Market monetarism in the news

Here’s Ramesh Ponnuru at

To return to reality for a moment: The Fed isn’t hitting its 2 percent inflation target now, let alone coming close to 4 percent. People who think the economy remains depressed — and think it’s depressed largely because money is too tight — have to urge the Fed to do something different. In some sense, we have to push the central bank out of its comfort zone.

Avoiding Backlash

It may be that a nominal-spending target is further outside that zone than a higher inflation-rate target. But remember that inflation is extremely unpopular. A deliberate Fed policy of raising inflation rates, especially permanently, seems likely to yield a backlash — or even a frontlash that keeps it from happening in the first place. A Fed policy that seeks to raise incomes and spending seems likely to meet less resistance.

And it seems to me that higher incomes and spending are what we should really want in today’s circumstances. Faster inflation is valuable to the extent that it produces higher nominal spending, and higher nominal spending would be valuable even if it didn’t involve more inflation.

The inflationists generally argue that the Fed needs a better communications strategy. They should take their own advice.

2.  And this is a link to a Bloomberg interview I did yesterday.

3.  Here’s the New York Times on (market) monetarism:

The prescription fits the worldview of some “monetarist” economists, who argue that the Fed should set a higher target for the nominal gross domestic product, to be met through real economic growth and inflation. Conservative pundits like Josh Barro of Business Insider have welcomed inflation as the right’s answer to fiscal stimulus “” a way to juice the economy without increasing government spending.

But it is hardly a conservative idea. Paul Krugman, a Nobel laureate and liberal columnist for The New York Times, has been writing about the benefits of higher inflation, arguing that policy makers should be using any available tool “” fiscal or monetary “” to try to reduce an unemployment rate stubbornly stuck at more than 7.5 percent for over four years.

4.  And here’s Ambrose Evans-Pritchard in The Telegraph:

They are gambling that the US economy will shake off the effects of fiscal tightening of 2pc to 3pc of GDP this year, arguably the biggest squeeze in half a century. It may indeed do so, but it may not, and the costs of making a mistake before the US recovery is safely established are asymmetric.

Scott Sumner, the spiritual father of the Market Monetarists, says the errors made by the Fed in 1937 and the Bank of Japan in 2000 did serious damage, while the US suffered little lasting effect when the Fed delayed too long in 1951.

Are we to conclude that Ben Bernanke has lost his nerve and joined the Austro-nihilists?

The Godfather?  Eminence grise?  Spiritual father?  What will they think of next?

It’s interesting that the NYT just calls us “monetarists.”  The old monetarists sort of faded into the background after the new Keynesians stole all their best ideas (monetary stabilization policy trumps fiscal, nominal interest rates unreliable, natural rate hypothesis, high trend rates of inflation caused by rapid money growth, etc), and their other ideas (target the money supply) lost popularity.

Here’s my question:  When people talk about “the monetarists” in 2020, which variant do you think they will be referring to?  Market monetarists?  New monetarists?  Old monetarists?

HT:  Chris Beseda, CA



22 Responses to “Market monetarism in the news”

  1. Gravatar of W. Peden W. Peden
    25. June 2013 at 11:32

    Why don’t we use the term ‘inventor’ more in economics? Or ‘discoverer’? Would they be so much more silly than ‘spiritual father’?

  2. Gravatar of Lars Christensen Lars Christensen
    25. June 2013 at 11:57


    monetarists is just fine with me – even though I think the “market” part is tremendously important.

    Furthermore, I have some reputation invested in us maintaining the MM brand;-)

    I am still very happy with this paper:

  3. Gravatar of Saturos Saturos
    25. June 2013 at 12:39

    Is there more to that interview or did you get cut off permanently? And is this shaping up to be a regular thing now on Bloomberg? (Very market monetarist friendly place, that.)

    That was an excellent interview Scott, you’re really getting to be a pro at this, great job. At the end there though, if there had been time, I’d just have added something along the lines of, “Yes, the economy is complex, but the Fed’s job fundamentally is not. Its special role comes from being the only printer of dollars, and it works by controlling how much spending there will be of those dollars. To stabilize the amount of that spending is really the only way it would hit any mandate, and that is easy enough for it to do if it actually wants to – instead of missing in the same direction for both the variables it is legally supposed to care about year after year.”

    W.Peden, because Scott didn’t invent the ideas (I think even NGDP futures targeting was pre-empted, there was a post on that once wasn’t there?) and discoverer and inventor aren’t really what you call someone who starts an intellectual movement.

  4. Gravatar of jknarr jknarr
    25. June 2013 at 13:04

    Scott, from what I’m observing, possible Fed “policy failure” is not really the issue.

    Granted, to be taken seriously, one must assume that the Fed means what it says, but I for one have empirical concerns that they do nothing of the sort.

    The Fed is targeting its balance sheet relative to other central banks, not US NGDP. There’s a lot of data crunching, but it is interesting. The Fed appears to be running a USD policy, not an aggregate demand policy – which should be obvious to anyone looking at “tapering” into 3% NGDP.

    * Scott, if NGDP targeting is ever instituted, I’ll call you “The $econd £reat €mancipator”.

  5. Gravatar of W. Peden W. Peden
    25. June 2013 at 14:13


    I don’t like the term ‘intellectual movement’ either, but that’s partly because I don’t like political metaphors in the history of ideas.

    For any theory, most or all of the sub-theories will be unoriginal. Combining them together is a creative action worthy of the title ‘inventor’, just as an inventor of a machine need not have invented every component.

  6. Gravatar of W. Peden W. Peden
    25. June 2013 at 14:17

    Scott Sumner,

    I really like your explanation in that interview for why central banks shouldn’t try and control bubbles with monetary policy and cannot without crashing the economy. I knew that before, but now I know why it’s true.

  7. Gravatar of ssumner ssumner
    25. June 2013 at 15:00

    Everyone, Thanks for the comments.

    Lars, you have as much right as anyone to be called the inventor of MM. It was a group project.

  8. Gravatar of Market monetarism in the news | Fifth Estate Market monetarism in the news | Fifth Estate
    25. June 2013 at 15:59

    […] See full story on […]

  9. Gravatar of Neal Neal
    25. June 2013 at 17:37

    My question is: If you ask the question “When people talk about “the monetarists” in 2020, which variant do you think they will be referring to?” on this blog, how do you think the commenters will answer? 😉

  10. Gravatar of John John
    25. June 2013 at 18:44

    “Austro-nihilists?” So believing in moving towards ever increasing human freedom is nihilism? I’ll never get why the critics of libertarianism refuse to engage the ideas and simply assume bad motives. My best guess is because in the limited times I’ve seen them try to attack the ideas they’ve embarrassed themselves.

    It wouldn’t be a very insightful criticism if I simply said that people calling for higher inflation and/or more government spending were just trying to destroy society to usher in Communism.

  11. Gravatar of Benjamin Cole Benjamin Cole
    25. June 2013 at 20:15

    Indeed, MM has been making progress through the intellectual community—but glacial, if you are unemployed, running a small business tied to real estate, or hoping for tax receipts to keep your government afloat.

    I think this speaks poorly of central banks,and the way they are managed—perhaps even that sacrosanct, hallowed ideal of central bank independence.

    Has independence worked out in the last 20 years?

    Ponnuru, a terrific writer, states that “inflation is extremely unpopular.”


    Would most people like to have a robust economy at 3 percent inflation, or a stagnant economy and no inflation? We know that central bankers prefer the latter, but would voters?

  12. Gravatar of John John
    25. June 2013 at 22:12

    Ben Cole,

    Do you really think things are so simple that 3% inflation means a great recovery and 1-2% means a really bad one? We’ve already had inflation there in 2011 and there wasnt any miracle.

  13. Gravatar of Prakash Prakash
    26. June 2013 at 00:25

    OT, For some reason your blog RSS feeds don’t seem to be coming to Feedly for the past 3 days or so.

    Anyone else face the same problem?

  14. Gravatar of Sandor Sandor
    26. June 2013 at 00:31

    The radio interview ends after 5 minutes at an ad break. Was there any followup after? I really would like to listen to it, but I cannot find the archive of bloomberg radio if there is any.

  15. Gravatar of Lorenzo from Oz Lorenzo from Oz
    26. June 2013 at 02:04

    John: I suspect what Scott is getting at is being so committed to your theory that you do not reveal yourself to be indifferent to the consequences.

  16. Gravatar of Lorenzo from Oz Lorenzo from Oz
    26. June 2013 at 02:05

    That should be “you reveal yourself to be…”

  17. Gravatar of John Thacker John Thacker
    26. June 2013 at 03:18

    Ponnuru, a terrific writer, states that “inflation is extremely unpopular.”


    Yes. Inflation is extremely unpopular, and voters overestimate inflation. Polling (in many countries and across many times) is uniform in this. Certainly I agree that there is a sophisticated argument about the consequences, such that someone could ignore the short term popularity and then stake re-election on the consequences, but the short term reaction to the term “inflation” is intensely negative.

  18. Gravatar of J J
    26. June 2013 at 05:27

    John Thacker,

    It is not that people overestimate inflation but that they don’t understand inflation. People think of inflation as higher prices without realizing that it includes higher wages. Voters care about real wages, and so care about the difference between NGDP growth and inflation. Fighting inflation will not increase this difference.

  19. Gravatar of Joe Joe
    26. June 2013 at 05:28

    3rd Estimate of Q1 GDP – 1.8%. Revised down from 2.4%.

  20. Gravatar of ssumner ssumner
    26. June 2013 at 05:48

    Neal, That’s why I asked it here. 🙂

    Ben, I think he means that the word “inflation” is really unpopular—I agree that people like demand-side inflation, when you are in a recession.

    Sandor, There were two 5 minute segments, maybe they only recorded one.

    Lorenzo, He’s quoting someone else, I never said that about the Austrians.

    Joe. See my new post.

  21. Gravatar of Lorenzo from Oz Lorenzo from Oz
    27. June 2013 at 22:31

    Good point. The problem of commenting while tired. So, I suspect what Ambrose E-P is getting at is is being so committed to your theory that you reveal yourself to be indifferent to the consequences.

  22. Gravatar of Geoff Geoff
    28. June 2013 at 22:36

    “When people talk about “the monetarists” in 2020, which variant do you think they will be referring to? Market monetarists? New monetarists? Old monetarists?”

    The same socialist dogmatists as always. Communist/fascist money monopoly strategizing.

    Goodhart’s Law constantly making an appearance. If/When the new God of NGDP targeting gives the economy a temporary high, just as price targeting did, and finally exhausts itself, we’ll likely have to put up with a new generation of communist/fascist money monopolists, and their intellectual shoe shiners. They’ll probably call themselves “Neo market labor monetarists” or some other label, to prove to the world that they aren’t as stupid as the previous generation of unworkable socialism dogmatists.

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