Links to my views on money/macro

Here’s my long promised post that introduces my views to a wide range of issues.  I will occasionally update this post, adding links where appropriate.  Feel free to make suggestions, but understand I can’t add all suggestions without making it too cumbersome.

Let’s start with a (slightly simplistic) intro to my view of monetary economics

And an earlier attempt from 2009 (very long) to summarize my views in one blog post.

Also check out my FAQs.  (Contains suggestions about other authors.)

And why I don’t like the IS-LM approach

The best intro may be my recent magnum opus at National Affairs defending NGDP targeting:

And shorter versions at the Adam Smith Institute and National Review:

My Cato paper on how tight money caused the crash of 2008:

And a similar paper from The American

A blog post on NGDP futures targeting

And an academic paper on futures targeting

And my first paper ever, a 1989 paper on using NGDP futures (not really recommended, just to show I’ve been focused on this idea for a long time.)

Critiques of MMT here and here.

A post defending the EMH.

My views on methodology (one of my favorites.)

An early critique of the “liquidity trap.”  A longer and more recent version.

An example of the importance of rational expectations theory

Why the Keynesians are wrong about FDR’s high wage policy

Petition for Monetary Stimulus (March 2009)

The Great Danes blog post and academic paper (thoughts on culture, policy and neoliberalism.)

Conversations with Russ Roberts on monetary policy and growth and neoliberalism.  (Something to listen to on the exercise bike.)

And finally a post I’ve always liked, a odd sort of mixture of Tyler Cowen and Paul Krugman.

I’ll add lots more later, but I don’t want to overdo it.  I may substitute things as well.  I already slightly disagree with a few points in my early posts–but nothing major.



41 Responses to “Links to my views on money/macro”

  1. Gravatar of Zac Zac
    22. September 2011 at 15:29

    Love the blog and wish it was more widely read by the powers that be.

    Quick suggestion for a post can you write on WHY the Wicksellian interest rate fell by so much in 2008/09? IE Why the Fed’s apparent cuts in the interest rate were less then were actually need to avoid tight money…

  2. Gravatar of JTapp JTapp
    22. September 2011 at 16:12

    Scott, please pin this post permanently on the side for easy reference.

  3. Gravatar of Benjamin Cole Benjamin Cole
    22. September 2011 at 16:12

    Excellent body of work for the times.

  4. Gravatar of TA TA
    22. September 2011 at 16:43

    Whatever else you are, you’re a heck of a lot of fun. I love this stuff, even when I don’t understand it. (I’m an engineer, not an economist.)

  5. Gravatar of Liberal Roman Liberal Roman
    22. September 2011 at 16:46

    Scott, I discovered your blog a little over a year ago. It has been an eye opener to say the least. However, you have made me completely unable to watch or read any financial commentary.

    Imagine turning on the Weather Channel and hearing the meteorologists debate whether it was Zeus or Athena that caused today’s thunderstorm. Well, that’s how watching CNBC and Bloomberg is for me now.

    Seeing liberal’s confusion at this recent equity move brought me to the edge of despair and laughter at the same time. Here is a particularly hilarious post by a prominent financial blogger essentialy throwing up his hands in confusion at the recent crash:

    I am slowly moving from a mood of despair to a mood of laughter at all the idiotic commentary around the financial world on monetary policy. You really do have to laugh at this stuff or it will drive you to madness.

  6. Gravatar of Declan Trott Declan Trott
    22. September 2011 at 16:57


    What about measurement error?

    You linked to the July GDP revisions e.g.

    showing that the estimated level of GDP going back >2 years was massively revised downwards.

    How would your scheme handle this? I know you are targeting expectations, but futures have to be settled based on actual data at some point.

    (I apologise if you have dealt with this already, but I couldn’t find anything about it in the obvious posts.)

  7. Gravatar of Liberal Roman Liberal Roman
    22. September 2011 at 17:05

    I have always had the same concern that Declan Trott pointed out. I guess Scott’s response is that NGDP isn’t usually revised that much… Which isn’t a very comforting response.

  8. Gravatar of JimP JimP
    22. September 2011 at 18:10

    Cochrane on Inflation

  9. Gravatar of marcus nunes marcus nunes
    22. September 2011 at 19:04

    Scott You can´t leave out from the “General Intro” one of your very first posts “Gross Deceptive Partitioning” aka GDP

  10. Gravatar of Peter Peter
    23. September 2011 at 00:06

    Thanks Scott!

    I added a few of the links to my ‘best-of-moneyillusion’ page:

    I haven’t reread both in detail. But isn’t your newer “Why I don’t believe in liquidity traps” better? It’s twice as long.

  11. Gravatar of Martin Martin
    23. September 2011 at 02:01

    Just re-read your ‘autistic’ post. It conveys a great attitude/approach towards finding things out.

    It made me wonder about the following: what if people could not see their budget constraint? Let’s just assume that each week some money would magically appear in your wallet, how would you know how much to spend and how much to save?

    Presumably, you would save that unexpected gain on your bank-account to draw interest from it later as you’d want to spread it out over your life-time. That doesn’t strike me as too controversial, it’s the logic behind the PIH.

    Now I have two related questions/variations:

    1. If you would not know when taxes would be raised, but you assumed that they would, wouldn’t that be identical to receiving an unexpected gain each week?

    2. Let’s assume that for some reason all those unexpected gains keep coming for your entire life-span. At the end of your life you would have accumulated a net cash position that you would have maintained throughout your life. How sensitive are those cash balances to future inflation?

  12. Gravatar of Becky Hargrove Becky Hargrove
    23. September 2011 at 03:37

    The National Affairs article really helped. The more I read the more it seemed NGDP should be a common sense policy for the Fed. Of course the problem now is not enough makes sense monetarily for common sense to take hold. I keep thinking about the way wealth creation actually happened in the last decade in the U.S. and most of that was a wealth of wanting it to be so (for so many reasons) rather than concrete valuations. Even though our government is committed to maintaining home values in the present, it is less certain about funding alternative sources of wealth in the event it is not possible to maintain the values of housing and real estate in general.

  13. Gravatar of Browsing Catharsis – 09.23.11 « Increasing Marginal Utility Browsing Catharsis – 09.23.11 « Increasing Marginal Utility
    23. September 2011 at 04:05

    […] A compilation of Sumner’s positions on macro. […]

  14. Gravatar of Charlie Charlie
    23. September 2011 at 06:23

    I would like a bit on your views about the transmission channel. You mention it fairly often but I’ve never seen the post where you spell out your views on it.

  15. Gravatar of DW DW
    23. September 2011 at 06:48

    How about some links to your international stuff?

    In particular, I’ve enjoyed your observations on China and the international macro discussions (devaluation = inflation kind of stuff).

  16. Gravatar of OhMy OhMy
    23. September 2011 at 08:40

    Your posts on MMT will be an unending source of entertainment for as long as they stay online:

    “MMT understands monetary operations better than me, they concentrate too much on how this stuff actually works”

    MMT-ers really liked that.

  17. Gravatar of OhMy OhMy
    23. September 2011 at 08:48

    The comment thread under your post on MMT is so precious.

    The end is the best: once Warren Mosler starts discussing details of how credit money is created you ask to discuss an economy… without banks. So much for “monetarism”.

  18. Gravatar of Morgan Warstler Morgan Warstler
    23. September 2011 at 09:56

    I think we should have a crowd sourced, group effort to describe Scott’s plan in maybe 2, no more than 3 paragraphs using SMALL, non-eggheads words.

    The goal should be describe it to the lowest possible IQ, and have them understand and come away favorably disposed.

  19. Gravatar of Contemplationist Contemplationist
    23. September 2011 at 10:23

    Morgan can talk about IQ, but if Steve Sailer does he’s the awfulest person in the world though he has all the evidence on his side. Lolz.

  20. Gravatar of Lars Christensen Lars Christensen
    23. September 2011 at 13:07

    @ Peter, cool – overview of Scott’s blog – I saw “Great Danes” and it is not my working paper on Market Monetarism;-)

  21. Gravatar of Peter Peter
    23. September 2011 at 13:12

    Morgan, how about these arguments.

    1. Getting the Fed out of setting interest rates and lending.

    2. Allowing prices to fall more when we have big boosts to productivity and allowing them to rise more when we have big falls in productivity.

    3. If it works as well as Scott believes we could maybe go down to 3.5% NGDP growth. Sounder money…

    Then there’s the question of using only non-eggheads words.

  22. Gravatar of Morgan Warstler Morgan Warstler
    23. September 2011 at 13:22


    My tepid apologies.

    Steve Sailer is a despicable human being. Whether or not IQ correlates to race may be proven as scientific fact, but discussion of it towards public policy PRESUMES a state that is powerful enough to make policy decisions based on it.

    I’m against such presumption.

    Even if global warming is real and caused by man, my approach to it will not generally entail a state based solution… I will scream for geo-engineering.

    Sailer could find me statistical proof that X group have lower IQs, and I’m not going to form immigration policy based on it.

    WHAT HE WANTS is state policy based on his science, because he hates certain people.

    Now if he personally wants to discriminate that’s FINE. And I think everyone else should discriminate against him. I already do.

  23. Gravatar of Morgan Warstler Morgan Warstler
    23. September 2011 at 13:29

    Peter, that reads like a carbon copy of my thinking.

    One thing it seems like everyone has an issue with is the “mechanism” by which new money enters or leaves the system.

    One of the neat things about futures is that the newly printed money goes directly to the investors who bet on NGDP coming up short, or the money being lost form the system by those who bet wrong.

    Whenever pushed Scott gives an unsatisfying answer about the Fed paying market rates at the window, but to those of us who think they favor bankers we assume GS knows exactly what is coming and buys sells accordingly before and after.

    People shouldn’t be able to bet on what the Fed does, they should have to bet on what the market does.

  24. Gravatar of Peter Peter
    23. September 2011 at 13:30

    Lars, as a Swede it pained me a bit to put up such a link. The biggest problem with Scott is that he prefers Denmark over Sweden. =)

    But your paper is linked on my general NGDP page: . I also tried to give a short explanation for NGDP level targeting there. But I’m not an economist so I might have messed it up.

    If you or anyone else have any suggestions for great market monetarist links or any other ideas for the page, feel free to comment here (if it’s ok with Scott) or mail me at ngdplt at the amazing gmail. I currently have an excess supply of spare time.

  25. Gravatar of TravisA TravisA
    23. September 2011 at 17:20

    Scott, the National Affairs article is great, great, great. That should be number 1 on your list.

  26. Gravatar of Wadolowski Wadolowski
    24. September 2011 at 05:44

    Professor I’ve also red your article in National Affairs. It’s genious. I love it. You should pin it permanently on the side of the blog.

    I’m so pleased that Greg Mankiw also recommends it:

    Maybe someday your views will go to the mainstream and this mess will come to the end. Paul Krugman is genius as well, but I hope you’re right (and Milton Friedman) and this fiscal stimulus will not be an option.

    I hope Bernanke is proud of himself. 10 year bonds for 1,67%. Maybe he’s trying to beat BOJ record and go for less than a 0,5% as it was in 2003:

  27. Gravatar of Scott Sumner Scott Sumner
    24. September 2011 at 09:06

    Zac, During the first 8 months there were these factors:

    1. Housing crash
    2. High oil prices depressed demand for cars,trucks,RVs, etc.

    These factors reduced demand for credit.

    Then in the last 4 months falling NGDP expectations pushed the equilibrium rate below zero.

    JTapp, Done.

    Thanks TA and Liberal Roman.

    Declan, I’d have the contract payoff be based on the initial number, or first revision. I don’t think this is the problem people think, because NGDP errors are unforecastable. So if monetary policy is set at a level when the expected first announcement is growing at 5%, we really can’t do much better. If NGDP errors were forecastable, then I’d adjust the formula appropriately. This isn’t a game to see who was “really right” in the long run, it’s to set monetary policy at the optimal level given what we know now. That’s all we can ever do.

    JimP, Thanks for the link.

    Marcus, I’ll probably add that.

    Peter, Thanks, I added that.

    Martin, I had a bit of trouble following your example as you seemed to switch from a real example (the PIH) to a nominal example (the effect of inflation on cash demand.) Inflation reduces cash demand, and also reduces demand for bank deposits, but by a lesser amount as they earn interest. I still don’t think I answered your question.

    Becky, The problem is the government is focused on home values (which the market should set) and not NGDP (which the government should set.)

    Charlie, The mechanism is the “hot potato effect” which I think is discussed in my first link above (short course in monetary economics)

    DW, I think I really need to add more categories, and I plan to do that when I get some time. Right now I put most stuff into “monetary policy” or “miscellaneous”. I’ll add a China category.

    OhMy, Glad you are amused.

    Morgan, Go for it, but I’m not sure it’s easy to do.

    Peter, But I certainly like Sweden’s educational reform, and lack of inheritance tax. The toughest call is Lars Von Trier vs. Ingmar Bergman.

    TravisA, Thanks, I put it number one on the right margin of my blog under “Quick intro to my views.” I need to think about how many to separate out over there, I don’t want too much stuff.

    Thanks Wadolowski–I put it over there.

  28. Gravatar of Declan Trott Declan Trott
    24. September 2011 at 16:44


    I’m not worried about forecastable measurement error. I’m worried about serially correlated measurement error (which is not forecastable, because by definition you don’t know the error in real time).

    Again with the July revision:

    – if we are level targeting, wouldn’t this revision mean we suddenly have to aim for a much higher growth rate in NGDP in the near term?

    Obviously this is good if it happens quickly (if we find we are in a deeper hole than we thought, we should dig/climb faster to get out of it).

    But is it stabilising when it happens so far after the fact? You have said yourself that it’s now too late to make a return to the pre-2007 growth path desirable.

  29. Gravatar of Martin Martin
    25. September 2011 at 04:31


    “Martin, I had a bit of trouble following your example as you seemed to switch from a real example (the PIH) to a nominal example (the effect of inflation on cash demand.) Inflation reduces cash demand, and also reduces demand for bank deposits, but by a lesser amount as they earn interest. I still don’t think I answered your question.”

    My use of the PIH was merely an ‘argument from authority’ that unexpected gains are saved and spread out. You can get the same behavior, with uncertainty and money illusion.

    My question therefore was essentially how effective inflation is, if that’s what drives that behavior. Implicit in this is, is that the problem could also be solved by reducing the uncertainty about future taxes (debt)/regulations.

    Also if that’s what drives the accumulation of cash, then increasing inflation might be rather difficult. On the upside, you could solve this by fulfilling this want for pieces of paper. On the downside the possibility exists for considerable inflation afterward when future income becomes more certain and the cash balance can be reduced.

  30. Gravatar of Neal Neal
    25. September 2011 at 12:13

    Thanks for posting this! I was just getting ready to sift through the archives and waste a lot of time trying to figure out what your arguments are — now they’re right here, so I can waste a lot of time understanding them!

  31. Gravatar of Scott Sumner Scott Sumner
    26. September 2011 at 05:50

    Declan, I don’t see that as a big problem compared to the actually volatility of the business cycle. But obviously you’d like to avoid it. Why are NGDP levels still being adjusted years after the fact? Can’t data be collected more quickly, or can’t we rely on more timely data.

    If you really wanted you could imagine a more complicated formula that adjusts the level targeting to offset long term revisions. The problem is potentially solvable.

    Martin, You said;

    “My question therefore was essentially how effective inflation is, if that’s what drives that behavior. Implicit in this is, is that the problem could also be solved by reducing the uncertainty about future taxes (debt)/regulations.”

    I should explain that I answer over 100 comments a day. When I return to older comments I have no memory of context. So I have no idea what this phrase means. Inflation is “effective” doing what? What is “that behavior?” You need to put much more explanation into your comments, or I won’t be able to follow. Don’t forget your ideas are much clearer to you, since you wrote them, then to me.

    I’ll say that in general it’s nice to reduce future uncertainty about taxes and regs, but that has no bearing on the feasibility or desirability of NGDP targeting.

    Neal, Be my guest.

  32. Gravatar of Declan Trott Declan Trott
    26. September 2011 at 15:04


    Fair enough. I just worry that a “more complicated formula” (chaining of the initial growth estimates into a synthetic level?) would make the idea even harder to sell. (Maybe I’m stressing too much over low probability events but 5 years ago most people weren’t taking the zero lower bound seriously either.)

    But the perfect is the enemy of the good and all – thanks for the reply.

  33. Gravatar of Lorenzo from Oz Lorenzo from Oz
    26. September 2011 at 20:33

    Scott: that National Affairs piece is excellent: your blogging experience has clearly sharpened your arguments and how to make a policy case.

    Jim P: that Cochrane piece is seriously odd. The notion that inflation is always and everywhere a fiscal phenomenon is, shall we say, a striking claim. I had not realised he was an MMTer, but his statements that Inflation results when the government prints more dollars than the government eventually soaks up in tax payments and Why does paper money have any value at all? In our economy, the basic answer is that it has value because the government accepts dollars, and only dollars, in payment of taxes. seem to indicate he is.

    I was, for example, under the impression that lots of folk happily accept US dollars in transactions which they are never going to use for tax payments. Such as the hat seller I bought my Siberian rabbit fur hat from in Red Square in 1995.

  34. Gravatar of Scott Sumner Scott Sumner
    28. September 2011 at 16:22

    Declan, I will have a much better reply in a new post tomorrow.

    Lorenzo, Yes, I don’t buy the fiscal theory either.

  35. Gravatar of Inflacionistas vestidos de lobos РMises Daily en espa̱ol Inflacionistas vestidos de lobos - Mises Daily en espa̱ol
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  39. Gravatar of Gary Fosburg Gary Fosburg
    16. September 2012 at 20:31

    As I read the articles about pumping money into the economy, it heartens me to see that the Feds are listening to someone. I, too, have been suggesting for years now, a National Energy Lottery (just google it). A $1 dollar ticket buys the chance for a $25,000 win that can only be used for energy related products/services. If a winner was to put it into solar panels on their home, they would effectively be putting 3 people back to work, increasing disposable income which would help pump the economy back up as well. Lotteries have been used for to build USA universities, roads, bridges and even helped fund the Civil War. It’s used in UK for Olympic hopefuls, and China as well. It could be ran very effectively and reduce energy costs substanially right now. Now 5, 10, 15 years from now.
    I’m know on Twitter as Energylottery. Just read the article and see that it would work. Best Regards, Gary

  40. Gravatar of Neal Neal
    30. May 2013 at 12:55

    Hate to resurrect a dead thread, but the link to the National Review article is broken.

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