Businessweek on TheMoneyIllusion

Last week Brendan Greeley interviewed me at my home for about 2 1/2 hours.  Jason Odegaard just sent me the article Greeley wrote for Businessweek, which was quite generous in its praise for my blog.  Indeed, just as with the press attention I got after QE3 was announced, the article is overly generous.  But I won’t complain.

Perhaps I should say a word about this:

The Fed’s decision under Chairman Ben Bernanke to alter course has roots in ideas about setting targets for a specific percentage growth in nominal gross domestic product. Sumner has quietly promoted this approach to central banking for nearly three decades, especially over the last four years on his blog The Money Illusion. Sumner concedes that he’s “someone who doesn’t really know people at the top levels of the profession.” But after influential economics bloggers, such as Tyler Cowen, picked up Sumner’s ideas, officials from Sweden’s central bank and the British government got in touch with him. At a press conference in November 2011, Bernanke had to field questions about Sumner’s theories.

Brendan asked me how to read a pay stub and when I first noticed that my blog was getting some attention in policy circles, and I mentioned the fact that government officials from several countries had emailed me.  I should emphasize that I am not claiming that I had any influence on policy—any direct influence is very unlikely.  Rather I mentioned a few examples just to show that some foreign policymakers were at least aware of my ideas.

Sumner, who holds a Ph.D. from the University of Chicago, made a suggestion in the late 1980s to the New York Federal Reserve. He proposed that the Fed set a target for nominal GDP””real growth in GDP plus the rate of inflation. He felt that this would induce the correct level of business investment better than targeting either inflation or growth in real GDP by themselves. The response at the New York Fed, says Sumner, was, “Thanks, but no thanks.” He returned to Waltham and grew bored with monetary policy. “There was a sense that [central banks] had figured it out,” he says.

My first NGDP futures targeting paper (and indeed my first published paper on any topic) was written in 1986 (age 31) and then sent to the Journal of Monetary Economics.  After 3 revise and resubmits it was rejected on the 4th attempt.  It was then published in Bulletin of Economic Research in 1989 (age 34.)  I was rejected for tenure at Bentley in 1987.  Academics will connect the dots and sense some disappointment.  (The JME is the much more prestigious journal, and papers aren’t usually rejected the 4th time around.  But then I’m not a typical academic.) In 1988 I was on the job market and presented at the NY Fed.  The objections actually focused more on the futures targeting aspect than the NGDP aspect.  I got a job offer with a 75% pay raise over Bentley, but decided I would stay here and got tenure in 1988 on my second attempt.  Sometimes I wonder whether I could be doing this right now if I’d decided to work at the Fed.

I’d like to thank Mr. Greeley for the very kind article.



29 Responses to “Businessweek on TheMoneyIllusion”

  1. Gravatar of ChargerCarl ChargerCarl
    2. November 2012 at 12:45

    To think we almost lost you to the Fed borg…

    Thank God for the internet!

  2. Gravatar of Rajat Rajat
    2. November 2012 at 12:47

    Scott, rightly or wrongly reading that reaffirms my decision not to pursue a PhD in my twenties. I thought about it, but reading Colander & Klamer in the mid-90s made me think that unless one is a maths-head, there was no point in trying to pursue a career as an academic; and unless one wanted to become an academic, at least in Australia at that time, there was not much point in getting a PhD. I’m sure it would have been fun but I would have finished with no job and no money. Why did you decide to stay at Bentley rather than take the Fed job? FWIW, I have a friend at the Fed with a strong publications background and he has found himself sidelined for promotions etc by financial markets types since the financial crisis. Perhaps you’ve had more impact outside the Fed than in it, because, let’s face it, before 2007 they probably felt they had no reason to think outside the box.

  3. Gravatar of Becky Hargrove Becky Hargrove
    2. November 2012 at 13:00

    The technophobe who overcame! …and the fact that even those who knew you questioned your ability to put a blog together. Just more encouragement for other technophobes such as myself who nonetheless try to stay with online efforts to create better realities.

  4. Gravatar of Cthorm Cthorm
    2. November 2012 at 14:37

    “Sometimes I wonder whether I could be doing this right now if I’d decided to work at the Fed.”

    No, you couldn’t. ssumner could though. All you have to do is avoid rubbing it in your employer’s face. A difficult lesson to learn really.

  5. Gravatar of Cthorm Cthorm
    2. November 2012 at 14:48

    From the article…did you really say the zero lower bound is a “psychological barrier?”

    That’s how I’ve been explaining the idea around here. Tempers tend to flare when you tell a very rich Keynesian that he (and the Fed) is worried about a shadow.

  6. Gravatar of Bill Woolsey Bill Woolsey
    2. November 2012 at 15:27

    Great article.

    Nothing about level targeting.

    And I guess it is really true that we expect nominal GDP targeting will result in increased investment right now.

    Still, it is written as if the main benefit of NGDP targeting is more investment.

  7. Gravatar of Hugh D’Andrade Hugh D'Andrade
    2. November 2012 at 16:37

    What sort would they have awarded tenure?

  8. Gravatar of ssumner ssumner
    2. November 2012 at 17:23

    Bill, I think he meant “level targeting” when he said “lead targeting.” Keep in mind this sort of article is written by a non-economist, to be read by a non-economists. It’s also boiled down from a 2 1/2 hour interview. So the nuances will be slightly different from what I would emphasize—but it’s still good to get PR for NGDP targeting.

    Hugh, you need to publish articles to get tenure.

  9. Gravatar of Charlie Charlie
    2. November 2012 at 18:15

    Hi Scott,

    I wondered the first time I heard that story, did you send that paper several places in between with no luck? It’s just that usually if you just miss an A journal, you’d have a really good shot at a solid B. How many places did you try in between?

    [Forgive me if Bulletin of Economic Research is better than I know.]

  10. Gravatar of Prakash Prakash
    2. November 2012 at 18:15

    Scott, You have way more fortitude than me. Kudos. Hopefully the policy will change one of these months.

  11. Gravatar of Benjamin Cole Benjamin Cole
    2. November 2012 at 18:59

    Huge kudos to Scott Sumner, earned all the way, purely on merit. The Internet is amazing.

    As someone who has himself had a checkered career, I deeply empathize with Sumner’s career. Plus we were both born in 1955.

  12. Gravatar of Saturos Saturos
    2. November 2012 at 20:18

    Wow, Scott’s house sounds really cool…

  13. Gravatar of Saturos Saturos
    2. November 2012 at 20:20

    You only got a cellphone last year? How on earth did you get in touch with people while on the move?

  14. Gravatar of Saturos Saturos
    2. November 2012 at 20:25

    Oh, and yay for publicity. But Scott, you’d better upgrade this blog to a better platform before it goes down with all the hits.

  15. Gravatar of Greg Ransom Greg Ransom
    2. November 2012 at 21:27

    This doesn’t instill confidence in the capacity of the institutional filter mechanisms of macroeconomics to produce knowledge or science:

    “My first NGDP futures targeting paper (and indeed my first published paper on any topic) was written in 1986 (age 31) and then sent to the Journal of Monetary Economics. After 3 revise and resubmits it was rejected on the 4th attempt. It was then published in Bulletin of Economic Research in 1989 (age 34.) I was rejected for tenure at Bentley in 1987.”

    Seems to me yet more evidence that the filter mechanisms of the profession are loaded with criteria which have nothing to do with producing knowledge or science.

  16. Gravatar of bill woolsey bill woolsey
    3. November 2012 at 03:11


    Like I said, “Great Article.”

  17. Gravatar of Major_Freedom Major_Freedom
    3. November 2012 at 05:41

    Oh, so THAT’S where all the jobs are going!

    It’s mostly demographics. /s

  18. Gravatar of Brendan Greeley on the rise of Scott Sumner « The Market Monetarist Brendan Greeley on the rise of Scott Sumner « The Market Monetarist
    3. November 2012 at 05:44

    […] also’s comments on the article. Scott, you really should work a bit on your ego – your contribution to US […]

  19. Gravatar of Derrill Watson Derrill Watson
    3. November 2012 at 06:01

    I have a request for which you may or may not have time. If not, I do understand.

    I’m teaching intermediate macro for the first time in Nigeria. I’m getting to the point in the semester where I want to do a full-blown market monetarism discussion – instead of merely arguing with Gordon’s textbook which is the best I could get out here. My difficulty is that the vast majority of your writing deals with developed countries who have low inflation already, and you rarely give advice to the Chinese.

    How does nGDP targeting work in a country with high and variable inflation? There isn’t a 30 year history of “nGDP typically grows at 7% real growth plus 10% inflation” to make a 17% nGDP growth target out of [that’s closer to a 10 year average]. If a central bank has not demonstrated the ability to tame inflation in the first place, could it feasibly make an nGDP futures market work? When I ask my students if they would believe the central bank should it announce inflation next year will be 5% or 10% or any particular number, not a one of them believes it.

    And are you quite as confident that markets are efficient when half the populace cannot read a sentence and even many of the elite barely comprehend algebra? Do fixed N/US$ exchange rates, 95% of foreign exchange coming from the price of oil, and the government budget being set in terms of expected oil prices matter to you? I hate to add corruption to the list since that excuse is so overused around here, but there is that worry too.

    Any thoughts you might have would be appreciated. Thank you.

  20. Gravatar of ssumner ssumner
    3. November 2012 at 06:23

    Charlie, No journals in between, jumped right from an A to a C level journal.

    Derrill, I do think the EMH works in very uneducated countries. Quite well in fact.

    I’d have them target something other than NGDP. Maybe NGDP net of oil. Of course Nigeria has huge governance problems that would need to be solved first—NGDP targeting is like #47 on the agenda for Nigeria.

    Saturos, Ever heard of phone booths? (Unfortunately they are increasingly hard to find. When a 5 minute call from an Iceland phone both cost me $50, I knew it was time. But I still never actually carry a cell phone except when out of town.

  21. Gravatar of Saturos Saturos
    3. November 2012 at 11:47

    Saturos, Ever heard of phone booths?

    What, you mean like these?


    But I still never actually carry a cell phone except when out of town.

    But then how do you take pictures, or listen to music on the run, or text your wife and friends?

  22. Gravatar of Saturos Saturos
    3. November 2012 at 11:48

    Oh, and there’s also this…

  23. Gravatar of Saturos Saturos
    3. November 2012 at 12:28

    QE3 update:

  24. Gravatar of Bogdan Bogdan
    4. November 2012 at 06:16


  25. Gravatar of ssumner ssumner
    4. November 2012 at 06:21

    Rajat, Maybe the summer vacations? I’m not quite sure, it was so long ago.

    Saturos, I used to take lots of pictures, but gave it up. I’m a lousy photograper who has pretty good taste in visual images–a bad combination. But I did take a few pictures in Iceland, and posted them. They show my lack of ability.

    I listen to music while driving, and I have never texted. If I need to reach my wife I can call from my office phone.

  26. Gravatar of JL JL
    4. November 2012 at 23:56


    Thanks for sharing your personal history.
    Imagine the inspirational quotes if they ever award you the Nobel prize:

    “At age 34, his first paper on monetary policy was rejected four times.
    But he persevered and by age 74 all the worlds central banks had adopted his ideas and at age 84 he was awarded the Nobel prize.
    Never give up.”

    (And I see a real possibility: if the lesser depression ends with NGDP targeting as the new norm and we enter a new era akin to the great moderation, then surely you will be a logical candidate.)

    On the Fed bit: from now on, I too will wonder what could have been if you had accepted the job at the Fed.

    The blog probably would not have happened, but perhaps you could have been that voice within the Fed that made the difference by providing intellectual cover for Bernanke to pursue expansionary monetary policy.

  27. Gravatar of ssumner ssumner
    5. November 2012 at 05:56

    Thanks JL, But I don’t think the Nobel committee is nutty enough to give one to me.

  28. Gravatar of JL JL
    5. November 2012 at 07:27

    Perhaps not, but if they give the Nobel in medicine for eradicating diseases and if NGDP (futures) targeting will cure our society of economic depressions, then *someone* should get a Nobel when the world finally adopts NGDP targeting.

    If not you, then who?

    (Even if it is a shared prize, which I expect.)

    Oh well, they didn’t give Keynes one for getting us out of the first depression, why would they give one to the people who get us out of the second one?

  29. Gravatar of raducu online consulting raducu online consulting
    23. January 2013 at 21:05

    Too bad the fed is privately owned 😐

    Private ownership = maximum profits

    That’s pretty much the law of the land.

    The guy below who pondered if he should get his phd, why not look for a job that will pay for higher education?

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