Excellent Beckworth/Ponnuru piece in TNR

David Beckworth and Ramesh Ponnuru have an outstanding article in The New Republic.  I’m not going to quibble with anything, and I won’t quote from it because the whole piece is excellent.  Here’s the title:

Tight Budgets, Loose Money: Why Both Liberals and Conservatives Are Wrong About How to Fix the Economy



30 Responses to “Excellent Beckworth/Ponnuru piece in TNR”

  1. Gravatar of Nick Rowe Nick Rowe
    3. November 2011 at 08:27

    That is a really well-written piece! Well done David and Ramesh!

  2. Gravatar of Ram Ram
    3. November 2011 at 08:46

    Great piece. One quibble I have is with the symmetric criticism of the left and right positions. The left’s position, supposedly, is more fiscal stimulus, while the right’s position is tight money, tight budgets. Which of those two is worse for the economy in the near-term? There have been left-wing folks like Joe Stiglitz criticizing easier monetary policy, but by and large it seems like the left has been open to greater monetary easing. The criticism of fiscal stimulus is that it just leads to less monetary stimulus, but that doesn’t make things any worse in the near-term (though the excess debt burden may make things worse in the longer-term. Tight money and tight budgets are bad for both the short-term and long-term, as they may permanently lower the trend rate of real GDP growth. I get the rhetorical advantages of pox and both your houses, so I don’t mean to nitpick, but I do think it’s unfair to pretend that the blame goes all around equally.

  3. Gravatar of John Thacker John Thacker
    3. November 2011 at 08:58

    The criticism of fiscal stimulus is that it just leads to less monetary stimulus, but that doesn’t make things any worse in the near-term

    Eh, it’s still at least marginally worse in the near-term, if it drives money to manifestly inefficient uses. (Solyndra, Beacon Power, SunPower, Evergreen Solar, Ener1, etc.)

  4. Gravatar of Morgan Warstler Morgan Warstler
    3. November 2011 at 09:05


    The hammer blow to Matty! DeKrugman gulped and shat, they can see now how this plays out.

    “Both sides are mistaken: the right on monetary policy, the left on budget policy, both on the relationship between them. What the economy needs now, contrary to the right, is a permanent monetary expansion. If the Federal Reserve delivers one, the economy, contrary to the left, won’t need new federal spending””and won’t suffer from spending cuts.”

    The right OBVIOUSLY will allow the expansion of money AS SOON AS the left is forced to give up cuts without any new taxes.

    This is of course what will happen Nov. 2012.

    It is GREAT to FINALLY see the line drawn so vividly here right in the face of TNR crowd.

    Level targeting of NGDP not only provides great cover for making deep stiff cuts to public employees, it actually CROWDS OUT public spending in favor of public spending.

  5. Gravatar of Morgan Warstler Morgan Warstler
    3. November 2011 at 09:07

    private spending.


  6. Gravatar of James in London James in London
    3. November 2011 at 09:25


    I also can’t believe you are not quibbling with quite a lot. I have lost count of the number of times I have linked spending cuts with monetary easing and you have patiently explained fiscal policy has nothing to do with monetary policy. Have you changed your view? Or am I missing something?

    It is a historic compromise they propose and a good one, but not one you have advocated before.

  7. Gravatar of pct pct
    3. November 2011 at 09:47

    I note the dreaded acronym N**P never occurs. This piece has been focus-group tested.

  8. Gravatar of W. Peden W. Peden
    3. November 2011 at 10:09

    James in London,

    I seem to remember that Scott has approved of such an approach in the past, though I would agree that he has not often stated his approval of such a strategy.

    One of the lessons of the 1930s, from here in Britain, is that you can have sound finance and small government even in a brutal world recession provided monetary policy allows for private-sector led growth. Britain’s recovery in the 1930s was astonishing, especially considering that it is either unknown or misunderstood* today.

    * I remember an old school textbook that attributed Britain’s recovery in the 1930s to rearmament, despite the fact that rearmament didn’t begin in earnest until well after the 1935 election, whereas UK real GDP growth in 1934 was 6.8%. In 1934, I might add, the GDP deflator was falling, proving once again that supply-side deflation and roaring economic growth are perfectly comaptible.

  9. Gravatar of Bilderburg Bilderburg
    3. November 2011 at 11:04

    If we start having rising inccomes then how will we create enough chaos to bring about our one world currency?

    Sorry Scott..just not seeing your plan being implemented without some modifications.

  10. Gravatar of Morgan Warstler Morgan Warstler
    3. November 2011 at 11:31

    off topic, but DeKrugman annoy me to no end…


    That graph fails to show that the 80-99% carry the most economic weight.

    It fails to show that they tend toward the SMB, college graduate, Tea Party Republican crowd – and they all vote.

    So it fails to show the correct strategy of the bottom 80% which is it ASK AND FOLLOW the lead of the 80-99% in taking down the 1%.

    What is amazing is that since 1979, my guys, the 80-99% have held on to their shit, while the Democrats have sold out their base to pay back favors to the 1%.

    If liberalism was GOOD for Democrats, the 80-99%, the Tea Party would have LOST, while the bottom 40% gained.

  11. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    3. November 2011 at 12:14

    No rest for the wicked? Another big name journalist embarrasses herself:


    I like this:

    ‘But none of these defenses of targeting nominal GDP holds up. Everyone wants stronger growth. By “4.5 percent growth,” however, we generally mean real growth. Under NGDP targeting, it’s possible for the Fed to get a growth rate of 4.5 percent, of which 3.5 percentage points are inflation and only 1 percentage point real. That hardly accords with the spirit of the line in the Fed statute about increased production.

    ‘In short, the big vulnerability of NGDP targeting is that it’s a license to inflate. It will inevitably undermine the Fed’s mandate to maintain price stability.’

    She went form ‘it’s possible’, to ‘inevitably’ pretty quickly, I’d say. And I say that having some sympathy for the ‘possibility’. Then there’s:

    ‘Friedman, in turn, noted in “Capitalism and Freedom” that any goal or target set should be one that Fed authorities have the “clear and direct power to achieve by their own actions.” That is, not something big and ephemeral such as a higher GDP growth rate. Friedman recommended a “legislated rule instructing the monetary authority to achieve a specified rate of growth in the stock of money.”’

    Riiight. Not something ‘big and ephemeral’, just the ‘stock of money’

  12. Gravatar of J Mann J Mann
    3. November 2011 at 12:27

    Wow, Scott, you sure have a convert. Ponnuru is rampaging all over the National Review’s blog defending NGDP targeting against all comers.

  13. Gravatar of Morgan Warstler Morgan Warstler
    3. November 2011 at 12:51

    Here’s Ponnuru:

    “Nominal GDP targeting would on average have been no more aggressive than actual Fed policy during 1982-2007; it would if anything have been tighter during the tail end of that period.”


    It’s a good sized number… enough to have raised mortgage rates in 2005+

  14. Gravatar of John Thacker John Thacker
    3. November 2011 at 13:41

    Ponnuru wrote a very nice article a few months ago in National Review, and has been supportive on Twitter.

    I’ve had deep respect for Ponnuru’s intellectual fairness and judgment for the fifteen years or so I’ve read him.

    You’re also getting some more support from Timothy Lee over at Cato, with a couple of posts on their group blog with useful graphs. The term NGDP is avoided in exchange for “nominal final sales to domestic purchasers.”

  15. Gravatar of lxm lxm
    3. November 2011 at 14:17

    I like this article: http://growth.newamerica.net/sites/newamerica.net/files/policydocs/NAF–The_Way_Forward–Alpert_Hockett_Roubini.pdf because it talks about the global imbalances that have contributed to/caused the financial problems.

    So I agree with part of the title of the Beckworth/Ponnuru article: …”Why Both Liberals and Conservatives Are Wrong About How to Fix the Economy….” While their solution, monetary expansion (spend?) now, cut later, is similar to what many have recommended, it does not speak to any global issues.

    So while their solution may work, they sure haven’t come to grips with the global nature of the problems.

    Republicans/Democrats/Beckworth/Ponnuru all want to solve America’s problems, but they all refuse to see we are in a global economy.

    You, too, Scott Sumner.

  16. Gravatar of CA CA
    3. November 2011 at 16:16

    Patrick, thanks for posting that article. I knew she had a piece on NGDP targeting coming out soon, as she tweeted something about it a few days ago. And of course I knew she’d be against it.

    Scott and the other Market Monetarists need to respond to Shlaes directly, since she’s taken so seriously by those on the right.

  17. Gravatar of JimP JimP
    3. November 2011 at 16:37


    Comments from Goldman on Bernanke and NGDP targeting.

  18. Gravatar of Becky Hargrove Becky Hargrove
    3. November 2011 at 17:12

    Have you heard the references to Krulong? Although Arnold Kling has a few in the audience who doubtless don’t appreciate it. Just wanted to thank you for your comments, who knows how many posts back, Scott has been on a roll. I felt a lot better afterwards, and have given a lot of thought to the battlefield ahead that you spoke of. For me, it gets waged on two fronts: monetary and non-monetary. The monetary one looks a lot like yours and I also believe in technology steamrolling everything. My best example is to completely give homebuilding over to technology through modular (recycled plastics) components that both the old and the young could snap together if they wanted to. To be sure a lot of construction people would lose that line of work, but I’d be willing to bet they would eventually have better odds of buying modular components than they ever had of building – and legally keeping – their own home.

    The second front will take more time, because it involves convincing lots of professionals to bring knowledge based work into the wealth creation realm of lateral skills exchange. I look forward to the challenge, even if some days I get all emotional and silly. Note to self: be more abrasive…no kidding.

  19. Gravatar of Dan Kervick Dan Kervick
    3. November 2011 at 19:07

    TNR is one of the journalistic bulwarks of the Third Way, New Democrat movement of the neoliberal era. The movement is obviously well past its prime, and most of it institutions have unraveled already. And the philosophy and elite economic contract of that era have pretty well collapsed in failure, although its old guardians keep scrambling to try to rescue it one last time. Reactionary bastions like TNR are trying to hang on. But neoliberalism is just about toast.

    That New Democratic contract was based on the idea that if Wall Street got out of the way of most the Democrats’ social agenda and helped Dems get elected, the Dems would respond by helping to shrink the public sector, end a lot of transfer payments, undermine Social Security, deregulate business and finance, privatize public assets, look the other way on the frauds and flim-flam of the rentiers and help the country’s owners achieve even larger and more extravagant ownership stake in the country. The whole scheme is now a bloody mess. Thankfully, the era of Thatcher, Reagan, Clinton, Greenspan and Rubin is in a death rattle.

    Just as in the Great Depression, it has taken a while for the people to educate themselves to see what is going on, and to cut through the ideological BS. We have had to endure a neo-Hooverite era of austerity. The fist impulse in such a crisis is for the owners of the society to protect the creditors at all costs, impose austerity and attempt to wrest the last vestiges of control of the public sector and the tax system from progressive democratic hands. But this only hastens the unraveling. We see a second round of this unraveling in Europe, as European creditors fail predictably in the desperate tactic of impoverishing their own debtors and customers to keep their groundless assets floating on top of a pyramid of air.

    We’re on the verge of a new era of activist government and energetic expansion of the public sector. A year from now, the idea that serious people wasted so much time on idle debates on the semantic relabeling of central bank inflation targets and ineffective banker-side diddling with financial asset purchases will seem downright laughable.

    What gets me is that you monetarists, who put so much stock in monetary loosening and the money supply, don’t seem willing to follow that line of thought out to its logical conclusion. It’s like you’re all saying that the most important thing in the world is to spread apple trees throughout the kingdom, but that the best way to do that is to plant five apple trees in a tub of dirt in the counting house, and then wait for them to spread. If you really want to spread new money around, then what you should be proposing is the creation of the powerful fiscal policy tools needed to do it. Figure out how to directly monetize a fiscal expansion, and spend all that the new created money you want the country to create out into the real economy, where people are making and growing and building and inventing real stuff. Don’t just plant it in bank reserve accounts and wait for it to grow.

    You guys are as blind as bats. It’s like you have no eyes to see where wealth and prosperity actually come from, but only a special kind of sonar that enables you only to sense the worlds of money and banking alone.

  20. Gravatar of ssumner ssumner
    3. November 2011 at 19:11

    James, I strongly support the combination of easy money with tight fiscal policy.

    Patrick, Journalists don’t tend to have the background required to grapple with this issue. She’s a good historian, but over her head here.

    J. Mann. I did a piece for NR a few months back (at Ponnuru’s invitation.

    John Thacker, Thanks for the link.

    lxn, I’ve done many pieces criticizing the ECB and BOJ. I’ve also criticized Greece, but mostly in the comments.

    CA, But nobody views her as being knowledgeable about monetary policy. She’s a cultural historian. (And I liked her book on the Depression.)

    JimP, Thanks for the link.

  21. Gravatar of Morgan Warstler Morgan Warstler
    3. November 2011 at 21:55


    Trust me, Sumner nor Beckworth, etc. want to spread the wealth around like I do.

    You are a naive fool, DEMOCRATS sold out the bottom half to the top 1%.

    The GOP never promised them a damn thing.

    In ANY rational world, no one in the top 1% donates half their political dollars to the party of have-nots unless:

    1. they are a guilt ridden poodle who knows in their bones they didn’t EARN it, and wants to convince themselves no one else earned it either.

    2. they are looking to rent seek.

    And 1 and 2 are your rich donors, they are who you sold the poor to like a Sally Struthers infomercial.

    Meanwhile, to the consternation of DeKrugman, the 80-99% HELD ON TO THEIR PILE.

    The transfer happened between YOUR voters and YOUR donors.

    Re-read that.


    Looky, my side has $ and votes, and is WILLING to tear up the 1% as long as we get to keep most of the spoils.

    YOUR SIDE gets to follow our instruction, and is gratified when a far larger swath of people want yoga lessons and private schooling.

    Your side need to STFU and follow the lead the Tea Party. look at the numbers the 80-99% are here the money and votes really reside.

    It is idiotic to fight us.

  22. Gravatar of Dan Kervick Dan Kervick
    4. November 2011 at 03:28

    I like you Morgan, because you’re what I like to call a “Darth Vadar Marxist”. Your analysis of economic affairs is very much on Marxist lines, including all the class warfare. It’s just that in the end you tell people to join the Dark Side.

  23. Gravatar of Jeff Jeff
    4. November 2011 at 03:36

    I read the TNR article and thought that maybe, at long last, there is light at the end of the tunnel. Then I read the comments there. They use big words that have something to do with economics, they construct mostly grammatically correct sentences, but they are logically incoherent. Maybe it is hopeless, after all.

  24. Gravatar of Morgan Warstler Morgan Warstler
    4. November 2011 at 05:13

    Dan, life is not a movie.

    There is nothing heroic about getting angry at the big fish in small ponds all over America that expect to keep being big fish.

    It is in their interest to keep power distributed.

    And America’s entire creation myth and multi-century history is based on decentralized power.

    Our Constitution encodes limited government, and near unlimited capitalism into its rule system and language, otherwise after 200+ years of assault we’d be France.

    These are all facts.

    You are the Empire if you want to play with the metaphor.

    I don’t. I want to compress human history and get to future as quickly as possible. That reduces suffering the most.


    The game board says the most powerful group are the 80-99%, they have 4x the money and 20x the votes as the 1% above them, and more money than everyone below, and the 1-60% don’t vote with any frequency.

    If you sat down to that game board and were told to do the best you could for the bottom half.

    The smart thing to do is not to scream that you and the 80-99% are THE SAME, and therefore YOU should lead them all.

    The smart thing to do is to agitate with 80-99%, play on their own personal sense of greed and convince them to go make war on the the top 1%.

    YOU are in a class war, you are just really, really, really shitty at it.

  25. Gravatar of Morgan Warstler Morgan Warstler
    4. November 2011 at 06:16

    Don’t feel bad Dan, DeKrugman makes the same strategic mistake you make…


    Sending the 80-99% after the top .1% is super easy, you just don’t get to lead.

    A smart C power player, has to recognize and admit they are the C power to play smart.

  26. Gravatar of Liberal Roman Liberal Roman
    4. November 2011 at 08:17

    What I don’t get about Morgan what throughout history makes him think that continued awful economic performance leads to more free market capitalism.

    In Greece, we had a right conservative party (2007-2009) in power. They were replaced by the Socialist party currently. And now we have Communists protesting against the Socialists in the streets. (http://tinyurl.com/6faez4s)

    That is what usually historically happens in terrible economic times. Why do you think the same won’t play out here in America?

    On top of that, add the most dysfunctional crop of Republican candidates that I have ever seen in my lifetime and I am more and more sure that Obama will win re-election next year.

  27. Gravatar of Morgan Warstler Morgan Warstler
    4. November 2011 at 09:02


    Well if Obama wins, I’m wrong, and Scott was right.

    But if it goes down like I say, Scott should have been smart enough to put economists down underneath the will of the 80-99%.

    You think Greece is going your way???

    Look, they are cooked if they drop out. They go third world. For everyone to watch eat it. Debt forgiveness is NO BIG DEAL, if it forces the Greek public sector to live only on their tax dollars – like any American state.

    I think they should have to all vote to stay in the Euroblock.

    It’s going to be ugly dude, but you are nuts if you look at 1980 till today and think the march of history isn’t headed toward private property and free market economics driven unbounded technology.

  28. Gravatar of ssumner ssumner
    4. November 2011 at 09:39

    Dan, Au contraire. The very neoliberal Nordic countries are doing way better than the heavily statist Mediterranean countries. Neoliberalism is just beginning, as big countries like China and India become more market-oriented over time. Obama’s attempt to turn back the clock toward statism hasn’t exactly set the world on fire. Singapore and Hong Kong and Sweden and Denmark are the future, not the tired old policies of 20th century statism.

    Jeff, Never look at comment sections (except mine and other MMs), it’s too depressing.

    Liberal Roman, Indeed, both the Greek and the Italian fiascos were caused by right wing governments. It’s a lesson for the GOP. Just being on the right doesn’t make your policy pro-capitalist, unless you make a determined effort to go that direction. Unfortunately, under Bush we moved toward statism.

  29. Gravatar of Dan Kervick Dan Kervick
    4. November 2011 at 11:09

    The very neoliberal Nordic countries are doing way better than the heavily statist Mediterranean countries.

    I was under the impression that the Nordic countries actually have larger public sectors than the Mediterranean countries. But what the former also know how to do that the latter don’t is tax people and keep the corruption out of their social democracy. Hence, no sovereign debt problems.

    I can’t believe that you actually regard Obama as a guy who attempted to turn back the clock toward statism. All he did is some initial Keynesian “stimulus” – one-shot spending initiatives which he quickly ran away from in order to hug conservative deficit hysteria and government-shrinking. He did not propose any big new permanent government operations of initiatives. The health care reform does everything with regulation and the private sector. There isn’t even a puny public option, let alone a government run health plan. He’s an IMF dreamboat and lame neoliberal Third Wayer.

    Neoliberalism can’t deliver employment security, stable prosperity or income equality. It’s cracking up. As it falls, people will increasingly demand an organized, activist public sector that does big things and takes charge of its own economic destiny, instead of putting that destiny in the hands of a flim-flamming, rent collecting financial sector overpaid, job wrecking corporate barons.

  30. Gravatar of ssumner ssumner
    10. November 2011 at 20:00

    Dan, You said;

    “I was under the impression that the Nordic countries actually have larger public sectors than the Mediterranean countries.”

    That’s right. I have a paper arguing that Denmark is the most neoliberal society on Earth. The conservative Heritage Foundation considers Denmark to be more capitalist than America.

    The highly statist economies like Greece and Italy and Portugal are really struggling.

    I consider Clinton far more neoliberal than Obama. Clinton did Nafta, welfare reform, cap gains tax cuts, etc. Obama’s just made things worse. As did Bush. Indeed the two have quite similar domestic policies. Bush also greatly expanded the role of government in health care.

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