Not an election post

A number of newspapers in the Tribune syndicate have printed my new piece on Biden’s path forward. In the article, I mess with progressives by quoting Keynes:

“(The) NRA, which is essentially reform and probably impedes recovery, has been put across too hastily, in the false guise of being part of the technique of recovery.” . . .

Of course, many progressives will not be pleased with my suggestion to prioritize recovery over reform. But as Keynes pointed out in his 1933 letter, a strong economy is the best way to create the political capital required to pursue a reform agenda:

“It will be through raising high the prestige of your administration by success in short-range recovery that you will have the driving force to accomplish long-range reform.”

David Beckworth has a set of tweets discussing the Fed’s new average inflation targeting policy. Richard Clarida points out that it’s basically Bernanke’s temporary PLT, which starts from the date when you first hit the zero bound. This is essentially what I said right from the beginning. So either the Fed succeeds in getting inflation to average 2% or we have zero rates for ever, as in Japan. I’d guess that they achieve 2% (on average) by 2030.

David also points to a Jim Bullard speech that says AIT is sort of like NGDPLT:

PS. Did I ever show you my license plate? 🙂 🙂 🙂



22 Responses to “Not an election post”

  1. Gravatar of Benjamin Cole Benjamin Cole
    16. November 2020 at 15:36

    I like NGDPLT. The question is, what tools do you get use to get there?

    In a world of globalized capital markets, is a reliance on central-bank quantitative easing enough, for any particular nation?

    If the Federal Reserve (one of the world’s four major central banks) buys a few trillion dollars of bonds, in global markets with more than $400 trillion in capital assets (that is bonds, stocks and properties) does that improve economic output inside the US? Seems iffy.

    A global hot potato effect improves the US economy? The exchange-rate mechanism?

    Or a de facto coordination with the three other major central banks, all easing simultaneously?

    Is this why a Michael Woodford or Ben Bernanke have an inclination towards helicopter drops?

    Would a combination of helicopter drops and permanent additions to the Federal Reserve’s balance sheet be the right policy?

  2. Gravatar of D.O. D.O.
    16. November 2020 at 15:42

    What reform? Senate won’t allow any reform and it will be even worse in 2 years. Executive action goes only so far and should survive the courts first.

  3. Gravatar of Lizard Man Lizard Man
    16. November 2020 at 16:10

    What will Sumner post on this site once Trump is no longer in office? Will he still be able to find money in the banana stand that is the US?

  4. Gravatar of ssumner ssumner
    16. November 2020 at 16:11

    Ben, You asked:

    “In a world of globalized capital markets, is a reliance on central-bank quantitative easing enough, for any particular nation?”

    Yes, obviously.

    The real question is why you keep asking the same questions over and over again, always ignoring the responses.

  5. Gravatar of ssumner ssumner
    16. November 2020 at 16:12

    Lizard, I had the site for 8 years before Trump took office.

  6. Gravatar of Carl Carl
    16. November 2020 at 16:32

    Unfortunately, I expect Biden to listen to neo-Keynesians and not you or Keynes himself and the neo-Keynesians are pushing fiscal stimulus.

  7. Gravatar of Benjamin Cole Benjamin Cole
    16. November 2020 at 17:28

    Scott Sumner: “Yes, obviously” is not a compelling reply. Perhaps you should flesh it out.

    Are you suggesting all major global central banks will ease simultaneously?

    An exchange-rate effect from Fed easing that benefits the US economy?

    Or that the Fed can ease enough to flood globalized capital markets with capital (thus lower interest rates globally), and thus spur the US economy into growth through an interest rate and hot-potato effect?

    Can you explain why Michael Woodford has indicated support for helicopter drops? He is well-regarded.

    Why does David Beckworth call for “helicopter drops on Main Street and not Wall Street”? He is also well-regarded.

    I am not saying Woodford and Beckworth are correct, and that your views are deficient or limited, or cemented into place. I am just a wag on monetary policy.

    But I have yet to see you post a “compare and contrast” blog on the views of Woodford, Beckworth and yourself. They are also thoughtful observers of the passing macroeconomic parade, and their views markedly different from yours.

    As a wag, I do not know which totem to genuflect to, which can be unsettling!

  8. Gravatar of ssumner ssumner
    16. November 2020 at 22:36

    Carl, Keynes was more in favor of fiscal stimulus than are the New Keynesians.

    Ben, You said:

    “Perhaps you should flesh it out.”

    I’ve done so 100 times, and you’ve ignored me 100 times. Why continue?

  9. Gravatar of Benjamin Cole Benjamin Cole
    17. November 2020 at 02:42

    Scott Sumner: I have never ignored you. I think I have read every post of yours since you started blogging, possibly missing some early weeks.

    Anyways, then do a review of the Michael Woodford and David Beckworth positions.

  10. Gravatar of Ray Lopez Ray Lopez
    17. November 2020 at 05:33

    @B. Cole – the solution to your riddle is that economics is a fad. If Sumner airs the views of Woodford and Beckworth, it’s like the fashion house of Gucci giving press to the house of Dior and Louis Vuitton. Not good for their own franchise. That’s why Sumner claims to be perpetually misunderstood: it’s good for his brand to be the ‘lone voice in the wilderness that’s right, that nobody understands’ (he’s also unclear with his prose, another reason literally he’s hard to understand, but I digress).

    One thing about Sumner though is admirable, he’s not yet censored me, which is rare. In nearly every other forum including Econlib, supposedly a libertarian site, I’ve been banned for my thought provoking posts.

  11. Gravatar of Mike M. Mike M.
    17. November 2020 at 05:41

    Love the license plate.

  12. Gravatar of ssumner ssumner
    17. November 2020 at 08:22

    Ben, Then why don’t you respond to my explanations?

  13. Gravatar of Michael Rulle Michael Rulle
    17. November 2020 at 09:53

    Is you car a Z? Nice looking from the front—but really cannot tell.

    What if they put an MMT guy in as head of FED–or an old fashioned keynsian—policies can easily change—-I trust Powell —-not to screw up in an extreme way

  14. Gravatar of Benjamin Cole Benjamin Cole
    17. November 2020 at 16:46

    Ben, Then why don’t you respond to my explanations?—Scott Sumner

    Well, I don’t remember the explanations.

    I remember an exchange I had with Kevin Erdmann, in which he actually said something nice about me, regarding (I think) some info I had provided. I did not remember providing the info.

    After a certain age, every day is fresh!

    Anyways, you have never (I think) addressed Stanley Fischer’s call for the Federal Reserve to have a “fiscal facility” to supplement its conventional tools.

    You address and re-address certain topics with very high frequency (Trump, for example).

    Why not a re-hash of some monetary outlooks?

    Ray Lopez: I was banned at Econlog too. Now the Econloggers are rhapsodizing about the gold standard and Judy Shelton. I see David Henderson was recently pantsed by Tyler Cowan on some intellectual quibble.

    At rock-bottom, libertarians have feet of clay.

  15. Gravatar of Spencer B Hall Spencer B Hall
    18. November 2020 at 09:20

    The ideological economic drivers are absurd. There is no “wealth effect”, i.e., there is no extra spending effect (re: “U.S. household wealth hits record even as economy struggles”). It’s a duplication of Japan’s asset bubbles.

    The “portfolio rebalance channel” just pushes up the prices of riskier assets. Production isn’t fueled. Wages aren’t augmented. And then the FED double downs this on this disproved strategy with a FED “put”, AIT (but the Philips Curve has already been denigrated).

  16. Gravatar of Spencer B Hall Spencer B Hall
    18. November 2020 at 09:25

    The deceleration in economic growth, secular stagnation, is due to the Keynesian macro-economic persuasion that maintains a commercial bank is a financial intermediary (conduit between saver and borrower).

    The more savings that are held inside the payment’s system, the slower velocity will be, the lower AD will be, and the less investment that will take place.

    It didn’t work this way between 1961 and 1981 because of deposit innovation, electronic clearing, and the end of gated time deposits.

    Because economists don’t know the difference between money and liquid assets the FDIC was allowed to increase deposit insurance from $40,000 to $100,000 in 1980. This, along with destroying the thrifts, precipitated the decline in velocity.

    Then during the GFC the FDIC raised deposit insurance to $250,000. This keeps enormous sums inside the banks. I.e., the banks don’t loan out existing deposits, saved or otherwise. From the standpoint of the payment’s system, all bank-held savings are frozen.

  17. Gravatar of Spencer B Hall Spencer B Hall
    18. November 2020 at 09:36

    Don’t you wonder why QE3 caused the “Taper Tantrum” and not the FED’s response to the Covid-19 outbreak? The answer is that money products have a negative economic multiplier and produce negative real rates of interest. Whereas savings products have a positive economic multiplier and raise the real rate of interest.

    Definition: “In economics, a multiplier broadly refers to an economic factor that, when increased or changed, causes increases or changes in many other related economic variables. In terms of gross domestic product, the multiplier effect causes gains in total output to be greater than the change in spending that caused it.”

    See my market Zinger forecast (release of savings) – a surprise, shock, or piece of electrifying news.

    Dec. 15th 2012 market zinger forecast:

    “Posts:203 Re: QE3 = nuttin’ honey (on

    “We’re close to seeing the real power of OMOs. R-gDp is likely to accelerate earlier and faster than anyone now expects. The RoC in M*Vt before any new stimulus is already above average. With low inflation (given some deficit resolution), Jan-Apr could be a zinger”

    So we had a “taper tantrum” and a temporary rise in gDp:
    01/1/2013 ,,,,, 4.4
    04/1/2013 ,,,,, 1.6
    07/1/2013 ,,,,, 5.1
    10/1/2013 ,,,,, 6.1
    01/1/2014 ,,,,, 0.7
    04/1/2014 ,,,,, 7.0
    07/1/2014 ,,,,, 7.1
    10/1/2014 ,,,,, 2.6
    01/1/2015 ,,,,, 3.2
    04/1/2015 ,,,,, 5.0
    That’s called a “predictive success”

  18. Gravatar of Spencer Hall Spencer Hall
    18. November 2020 at 10:04

    N-gDp level targeting is money illusion (“tendency to view their wealth and income in nominal dollar terms, rather than in real terms”). It caps real output and maximizes inflation.

    Because Milton Friedman wrongly assumed that the distributed lag effect of money flows was “long and variable”, economists are increasingly taking a broad-brush approach. A proper approach would be to target R-gDp, to target dynamisms.

    Given that Central Bank intervention has a “sweet spot”, because the distributed lag effect is a constant, we can mathematically calculate the “output gap”. I.e., we know precisely whether and when money is robust, neutral, or harmful.

    Note: “Neutrality of money is the idea that a change in the stock of money affects only nominal variables in the economy such as prices, wages, and exchange rates, with no effect on real variables, like employment, real GDP, and real consumption”.

  19. Gravatar of harry harry
    18. November 2020 at 19:01

    It reminds me of the Warren Buffet quote: “Wall Street is the only place where those who take the subway give financial advice to those who drive a Rolls Royce”.

    Why are we taking economic advice from someone who drives an old worn down Nissan? Trump’s economy is the best in 50 years. Sumner’s economy bankrupted the nation.

  20. Gravatar of Spencer B Hall Spencer B Hall
    19. November 2020 at 06:14

    In “Remarks by Governor Ben S. Bernanke -At the Federal Reserve Bank of Dallas Conference on the Legacy of Milton and Rose Friedman’s Free to Choose, Dallas, Texas -October 24, 2003

    “as Friedman told us, a monetary expansion has its more immediate effects on real variables such as output, consumption, and investment, with the bulk of these effects occurring over two to three quarters. These real effects tend to dissipate over time, however, so that at a horizon of twelve to eighteen months the effects of a monetary expansion or contraction are felt primarily on the rate of inflation.”

    Now, Federal Reserve Chair Jerome Powell has said that another stimulus package was “essential” to U.S. economic recovery.

    Contrary to Nobel Laureate Dr. Milton Friedman, there is no: “Fool in the shower” (“that any stimulus to the economy should be done slowly because it takes time to determine the effects of the change”).

    As American Yale Professor Irving Fisher posited: “In my opinion, the branch of economics which treats of these five regulators of purchasing power (in his equation of exchange), ought to be recognized and ultimately will be recognized as an EXACT SCIENCE, capable of precise formulation, demonstration, and statistical verification.”

    Note that this is in direct contrast to Nobel Laureate Dr. Milton Friedman’s thesis:

    “FOR some years now, I have been engaged in extensive empirical studies of the relation between the stock of money and economic activity”… “The central empirical finding in dispute is my conclusion that monetary actions affect economic conditions only after a lag that is both long and variable.”

    In other words, rates-of-change in monetary flows, volume times transaction’s velocity, are equal to roc’s in P*T in American Yale Professor Irving Fisher’s truistic “equation of exchange” (where N-gDp is both a subset and proxy).

    “Rate of change is an extremely important financial concept because it allows investors to spot security momentum and other trends. For example,… a security that has a ROC that falls below its moving average, or one that has a low or negative ROC is likely to decline in value and can be seen as a sell signal to investors.”

  21. Gravatar of ssumner ssumner
    19. November 2020 at 11:06

    Michael, Maxima. I bought it for the legroom. I have very long legs.

    Ben, You said:

    “Well, I don’t remember the explanations.”

    Pay attention. You ignored them even at the time.

    Harry, I don’t offer financial advice. Economic advice has zero correlation with investment success. And what makes you think my investments haven’t been highly successful? My car? LOL.

  22. Gravatar of Don Geddis Don Geddis
    24. November 2020 at 18:35

    @Benjamin Cole: If you’re actually honest about wanting to learn (which seems doubtful), I can offer some possible answers to your questions:

    Are you suggesting all major global central banks will ease simultaneously?

    No. It doesn’t matter what other central banks do. The nominal US economy is under control of the Federal Reserve, independent of other economies.

    An exchange-rate effect from Fed easing that benefits the US economy?

    Exchange rates don’t matter. They (like interest rates) are a free market price, which float to equilibrate supply and demand, and thus have no causal power on their own.

    Or that the Fed can ease enough to … spur the US economy into growth through an interest rate and hot-potato effect?

    Interest rates don’t matter. But yes, the Fed can easily spur nominal growth through the hot potato effect.

    Stanley Fischer’s call for the Federal Reserve to have a “fiscal facility” to supplement its conventional tools.

    Fiscal policy doesn’t matter. The Fed already has all the power it needs, via its existing monopoly on the monetary base. No additional power is needed, in order to achieve nominal objectives.

    Why not a re-hash of some monetary outlooks?

    Have you read Sumner’s short intro course on money? Because it seems not.

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