Rogoff on The Money Illusion

Kenneth Rogoff has a nice review of my new book in the Times Literary Supplement. Here’s an excerpt:

This thoughtful and broad-ranging critique of the post-financial crisis consensus on macroeconomic policy is worth reading for anyone interested in monetary policy, even if you don’t buy into the “market monetarism” (of which more later) championed by the author. Sumner is unafraid to challenge the academic consensus: in his earlier book on the Great Depression (The Midas Paradox, 2015), he argued that bad policy-making at every turn made things far worse in the late 1920s and early 1930s than they had to be. In The Money Illusion, much like Leonard in The Lords of Easy Money, he explores monetary policy decision-making during the 2008-09 financial crisis and its aftermath – but with more focus on the economics and less on the personalities. Some may wonder why anyone today would write (or read) a book raking over the financial crisis, when the world has moved on to dealing with the pandemic, war in Europe and how to manage economic policy in an era of wild political see-saws. In fact, Sumner’s book is of great significance to our current crises, and his challenge to conventional wisdom is bracing. . . .

Sumner’s book has all sorts of philosophical insights that will be interesting to anyone trying to understand markets and macroeconomics. One bogeyman he confronts is bubbles. Many market observers see speculative bubbles everywhere. Sumner, by contrast, argues that there is typically some rational factor behind the “bubble”, and the fact that the casual (or academic) observer isn’t easily detecting it is not a reason to dismiss signals from market prices. After all, the biggest bubble of the past forty years, if you want to call it that, is the collapse of interest rates, particularly “real” interest rates (the interest rate adjusted to remove the effects of inflation). Low real interest rates make virtually any kind of long-lived real asset seem more valuable, from housing to art to stocks to cryptocurrency.

Rogoff also reviews The Lords of Easy Money: How the Federal Reserve broke the economy by Christopher Leonard. Read the whole thing.

Many economists (including Rogoff) are now at least somewhat supportive of NGDP targeting. Today, I view my biggest challenge as convincing other economists that monetary policy remains highly effective at the zero bound. (Rogoff is skeptical, at least in an economy with cash.) My current project addresses that issue.

HT: David Gordon, Tyler Cowen

Why raise rates when we’re not yet at full employment?

Back in the late 2010s, I’d often get this question from commenters.

Here’s why:

What should the Fed do now?

Question: What should the Fed do now?

Answer: Hit its target.

Question: But what does that mean?

Answer: That’s the problem.

There’s an ongoing debate about whether the Fed should bring inflation down gradually or quickly. THIS DEBATE SHOULD NOT EXIST. The Fed should have decided on a policy regime in 2020, and then stuck to it. A policy regime includes instructions on what to do next if you miss the target. NGDPLT anyone?

Here are some fun facts:

Average inflation rate during the 30 years before the Fed adopted its 2% average inflation target in August 2020: 1.9%

Average inflation rate during the 20 months since the Fed adopted its 2% average inflation target in August 2020: 5.2%

Please don’t call it a coup attempt

Here’s the FT:

Donald Trump wanted to march on the Capitol with his mob of supporters on January 6 last year, even after he was told that they had weapons, according to damning new testimony revealed at a congressional hearing on Tuesday.

A former White House aide testified that the former president was irate after being told that he could not go to the Capitol. Trump said: “I’m the fucking president. Take me up to the Capitol now,” Cassidy Hutchinson testified.

Trump, who was sitting in his vehicle, then tried to grab the steering wheel but the Secret Service agent next to him took his arm and stopped him, Hutchinson said. “Sir, you need to take your hand off the steering wheel”, she said the agent told the president.

Hutchinson testified that Trump said of his armed supporters: “They’re not here to hurt me. Take the effing mags away. Let my people in. They can march to the Capitol from here.”

Mags is a reference to magnetometer, a metal detector which was preventing armed supporters from entering his rally.

It wasn’t a coup attempt. It was an effort by a madman to lead a well-armed mob of right-wing crazed extremists to the Capitol with the goal of forcing Congress to overturn a democratic election and installing Trump as dictator.

Why do people insist on calling it a coup attempt?

How many “people” live in your house?

Here’s a screenshot of the census form:

As I understand it, there’s a sort of debate going on in America as to whether unborn babies are people, or merely potential people. It seems to me that pro-life voters tend to view the unborn as people, and pro-choice voters tend to view them as potential people.

Just thinking out loud, wouldn’t that impact the census? If I viewed an unborn baby as a person, then when answering question #1 on the census form I’d include the unborn when asked the number of “people” living in my house. If not, then not.

There are close to 3 million pregnancies in America at any point in time, although some are too early for the mother to be aware of their existence. So here’s my question. Is there any evidence that people answering the census question on the number of “people” in a house include the unborn?

If pro-life pregnant women do not include the unborn in the census question is that because they don’t regard it as a person? Or because they do regard it as a person, but assume the census authorities do not and wish to please the authorities?

PS. In April 2000, I faced this dilemma.