with them is that I don’t understand the value or place a highly centralized authoritarian economic regime has in a free society, at least the one intended for the federation that the Constitution forms. I didn’t always see things this way. I grew up accepting it as the way things are, and I didn’t change my mind about it until I was well into my 30s and started studying the founding documents and many of the founders themselves. Then I moved on to studying the general history of the US from the founding era to present. And I know how we got here, but I wonder if they do and what at what expense.

  17. Gravatar of marcus nunes marcus nunes
    23. September 2010 at 18:25

    JimP/Scott
    After readind the RA and JD comments I have to wonder “what the hell Bernanke means when he utters the word “Transparent””?

  18. Gravatar of tom s. tom s.
    23. September 2010 at 20:40

    Scott,

    Here’s Paul Samuelson in January 2009:

    “And today we see how utterly mistaken was the Milton Friedman notion that a market system can regulate itself. We see how silly the Ronald Reagan slogan was that government is the problem, not the solution. This prevailing ideology of the last few decades has now been reversed.
    Everyone understands now, on the contrary, that there can be no solution without government. The Keynesian idea is once again accepted that fiscal policy and deficit spending has a major role to play in guiding a market economy. I wish Friedman were still alive so he could witness how his extremism led to the defeat of his own ideas.”

    http://www.digitalnpq.org/articles/economic/331/01-16-2009/paul_samuelson

    The left couldn’t resist the opportunity to vindicate Keynesianism.

    I wish Samuelson were still alive so he could witness…

  19. Gravatar of JimP JimP
    24. September 2010 at 06:16

    Another response to the Fed speech – in the form of, as Scott says, higher asset prices – immediately. No long lags, at least according to this guy:

    http://www.businessinsider.com/david-tepper-on-cnbc-2010-9

  20. Gravatar of Bill Stepp Bill Stepp
    24. September 2010 at 06:24

    Speaking of the Fed and “personalities,” check out Friday’s Wall Street Journal, p. C8, with the picture of the Helicopter Pilot sporting an upraised middle finger and a shit-eating grin. Gotta love it.

  21. Gravatar of D. Watson D. Watson
    24. September 2010 at 10:41

    You might enjoy this: a translation of Bernankese

    “You know how we’re always worried about high inflation? Now we’re worried about low inflation. Crazy, right? High unemployment keeps wages low and prices flat. And most experts think that’s not going to change anytime soon. That’s why we think inflation will probably be low, too low, for a while.”

    Jacob Goldstein and Jeremy Singer-Vine, “Things Are Going to Be Bad For a While”, Slate, 21 September 2010.

  22. Gravatar of scott sumner scott sumner
    24. September 2010 at 15:40

    CJ, Well if African-Americans are defined by cultural attributes, then there’s nothing wrong with making generalizations about those attributes. I guess we’ll just have to agree to disagree about whether it is acceptable to make generalizations about the left. On one thing we do agree on, however, I’m no Tyler Cowen. But who else is?

    I was trying to make liberals realize that they are partly to blame for the 9.5% unemployment. It that makes them feel bad, then I feel I’ve done my job. I feel bad that I supported the Iraq War. And I’ve been much tougher with conservatives, as you probably noticed.

    Nevertheless, I appreciate your constructive criticism, it helps nudge me back toward a better writing style.

    Jazzbumpa. You misread me, I love it when DeLong says I’m nuts. Seriously. I have the quotation on my office door, if you don’t believe me.

    Yes, parts of the post were snarky, but clearly aimed at people who are even snarkier than I am. So I didn’t think it would hurt their feelings.

    Still I wouldn’t have written this post if I didn’t feel that you and CJ were at least partly right. BTW, I know I’m not good at getting my points across, so I don’t deny it might have come across as self-pitying to others. But I assure you that of all the flaws I have, that far from the worst. I feel incredibly lucky that this blog has caught on.

    Here’s something you and CJ might want to look at, the post where I went after the WSJ very hard a couple weeks back. See if you think I was unfair to them. I’d be curious.

    http://www.themoneyillusion.com/?p=6923

    MikeDC, You said;

    “Basic econ tells us the incentives to hire workers and the incentives for folks to work have been weakened. How does more money fix that?”

    By far the biggest work disincentive is the 99 week UI extension. With more AD, that will go away much faster. That’s how more money will help. It will also reduce the real minimum wage rate–another disincentive.

    Thanks Bonnie, I agree. I hope I am not getting too defensive here, but I did question why the WSJ had a double standard recently, whereas I almost never suggest that liberal pundits are anything less than idealistic. Misguided maybe, but idealistic.

    Marcus, I know what you mean. But then by the opaque standards of the Fed, the recent announcement was actually slightly more transparent. At least we know they’d like slightly higher inflation. Until now they were in the bizarre position of saying inflation is fine, and oh by the way, our target is 2%.

    Tom s, You said;

    “I wish Samuelson were still alive so he could witness…”

    I agree. (Notice how that can be taken either way.)

    Seriously, his statement was so over the top it was silly. He was a great technical economist, but once he got into the policy realm he was quite mediocre. Friedman excelled at both. FDIC, Fannie and Freddie, and Basel II, and SEC, and the Fed, and CRA, and FHA, and TBTF, and that’s considered laissez-faire? There is plenty of room to criticize conservatives like Friedman, they did make some bad calls. But that’s statement’s just childish (even compared to my offensive post.)

    JimP, Thanks, I used it in my new post.

    Bill, I’ll try to check it out.

    D. Watson, Another reason why they should talk about NGDP.

  23. Gravatar of CJ CJ
    25. September 2010 at 21:18

    On the WSJ post, I think you were a little unfair.

    It strikes me as less annoying than talking about “liberals” or “conservatives” because the WSJ is a specific, well-defined entity rather than a large and diffuse community. Sorta like referring to the democratic party federal level office holders and policy setters instead of liberals as a whole.

    On the flip side, it’s been 25 years since the WSJ opinion you referred to. Lots of people change positions and change their minds in that time span, so it’s unfair to hold them to a position someone else argued a quarter of a century ago. But they were also being disingenuous in not examining their previous positions to figure out if they were being consistent, and if not then explaining why their position was different this time around.

    Of course, apart from the the tone towards the WSJ, I valued reading the post as a good consistency check from someone who knows better than I.

  24. Gravatar of scott sumner scott sumner
    26. September 2010 at 06:42

    CJ, Thanks, a couple comments.

    1. You are right about the post itself, but note the update added soon after (at the end) went after their views in 2004, which suggests it really was a Republican/Democrat issue.

    2. I thought I was far tougher on the WSJ. I was accusing them of bad motives, whereas all I did with the left is accuse them of making a well-intentioned, honest mistake. But I agree that some of my rhetoric made it seem I was attacking the left more viciously than I really was, and I should not have used that rhetoric.

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