Seeing the world in a different way (one year later)

Be careful what you wish for.  Last February 2nd I started this blog with very low expectations.  During the first three weeks most of the comments were from Aaron Jackson and Bill Woolsey.  I knew I wasn’t a good writer, years ago I got a referee report back from an anonymous referee (named McCloskey) who said “if the author had used no commas at all, his use of commas would have been more nearly correct.”  Ouch!  But it was true, others said similar things.  And I was also pretty sure that the content was not of much interest to anyone.

Now my biggest problem is time—I spend 6 to 10 hours a day on the blog, seven days a week.  Several hours are spent responding to reader comments and the rest is spent writing long-winded posts and checking other economics blogs.  And I still miss many blogs that I feel I should be reading.  In part 2 I’ll talk a bit more about the personal side of blogging, but first I’d like to take stock of what I have done in the first year.

As you may know, I don’t think much of the official methodology in macroeconomics.  Many of my fellow economists seem to have a Popperian view of the social sciences.  You develop a model.  You go out and get some data.  And then you try to refute the model with some sort of regression analysis.  If you can’t refute it, then the model is assumed to be supported by the data, although papers usually end by noting “further research is necessary,” as models can never really be proved, only refuted.

My problem with this view is that it doesn’t reflect the way macro and finance actually work.  Instead the models are often data-driven.  Journals want to publish positive results, not negative.  So thousands of macroeconomists keep running tests until they find a “statistically significant” VAR model, or a statistically significant “anomaly” in the EMH.  Unfortunately, because the statistical testing is often used to generate the models, and determine which get published, the tests of statistical significance are meaningless.

I’m not trying to be a nihilist here, or a Luddite who wants to go back to the era before computers.  I do regressions in my research, and find them very useful.  But I don’t consider the results of a statistical regression to be a test of a model, rather they represent a piece of descriptive statistics, like a graph, which may or may not usefully supplement a more complex argument that relies on many different methods, not a single “Official Method.”

An example of this is the post I did on liquidity traps, which argued against reductionist models that “it all boils down to” cash and T-bills being prefect substitutes, or “it all boils down to” central bank credibility, etc.  Rather a liquidity trap is a phenomenon that must be analyzed by considering economic factors like the ability of the central bank to buy alternative assets, or to charge interest penalties on excess reserves, or to set an inflation target, or to engage in currency depreciation, or to target the price of gold, or to do quantitative easing, or the relative merits of inflation and price level targeting, or the issue of central bank independence, or whether central banks can target CPI futures contracts.  And I could go on and on.  It is a complex problem that requires analysis at the level of politics, economics, psychology, diplomacy, etc.

At the same time (and this may seem to contradict what I just said), I believe strongly in Occam’s Razor.  If you want to study NGDP, focus on the impact of monetary policy on NGDP growth expectations.  Don’t make things needlessly complex by looking at C, I , G, NX, the credit markets, etc.  It’s not that those things don’t matter, but rather they are best examined by considering how they impact monetary policy.

Over the past year I have mostly ignored supply-side economics, focusing on what I thought was the most pressing policy issue, the shortfall in AD.  Thus I started with a simple NGDP model, and kept making it more complex by looking deeper and deeper at factors that impact the supply and demand for base money.  I looked at the technical mistakes the Fed made, and then the faulty models that led them astray.  I even argued that cognitive biases often led them to ignore their own models, as when they assumed a sharp fall in NGDP was a “real” problem, when all of modern macro suggests it was a failure of monetary policy.

I like Rorty’s pragmatism; his view that scientific models don’t literally correspond to reality, or mirror reality.  Rorty says that one should look for models that are “coherent,” that help us to make sense of a wide variety of facts.  I want people who read my blog to be saying to themselves “aha, now I understand why the economy continues to drag along despite low interest rates,” as they recall that low rates are not an indication of monetary stimulus.  I think Deirdre McCloskey once used the term ‘ooomph’ to describe models that are powerful enough to make sense out of a wide range of seemingly meaningless and unrelated observations.  It’s all about persuasion.  And people are persuaded by coherent models.

OK,  so how am I doing?  Over the last year, I have found that most people (in and out of economics) judge models by their predictive prowess.  But what can we do with models like mine, which says that it almost impossible to outguess the markets, or to predict turning points in the business cycle?  Recall my maxim “good economists don’t make predictions, they infer market predictions.”  So I don’t think simple prediction is the right test.  It’s more complicated than that.  I’m going to throw you a curve ball and mention 5 items off the top of my head.  By themselves, none are particularly important.  But I will argue that each one is like a pixil on a high def TV set.  Something that gradually brings the picture into focus, that helps one see the world in a new way:

1.  A couple months ago I noticed that the Fed’s reserve requirement increases of 1937 raised short term rates by about a quarter point.

2.  Last summer I noticed that almost all the economists who had publically supported policies of targeting the forecast, thought monetary policy was much too tight in late 2008.

3.  Last summer Svensson got the Swedish Riksbank to adopt negative rates on reserves.

4.  Late last year there was a big upsurge on criticism of the Fed by liberal bloggers.

5.  Last month I discovered a 1999 Bernanke paper that criticized the BOJ in much the same way I am criticizing the Fed.

According to the Official Method, none of these tidbits matter.  But I have noticed that they have had some impact on my readers.  They are each slightly persuasive about some aspect of my argument.

1.  All year I was criticized for dwelling on the contractionary impact of the Fed IOR program, which paid only a quarter point after December 2008.  Then I discovered that the 1937 program, which has been widely criticized by economic historians for increasing the demand for reserves and reducing the multiplier, also raised rates by only a quarter point. It doesn’t make me right—everyone else may be wrong about 1937’s RR increases being important, but it is interesting.

2.  The second observation helped me explain that once you start to think about policy in terms of targeting the forecast, the whole subject of “policy lags” seems much different.  Now you see policy failing in real time, and watch with a sense of helplessness while others blandly assure us that eventually the Fed’s “easy money” policy will pay off, even though the markets expect it to fail.  It was nice to see people like Hetzel and Hall and Thompson and Glasner and Woolsey and Jackson also notice that policy was too tight in late 2008.  I.e. people who have advocated targeting the forecast.

3.  When I proposed negative rates on reserves, lots of commenters told me I didn’t understand central banks.  That they’d never consider the idea and it wouldn’t work.  The actual Swedish program was too watered down to have much effect either way.  But what was important was that it was adopted.  Immediately it seemed like my commenters took me a bit more seriously.  Here was an unknown economist at Bentley recommending a seemingly crazy idea that none of the big names considered, and then a famous Princeton professor gets the Riksbank to adopt it.  And other well-known economists like Hall and Mankiw start discussing the idea.

4.  I first got a lot of attention with an open letter to Krugman asking him to join me in supporting unconventional QE (longer term securities) and also inflation or NGDP targets.  In March he swatted me away, although it wasn’t clear exactly which point he disagreed with.  I also had several posts saying fiscal stimulus won’t work and the Dems would face a debacle in the 2010 elections unless the Fed gets much more aggressive.  When many liberal bloggers became much more critical of the Fed late in the year, I sensed that my supporters saw this as an “I told you so” moment.  Maybe that’s unfair to the liberals, as it seems unlikely that the Fed is going to do anything useful in response, but at least it seemed to confirm my earlier view that the Fed was our only hope.

5.  I was quite shocked when Marcus sent me the 1999 paper by Bernanke criticizing the BOJ.  Several of my commenters said the paper could have been written by me.  Not just the call for monetary stimulus, or (in another paper at that time) the call for level targeting.  Bernanke also made comments about how people confuse low rates with easy money, with how falling NGDP is a foolproof indicator that money is too tight relative to the needs of the economy.  In other words, the whole package.  And once again this had an effect.  People thought “here was the highly respected Bernanke making all of the same arguments that monetary crank Sumner is making.”

So that’s the goal of my blog, to constantly use theoretical arguments, empirical data, clever metaphors, and historical analogies that make people see the current situation in a new way.  Whatever works, as long as it is not dishonest.  At the same time I cannot escape the world we actually live in.  I will be judged on the basis of predictions I make, and even predictions that I haven’t made but that I seem to have made.  I realize that if the US suffers from very high inflation in the next few years it will be widely seen as discrediting my model, no matter how often I point out that the EMH merely tells us that the market forecast is the optimal forecast, not perfect foresight.  Bob Murphy will haunt my dreams.

If I had had this blog for the past 10 years, I would have gotten a lot of credit for my constant complaints that Fannie and Freddie were dangerous time bombs waiting to explode.  But I would not have deserved that credit, as I never thought this kind of disaster had even a 50% likelihood.  I just thought it was bad public policy to take the risk.  And I would have been blamed for missing the housing bubble, again for the wrong reason.  I still don’t think the Fed should target bubbles, I think they should target NGDP expectations.  But that’s how the game is played, whether I like it or not.  It’s like on those Sunday football shows.  Each pre-game commentator will be judged on his win/loss record in predictions, even though it’s just luck, and says nothing about the astuteness of his analysis of football strategy and coaching.

Part 2.  Don’t ask me to become a blogger

While I am trying to get people to see the world of macroeconomics in a new way, blogging has led me to see reality in a new way.  In late February last year I woke up and started my daily routine of reading the internet (which is my newspaper.)  When I saw my name mentioned in a Tyler Cowen post, it was kind of a shock.  It was at that point that my view of reality began to change.  Of course even today I am far from famous, I’m sure most economists have never heard of me.  But I have gone from being almost totally obscure, to being well-known in the money/macro blogging community.  The blog has had over 10,000 comments and around a million hits.

I used to have lots of free time.  When I would email a more famous economist I usually got no response.  I was surprised and disappointed by this non-reaction.  Now I understand why they would often ignore me.  You cannot become highly successful and continue to be polite to everyone (unless of course your name is Tyler Cowen.)  There just aren’t enough hours in the day.

In addition, you notice that as you become better known, you don’t seem to have any more influence than before.  I used to wonder why Krugman always seemed to downplay his influence.  He’s got the best blogging gig in the world, at the NYT.  He might be the favorite economist of the Democrats who now run Washington.  He’s got his Nobel Prize.  He must feel like he’s on top of the world, the James Cameron of blogging.  But as the Chinese like to say, “Desire is a valley that can never be filled.”  You always want more influence.  I can now see how Krugman would be frustrated that no one paid attention to his argument that we needed more stimulus.  So imagine how un-influential I feel, despite my minor success this year.

In the real world I am not nearly as successful as it may appear from my blog.  I got turned down by the AEA convention.  In 2008 and 2009 I sent papers on the economic crisis out to journals like the JMCB and the JPE, journals that I have published at in the past.  But now for the first time in my life the articles come back without even being sent out to a referee.  “It’s not the sort of thing we publish” they’d say.  I gather this means they don’t see enough equations.  I hope it doesn’t mean “because it addresses the most important macroeconomic problem since the 1930s.”  If you look at macro journals from the early 1930s they were actually discussing the current problems with the economy.  Indeed as recently as the 1990s I often published non-technical papers in the JMCB.  But those days are gone.  They are looking for more VAR studies, more DSGE models.  So at the higher levels of economics I am pretty much a dinosaur.

When I am in a “sour grapes” mood, I take comfort from the fact that Friedman was a dinosaur in the last 25 years of his life.  I know what you’re thinking “yeah, but he actually did some extremely influential work before he became dismissed as irrelevant.”  I do things backward.  I published zero papers before getting tenure, and 30 afterwards.  Maybe my ideas will catch on after I’m dead.  I know, only one out of every 1,000,000 people who thinks they’re another van Gogh, actually is.  Maybe it will be Nick Rowe, not me.  (My hunch is it will be Robin Hanson–he’s a true innovator.  I’m just a pack rat that re-arranges the ideas of others in provocative ways.)  But without hope life is impossible.  Speaking of the dead, my “ideal reader” for my monetary posts was Friedman, who unfortunately died in 2006.  I wouldn’t have had to explain to him that low rates don’t mean easy money.  Or the difference between easy money and easy credit.   In terms of still living “ideal readers,” I had in mind Tyler Cowen.   So it was a weird coincidence that he was the first to promote my blog.

Regrets?  I’m pretty fatalistic about things.  I suppose it wasn’t a smart career move to spend so much time on the blog.  If I had ignored my commenters I could have had my manuscript revised by now.  But I think everything happens for a reason.  (Yeah, I know, but are they good reasons.)  The commenters played an important role in the blog.  By constantly having to defend myself against their criticism, I further refined my arguments.  In addition, I got a better idea of how other people look at monetary economics.  I don’t have any major regrets.  I suppose at times I was too grouchy with commenters.  You forget that even though you’ve heard the fallacious argument 50 times, it might be the first time they made it.  I wish I could always be as polite as Nick Rowe.  Perhaps I poked fun at Krugman too much.  But I see him as a sort of public figure.  And anyway, I also said lots of nice things about him.  In contrast, he’s not prone to equivocate with “to be sure” very often when he’s trashing some Chicago school Nobel Prize-winner.  So I can always point to someone even less polite.

But on the bright side it has been a lot of fun interacting with other economists, people I’d never get a chance to debate if not for my blog.  I had online debates or discussions with Mark Thoma, Lee Ohanian, John Cochrane, and, at the Cato Unbound, with James Hamilton, Jeffrey Hummel and George Selgin.  Then there have been interactions with other monetary bloggers, such as Bill Woolsey, Nick Rowe, Arnold Kling, David Beckworth, Josh Hendrickson, Bob Murphy and Ambrosini.  (Woolsey helped me immensely by pointing out errors in some of my early posts.)  Or with other bloggers who don’t even specialize in monetary economics, like Greg Mankiw, Matt Yglesias, Megan McArdle, Ryan Avent, Will Wilkinson, Michael Pettis and (infuriating as they can seem at times) DeLong and Krugman.  And how could I forget all the George Mason bloggers.  It was Tyler Cowen who first put me on the map, and he and his colleagues (plus Mankiw) are most responsible for my limited success.  I’d cut off my right arm to be able to attend those GMU faculty lunches everyday with Cowen, Caplan, Hanson, Roberts and all the rest of the geniuses.  (Fortunately I’m left handed.)

Update:  I forgot that David Henderson at Econlog is not at GMU, I should have mentioned his name as well.  And I’m sure there are a few others I forgot, my memory isn’t very good.  The three bloggers at Econlog are outstanding.  And of course I forgot Alex Tabarrok at MarginalRevolution.  I never should have started naming people, someone is always left out.

Happiness isn’t based on anything you achieve, but rather the anticipation of future happiness.  As sports fans know the most fun position to be in is the underdog challenging the evil empire.  So that aspect of the blog has been kind on an enjoyable fantasy, even if on close inspection it’s all nonsense.  Ambrosini had a recent post subtitled “Dude, you’ve already won the debate.”  If only.  But whether I in some sense “win” in the long run isn’t really that important to me.  I’ve already got most of what I wanted, which is for people I respect to find my arguments intriguing.  BTW, he then took me to task for continuing my easy money crusade after its sell by date.  OK Ambrosini, my new year’s resolution for 2011 is to stop obsessing about tight money unless we have fallen into outright deflation.

So where do I go from here?  This question reminds me of a comment made by Joseph Conrad (my favorite novelist) after he got his first book published.  He is referring to his editor:

If he had said to me , “Why not go on writing, I should have been paralyzed.  I could not have done it.  But he said to me, “You have written one book, it is very good.  Why not write another?  Do you see what a difference that made?  Another?  Yes, I would do that. I could do that.  Many others I could not.  Another I could.  That is how Edward made me go on writing.  That is what made me an author.

I used to think I had just a few ideas, and once I used those up I’d have nothing more to say.  As you’ve noticed (sometimes painfully) that is not my problem.  I suppose it came from being a loner for several decades.  As I weighed ideas in my mind I’d go from A to B to C, and then back to A.  Even when I’d think of a different angle, I’d rarely write it down and therefore I would soon forget.  Once I started blogging I realized I had more than three ideas, and even better, my interaction with commenters kept triggering new ways of thinking about the problem.  It’s not that I have come up with any earthshaking ideas, but it allows me to keep refining the argument, continually probing at the issue from different angles.  If you’d told me last year “write 1000 pages on monetary policy,” I would have recoiled in horror.  I figured I’d do a couple dozen posts, run out of ideas, and then merely comment on current events.  I had no idea that writing is thinking.  But now here I am a year later, and my blog is 1000 pages of sprawling essays.  Yes, there’s plenty of repetition, but even if you sliced out all the filler, I bet you could find a 200 page book in there somewhere.

Still, at the current pace my blog is gradually swallowing my life.  Soon I won’t be able to get anything else done.  And I really don’t get any support from Bentley, as far as I know the higher ups don’t even know I have a blog.  So I just did 2500 hours of uncompensated labor.  I hope someone got some value out of it.  Right now I just want my life back.

But I suppose I could do one more post.

And after that, maybe one more final post wouldn’t seem so difficult.

But please don’t ask me to become a blogger.  It’d be like asking me whether I ever considered becoming a heroin addict.  Just one more post.  One day at a time. . . .



67 Responses to “Seeing the world in a different way (one year later)”

  1. Gravatar of malavel malavel
    2. February 2010 at 13:46

    Thank you for an amazing blog, Scott! This is by far my favourite economics blog. It at least feels like I’ve learned a lot of economics here. The only thing that beats it would be the econtalk pod casts (I assume you already know that you were mentioned in the latest episode).

  2. Gravatar of jean_ jean_
    2. February 2010 at 13:57

    Have a good rest. I think I don’t know a blogger who answers his commenters with so much care. Thank you for having offered us this blog.

    (I have found the following link on productivity which might interest you and your readers, though I don’t expect you comment on it now:

  3. Gravatar of Doc Merlin Doc Merlin
    2. February 2010 at 14:06

    If it makes you feel any better, Hayek also suggested in stabilizing NGDP. (although he suggested a level targeting with a 0% level growth path instead of a small positive growth path. Being an old-school Austrian though, he didn’t use those words.)

  4. Gravatar of Doc Merlin Doc Merlin
    2. February 2010 at 14:07

    Oh and forgot to say, thanks for the blog, and take some time off from answering posts. Go take the wife out to a movie or something 🙂

    And thanks for the blog, its really taught me a lot.

  5. Gravatar of Morten Morten
    2. February 2010 at 14:08

    Thanks for a fantastic blog. It will be a sad day the day you decide to go into rehab!

  6. Gravatar of Michael Michael
    2. February 2010 at 14:09

    Scott…. I don’t like outcome… no more blogging. I think there has to be a middle way — you continue blogging at a pace that fits your lifestyle. Regards, Michael

  7. Gravatar of q q
    2. February 2010 at 14:19

    i’ve learned a whole lot here from the blog and the commenters.

    (i’m not an economist.)

  8. Gravatar of Cameron Cameron
    2. February 2010 at 14:21

    The solution is simple : Come teach at George Mason. 🙂

    But in all seriousness, I knew based on the time and effort you were taking writing posts and responding to comments, it wouldn’t last forever.

    My hope is that in a few years when the dust has settled people will look back and say “Sumner was right!”. If not, the blog has still been well worth reading. I never thought monetary policy and NGDP could be so interesting.

  9. Gravatar of MBP MBP
    2. February 2010 at 14:45

    Scott – This was a wonderful post. And your blog has been a great read from the start. I may not understand what you’re getting at all the time, but you’re always interesting.

    And i think your polite tone is a welcome antidote to the dismissiveness and condescension of many bloggers.

    Bravo on your first year!

  10. Gravatar of In what way is blogging science? In what way is blogging science?
    2. February 2010 at 14:46

    […] Sumner has a long and thoughtful post.  Here is one […]

  11. Gravatar of azmyth azmyth
    2. February 2010 at 15:18

    I hope this isn’t the last post, though I wouldn’t blame you if you dropped down to an “every once in awhile” blogger like Steve Randy Waldman. This blog has had a tremendous impact on the issues I consider interesting and on my views of monetary policy.

    Bob Murphy once wrote an article talking about how so much what economists do is a public good. If your advice winds up lowering unemployment by .1%, you will never get much monetary compensation, but there will still be thousands of people who benefited from your actions. All aspiring “academic scribblers” can hope for is that our writings push the “madmen in authority” in a better direction.

    I don’t know if GMU is hiring, but we’ve been shuffling people around a fair bit lately. Mario Rizzo is teaching a class here this semester and we hired Larry White recently.

  12. Gravatar of fallibilist fallibilist
    2. February 2010 at 15:24

    This blog is a pretty tremendous gift to the treasury of public knowledge.


  13. Gravatar of 123 – TheMoneyDemand 123 - TheMoneyDemand
    2. February 2010 at 15:38

    Is it true that in 1936-37 reserve requirement was doubled and as a result rates increased by 0.25? If yes, then I don’t know how you can compare current episode with 1937, because nobody doubled reserve requirements in 2008-09. Also, interest is now paid on both required and excess reserves, so there is no penalty for balance sheet expansion of private sector banks.

  14. Gravatar of rob rob
    2. February 2010 at 15:45

    Great year of posts. You do realize it’s Groundhog Day, right? And every anniversary of your blog will be the same day…

  15. Gravatar of 123 – TheMoneyDemand 123 - TheMoneyDemand
    2. February 2010 at 15:46

    In 1937 Fed severely limited the ability the ability of banks to expand broader monetary aggregates. The actions of 2008 did not have such effect.

  16. Gravatar of travisA travisA
    2. February 2010 at 16:07

    One thing you’ve gained from those 2500 hours is that you are a much better writer for the effort. From the parts of your manuscript that I’ve read, I can see the difference: your blog is much better written.

    Anyways, as others have said, this is a great blog and I’ve learned more economics here than anywhere else. Now you just need to use a micro-payment system and then you’ll get rich 😉

  17. Gravatar of Rajiv Sethi Rajiv Sethi
    2. February 2010 at 16:14

    This is a wonderful, heartfelt post. You’re a far better writer than you give yourself credit for. Congratulations on the first birthday of your blog; I hope that there will be many more to come.

  18. Gravatar of Mark A. Sadowski Mark A. Sadowski
    2. February 2010 at 17:19

    I was showing your responses to my comments to one of my friends and I kept explaining “he’s spending hours responding to comments, don’t you get it, he’s tired angry and irritable.”

    Wish I was in your shoes (not)!

  19. Gravatar of Marcus Nunes Marcus Nunes
    2. February 2010 at 17:34

    Thanks for putting all the effort and personal sacrifice over the past year to make THEMONEYILLUSION such a HIT. For me (and for all the faithful and assiduous commenters, I´m sure)it was an extremely rewarding and enlightening experience.

    Now that you got us “hooked” you can “redistribute your time” (and appease your wife)and be more “parcimonious”.

  20. Gravatar of david david
    2. February 2010 at 17:35

    Scott, I’ve got to echo the complimentary comments above. You’ve filled a great need in the blogosphere – you’re certainly on my must-read list. Please keep going as long as you can…

  21. Gravatar of dlr dlr
    2. February 2010 at 17:53

    Grammar aside, you are actually an elite writer among economists. It’s much easier to be a good technical writer and a passable substantive writer in a venue with a specialized, assumption-laden language and a narrow audience like an economics journal. Different story when you’re stuck with the regular dictionary and a crowd who doesn’t play along with the usual script. I’ve recommended Bentley students to take your class because of this blog (I don’t think either listened, but let’s not ruin the thought).

    Paul Krugman is talented writer and thinker who hasn’t come within a galaxy of explaining basic macro ideas that nobody seems to actually know — like how monetary economists think about nominal shocks, monetary disequilibrium, sticky prices, expectations and the supply and demand for money, and the relationship between interest rates and other “transmission mechanisms” and monetary policy — as plainly and effectively as you have. A layperson could understand more about money after one day on your blog than after reading literally every book ever written about the US Federal Reserve. That may not be your life’s dream, but it beats sucking.

  22. Gravatar of Rahul Deodhar Rahul Deodhar
    2. February 2010 at 17:54

    I think you have a fantastic ideas and your insights have been valuable to world understanding of the crisis.

    Maybe you can do what Seth Godin does. Write and ignore. I just think it is not worth it if they are confined to Bentley. I would have never known about your views, sitting in Mumbai.

    Some say ideas have a self propagating DNA. They will come of age when they have to. I hope by that time you have a workplan ready to action the solution. 😉

    Cheers and all the very best

  23. Gravatar of Tom Dougherty Tom Dougherty
    2. February 2010 at 18:19


    This blog has been a real eye-opener for me. I have learned so much from your writings. You have become one of my favorite economists. I, like others, hope this is not your last blog post. But if it is then thank you for all you have done!

  24. Gravatar of david glasner david glasner
    2. February 2010 at 18:44

    Scott, I’ll just join the chorus of praises for the wonderful blog that you have created over the past year. You have been a source of ideas, insight, understanding and inspiration for me and obviously for your many other readers. I have learned a lot from you and I am in total admiration of the passion, sincerity, open-mindedness and good humor with which you instruct and respond to your readers. The fact that I agree with you about 97 percent of the time is also a point in your favor. Let’s see what we can do about that annoying 3 percent in the year to come. With all good wishes for the continued success of this blog and imminent (if not sooner) publication of your book on the Great Depression, your fervent admirer, DG

  25. Gravatar of scott sumner scott sumner
    2. February 2010 at 18:52

    Everyone, Thanks for the support. Don’t worry, I’ll keep limping along, just don’t expect the same pace. The Joseph Conrad quotation meant I can’t bear the thought of committing to blogging, as it’s so grueling. But I can’t give it up either. So it’s just a question of how much I do.

    I’ll catch up on comments tomorrow–meanwhile there’s a new post.

  26. Gravatar of Lorenzo from Oz Lorenzo from Oz
    2. February 2010 at 18:52

    Scott, I, like so many others, have really enjoyed your posts. They are literate and informative (except when they get all Rorty-ish, but you cannot have everything). I have learnt a lot, including how much I still do not understand money and monetary policy (though I realise I am in very good company).

  27. Gravatar of Azazello Azazello
    2. February 2010 at 19:42


    Not a good writer, I agree. A great one. Seriously. I don’t read your blog every day, and when I do, as a non-economist, I only half understand a lot of it. But I always find both the ideas and their presentation incredibly stimulating. Please keep at it!

  28. Gravatar of Philo Philo
    2. February 2010 at 19:51

    “Don’t worry, I’ll keep limping along . . . .” What a relief; you had us worried! Thanks for the first year, and thanks in advance for whatever more you can spare us.

    Even if you stopped blogging now, you would still have my vote for the Blogging Hall of Fame (first ballot!).

  29. Gravatar of Mari Mari
    2. February 2010 at 20:19

    Another reader tipping his hat…great blog…take time off and write when you can…but do write…

  30. Gravatar of Conor Neill Conor Neill
    2. February 2010 at 20:40

    I just found your blog today (via Marginal Revolution). Great to see a human being and an economist. I look forward to another year of your thinking being refined in public 😉

  31. Gravatar of Greg Ransom Greg Ransom
    2. February 2010 at 21:25

    I’m a believer in the value of conversation.

    Thanks for allowing us all to be part of a great conversation.

  32. Gravatar of Gene Gene
    2. February 2010 at 23:06

    I’ll just add to the chorus. Excellent work. Keep it up.

  33. Gravatar of James James
    2. February 2010 at 23:23

    Really enjoyed your posts! Has helped me a great deal in understanding macro. (not my strongest subject) and made has much more interesting than before! I can see your posts becoming talking points throughout the upcoming semester!
    Just letting you know there is tremendous value to your posts!

  34. Gravatar of Paul Johnston Paul Johnston
    3. February 2010 at 01:20

    I sat here debating in my head for about 2 minutes whether I should leave a comment or not. Since every comments is one more you have to spend your time reading. But I decided to do it anyway.

    But just wanted to say thank you. I don’t know of any other blogger who responds to every comment made. If nothing else you have made everyone who reads your blog a little bit smarter. (not to mention welcomed, since you literally have responded to comment I have read). If that is all that comes of this blog, I would say it was an amazing success.

    Thanks again,


  35. Gravatar of Sean Sean
    3. February 2010 at 03:28

    On the subject of the invalidity of stats in the face of data mining, readers are recommended to “Why Most Published Research Findings Are False” by John P. A. Ioannidis. (

    On the subject of the blog: I’ve only come to it recently, but I’ve quickly grown attached to it. Hopefully you will write another post.

  36. Gravatar of Quote::TheMoneyIllusion » Seeing the world in a different way (one year later) : On the 8 Spot Quote::TheMoneyIllusion » Seeing the world in a different way (one year later) : On the 8 Spot
    3. February 2010 at 03:29

    […] TheMoneyIllusion » Seeing the world in a different way (one year later). 0 […]

  37. Gravatar of nrhoff07 nrhoff07
    3. February 2010 at 04:33

    Professor Sumner. Thank you so much for you time. I’m an undergrad at SLU, and this blog has changed the way I think about things entirely, has helped me earn a 4.0 in macro by explaining and elaborating on models that I just learned, and has really peaked my interest in monetary theory. This is by far my favorite blog. Thanks for your time.

  38. Gravatar of Pjotr Pjotr
    3. February 2010 at 05:52

    Since you seem to be branching out of the main topics of your blog here, would be interesting to hear your analysis on the current events in the eurozone. Would you largely agree with Krugman – i.e. that Spain and Greece will have to suffer heavily as they can’t inflate / devalue? Would the (hypothetical) return of US AD pull those economies to a much higher degree than it would the German economy?


    PS Great post!

  39. Gravatar of scott sumner scott sumner
    3. February 2010 at 06:25

    Malavel. Thanks. 90% of the time when people say “I assume you already know” I don’t. The blogosphere is really big. Do you know who talked about me, and roughly which part of the discussion it was? If it was just an offhand comment I probably don’t need to dig it up, but I am curious. (Or do they also have written transcripts?)

    Thanks Jean, It’s also true that output has risen much faster than jobs during the rebound. I don’t have an answer off the top of my head.

    Doc, Thanks, and yes, I knew about Hayek.

    Morton, Michael, q, Thanks. I keep expecting someone to paraphrase Conrad:

    “You have written one good post. Why not write another.”

    Cameron. Thanks, maybe I am already teaching there in an alternative universe somewhere.

    Thanks MBP,

    Azmyth, I didn’t know you were at GMU. Student or teacher?

    fallibilist. Thanks.

    123, The analogy is very close. Both actions sharply increased the demand for base money. Both actions sharply reduced the money multiplier. The second didn’t show up as a drop in the money aggregates, but it prevented the huge rise in the base from having the expansionary effects it might otherwise have had.

    rob, I’ll tell you a true story about groundhog’s day. Until a few years ago I never understood what the “6 more weeks of winter” was supposed to mean. Is that good or bad? My stupidity may have come from growing up in Wisconsin, where 6 more weeks of winter would be good news on February 2, we normally would have 8 more weeks.

    123#2, But both discouraged growth in the multiplier, the difference is the 1937 case was more draconian, as it was partly mandatory. But the effects were similar.

    Thanks Travis and Rajiv.

    Mark, Your friend was probably right.

    Marcus, Thanks for all the great stuff you send me. And that is a good suggestion.

    Thanks David.

    dlr, That’s very nice. Are you at Bentley? If so, stop by my office some time.

    Rahul and Tom, Thanks.

    David, Thanks, if there wasn’t at least 3% difference between people, then other people wouldn’t be worth reading. Good luck on your work.

    I’ll do the rest later.

  40. Gravatar of scott sumner scott sumner
    3. February 2010 at 06:51

    Lorenzo, Azazella, Philo, Thanks for the support.

    Mari and Conor, Thanks, and I will keep limping along somehow.

    Greg, Thanks for keeping me on my toes with the Austrian perspective.

    Thanks Gene and James.

    Paul, Comments like yours keep me going.

    Sean, Thanks for that article. I agree with him. the only saving grace is that most scientists and economists sort of know about this, as they often say “I just don’t believe his findings” They aren’t usually accusing him of fraud, but rather they simply don’t believe the study is rigorous enough.

    But then we keep going ahead and making the same errors over and over again.

    Thanks nrhoff07.

    Everyone, I notice some people are new readers. I often say things that may seem odd unless you have read my earlier posts. For instance, I have a somewhat different view of liberalism, which I discussed in early posts like this one.

    And my views on monetary policy are also heterodox, and are discussed in these earlier posts:

  41. Gravatar of scott sumner scott sumner
    3. February 2010 at 06:55

    Pjotr, I partly agree with Krugman. In my view the key problem is not the existence of the euro, but the fact that the CB is not targeting NGDP. If policy was targeting NGDP, I don’t think the recession in those countries would have been nearly as severe.

    In addition, both countries have a lot of internal weaknesses that cannot be eliminated by devaluation (fiscal imbalances in Greece, dual labor market in Spain.)

    But Krugman is certainly partly correct.

  42. Gravatar of Kailer Kailer
    3. February 2010 at 07:54

    Your blog has influenced me tremendously Scott. I am convinced that my girlfriend left me and I put on a whole bunch of weight because of the interest on reserves policy. I also feel that slumping NGDP may have played some role in the sinking of the titanic. If only that captain had employed a forward looking policy I might not have had to watch that boring movie about Leonardo Dicaprio and that old lady.

  43. Gravatar of Marcus Nunes Marcus Nunes
    3. February 2010 at 09:31

    Hold on! That “old lady” was the most beautiful and charming Kate Winslet.

  44. Gravatar of Greg Ransom Greg Ransom
    3. February 2010 at 09:32

    Note well that Hayek forced Popper to concede that the Popperian model of “science” didn’t apply to the complex sciences — like Darwinian biology or global brain science, or economics, etc.

    See Popper’s autobiography.

    Hayek has some great essays on the nature of scientific explanation, I’m guessing you’d also enjoy the work of Norwood Hanson and Stephen Toulmin.

    What you seem to be grasping for is a unification model of scientific explanation. I might recommend Philip Kitcher’s work on this topic.

  45. Gravatar of 123 – TheMoneyDemand 123 - TheMoneyDemand
    3. February 2010 at 11:01

    “123, The analogy is very close. Both actions sharply increased the demand for base money. Both actions sharply reduced the money multiplier. The second didn’t show up as a drop in the money aggregates, but it prevented the huge rise in the base from having the expansionary effects it might otherwise have had.

    123#2, But both discouraged growth in the multiplier, the difference is the 1937 case was more draconian, as it was partly mandatory. But the effects were similar.”

    Other countries have started paying interest on reserves much earlier, but they had no NGDP crash back then.
    Saying that 1937 and 2008 have similar effects is like saying that a machinegun and A-bomb have similar effect. 2008 case had almost no effect on money multiplier, as there is no penalty for converting excess reserves to regular ones.

  46. Gravatar of Jeff Jeff
    3. February 2010 at 11:23

    Scott, I also want to thank you for your efforts in writing this blog for the last year. I don’t have your training in monetary economics (I did econometrics), but after working at the Fed for many years, some of it has soaked in a bit.
    What I like most about your blog is that, unlike far too many economists, you take the discipline seriously. The professional consensus has long been that Keynes got most everything wrong, that Ricardian equivalence is the 800 pound gorilla in the room when fiscal policy is being discussed, and the EMH is more correct than any alternative explanations of the phenomena it aims to explain. And still we see economists and politicians talking about liquidity traps, “stimulus” bills, and the failures of various regulators to recognize bubbles that they themselves did not bet against. In your writing, at least you try to be consistent with the subject you’ve spent most of your life studying.
    And you’ve carried on your explanations in an informal and very approachable manner. It is sad that your papers were turned down; it says a lot about what’s gone wrong with the profession. Technical virtuosity for it’s own sake is the norm.
    In my field, it became quickly evident during grad school that the easiest way to succeed was (i) invent a new way to estimate something, (ii) do a Monte Carlo simulation to show that your new estimator is somehow better than existing estimators under the specific conditions you built into the simulation, and (iii) apply your new estimator to a toy dataset and hopefully get somewhat different results than other people got with their estimators. Then (iv) repeat the previous three steps until you get tenure. Then maybe you might take a bit of an interest in the real world, but it’s more likely that you’ll have lost interest.
    Similarly, it seems to me that most of macro these days consists of trying to create toy models that turn out to share some notable feature with a stylized fact about the real world. There is no effort to actually see if the wisdom embedded in the model actually improves out-of-sample forecasts, so how do we know if it’s real or not? The profession largely doesn’t care, and it looks down upon those who try to influence policy as political hacks, which all too often they are. I do wonder why the taxpayers are supporting all these economists whose work is of such little use.
    At any rate, I’ve really enjoyed reading your stuff, and I think I’ve learned quite a bit from it. Before coming here, I thought the Fed should target a path for the expected price level. You’ve convinced me that expected NGDP is a better target. So count at least one Econ PhD convert to your cause. And your insights about China are things I have not seen the like of anywhere else. I hope you’ll keep up both the monetary and China blogging. And perhaps you might favor us with a few thoughts about how Douglas North fits in there, or doesn’t, as the case may be.

  47. Gravatar of Ignacio Ignacio
    3. February 2010 at 11:48

    Thank you foryour blog. You have written for one year; why not try for another year? 😉

  48. Gravatar of Mike Sandifer Mike Sandifer
    3. February 2010 at 11:54


    Have you thought about monetizing your blog? Sure, given this post it might mean you’re going from mere junkie to dealer/junkie, but at least you can act like a capitalist. I can’t help, but notice that undeveloped space in your right margins.

    I’m not looking for a response to this, for obvious reasons. This is purely rhetorical.

  49. Gravatar of David Pearson David Pearson
    3. February 2010 at 12:10

    I’m late to this thread but I also wanted to add my thanks. Its because of this blog and a handful of others that we can have a meaningful debate about monetary policy. Thanks for all the time you put into writing and answering comments.

  50. Gravatar of Rajiv Sethi Rajiv Sethi
    3. February 2010 at 13:24

    Scott, I’m not sure if this is of any interest but your post inspired me to write the following:

  51. Gravatar of azmyth azmyth
    3. February 2010 at 14:36

    I’m a student, although I’ll take that as a compliment. I have to say, I find it vaguely hilarious that you posted a second article the same day as an article implying you weren’t going to post as often. In all honesty, I know of only one blogger that is more prolific than you and he sold his soul to get 48 hours in each day (I think you know who I mean).

  52. Gravatar of Ryan Vann Ryan Vann
    3. February 2010 at 17:11

    Your entries are quite distinct from your typical blog post in many ways, and I can definitely see how that would be exhausting at times. First, your entries are generally pretty exhaustive and detailed. Contrast this to a blog like Thoma’s or Cowen’s, where they mostly just lift the work of other people with a blurb or two about their reactions. This is fine for driving everyday traffic, and being entertaining, but leaves any hope for learning to the comments section. What you need is a semi-periodic article type system, that might not get high everyday traffic, but very large spurts of views. Create an artificial scarcity so to speak.

  53. Gravatar of Tom Church Tom Church
    3. February 2010 at 23:22

    Professor Sumner,

    Why, oh *why* don’t your higher ups know about your blog?

    Sure, entries aren’t journal articles, but I’d wager you now have the attention of, and access to, more big names in economics than anyone in your department.

    I’ve been reading since the beginning – I want to say keep up the good work, but I feel sheepish encouraging you to spend so much of your day blogging for my entertainment. I’ve learned a lot. Thanks!


  54. Gravatar of malavel malavel
    4. February 2010 at 01:59

    Scott, when I was listening to the podcast I considered sending you an email, but then I thought you would probably get a thousand emails for this. Anyway, Larry White was talking about Hayek’s view of business cycles and later on about free banking. You get a lot of support from Hayek, but I know you’ve talked about that before. So I’m not sure if there’s anything new.

    You also seem to have Hayek’s support when it comes to how to do economics. His Nobel prize lecture was pretty good.

    “I regard it in fact as the great advantage of the mathematical technique that it allows us to describe, by means of algebraic equations, the general character of a pattern even where we are ignorant of the numerical values which will determine its particular manifestation. We could scarcely have achieved that comprehensive picture of the mutual interdependencies of the different events in a market without this algebraic technique. It has led to the illusion, however, that we can use this technique for the determination and prediction of the numerical values of those magnitudes; and this has led to a vain search for quantitative or numerical constants. This happened in spite of the fact that the modern founders of mathematical economics had no such illusions. It is true that their systems of equations describing the pattern of a market equilibrium are so framed that if we were able to fill in all the blanks of the abstract formulae, i.e. if we knew all the parameters of these equations, we could calculate the prices and quantities of all commodities and services sold. But, as Vilfredo Pareto, one of the founders of this theory, clearly stated, its purpose cannot be “to arrive at a numerical calculation of prices”, because, as he said, it would be “absurd” to assume that we could ascertain all the data.”

  55. Gravatar of scott sumner scott sumner
    4. February 2010 at 06:13

    kailer, I have used the Titanic in another posts. I suppose fiscal policy would be “rearranging deck chairs.”

    Thanks for the tip Greg. I agree that Hayek had good ideas on the nature of the social sciences.

    123, You said;

    “Other countries have started paying interest on reserves much earlier, but they had no NGDP crash back then.
    Saying that 1937 and 2008 have similar effects is like saying that a machinegun and A-bomb have similar effect. 2008 case had almost no effect on money multiplier, as there is no penalty for converting excess reserves to regular ones.”

    This is misleading. It is no surprise that other countries started paying interest on reserves with no drop in NGDP. The same could be said for reserve requirement increases. It all depends on the situation. If you start paying interest on reserves, and fully accommodate the increased demand, then of course there will be no effect. But the Fed didn’t do that in 2008.

    I don’t understand what your comment about ER and RR conversion means. The interest payment applies to both. A higher IOR will increase the total demand for reserves. What does conversion have to do with anything?

    Jeff, Thanks for that very thoughtful comments, I hope others will read it as well. My only comment is that I thought people believed what you indicated about Keynes/EMH etc, but now I’m not so sure that economists actually did believe this stuff. Perhaps as you say it is just a big pointless game to many of them. If you know of any Douglas North articles in China, send me a link, I’d be interested.

    Ignacio, That’s the advice I was looking for!

    Mike, Yes, I’ve been trying to do it for 6 months, but I am not good with computers.

    David Pearson, Thanks, and thanks for your comments as well.

    Rajiv, Thanks. I didn’t realize before that you have such a distinguished resume. I like your edited version of my essay better than my own sprawling version. The only bad thing is that now I’ve discovered one more blog that I’ll want to check out. 🙂

    azmyth, So that’s how he did it!

    Ryan, That’s a good idea, I’ll try to do that.

    Thanks Tom. I just finished my annual report, hopefully they will notice what I have done. I think to most people the term “blog” is kind of trivial. People blog on stuff like their family vacation. Other blogs lift material from others and briefly comment. So hearing I am a blogger is not the same as realizing that I probably devote as much time to it than almost anyone (I suppose Thoma and DeLong and Yglesias are right up there with me.)

    Malavel, Thanks, I like that Hayek quotation.

  56. Gravatar of Rajiv Sethi Rajiv Sethi
    4. February 2010 at 11:18

    Scott, your post was actually two different essays woven into one. There was an essay defending your views on monetary policy, and another on the blogging experience, economic methodology, the role of the public intellectual. I thought that the latter would appeal to a broader audience than the former, so I tried to surgically extract it from the whole. I also wanted to make some points about how the proliferation of blogs has changed the landscape for economic discourse (in a healthy way). I’ve been meaning to discuss this for a while, and your post gave me the opening to do it. Regardless of whether or not you and I agree on specific issues, I think that our approach to blogging and the art of persuasion is quite similar.

  57. Gravatar of Procrastination and Julian Simon « Scarcity and Inequality Procrastination and Julian Simon « Scarcity and Inequality
    4. February 2010 at 16:34

    […] Procrastination and Julian Simon One of my goals with this blog was to read The Wealth of Nations, and summarize it.  Well, I’m still going to do that, even though I’ve broken off for a bit.  It’s not like I’ve done nothing over the last few months.  Christmas happened, relatives visited, my math class and principles of macro began.  We moved some furniture around and I now have what amounts to an “office” but what is really the result of a wise move by my wife to sequester my clutter into one manageable area, as opposed to having it strewn about the house.  I’ve also read Mises’ Economic Policy: Thoughts for Today and Tomorrow, Coase’s The Problem of Social Cost, a goodly portion of Bastiat’s Economic Sophisms and a collection of Henry Hazlitt’s writings entitled The Wisdom of Henry Hazlitt. That isn’t enough reading to solidly occupy two months’ time, but I’ve been distracted by a few things and I’ve been distracting myself by reading things like Steve Horwitz vs. J. Bradford De Long, Tom Palmer vs. Johnathan Chait, and trying to keep up with Scott Sumner, who with this post single-handedly brought me back from the brink of writer’s block-induced de…. […]

  58. Gravatar of An insurgent from the long tail « vulgar morality An insurgent from the long tail « vulgar morality
    5. February 2010 at 18:57

    […] him stand out from the crowd and garner attention.  His marginality allows him to grasp that what matters isn’t The Official Method, but “persuasion.” So that’s the goal of my blog, to constantly […]

  59. Gravatar of ssumner ssumner
    6. February 2010 at 07:00

    Thanks Rajiv.

  60. Gravatar of 123 – TheMoneyDemand 123 - TheMoneyDemand
    10. February 2010 at 07:15

    “This is misleading. It is no surprise that other countries started paying interest on reserves with no drop in NGDP. The same could be said for reserve requirement increases. It all depends on the situation. If you start paying interest on reserves, and fully accommodate the increased demand, then of course there will be no effect. But the Fed didn’t do that in 2008.”
    If there was any increased demand, it would flow to T-Bill market and we would have noticed it there. Excess reserves are now fully substitutable to T-Bills now, and they were just an inferior version of T-Bills before Fed started paying interest.

  61. Gravatar of Scott Sumner Scott Sumner
    11. February 2010 at 10:40

    123, You said;

    “Excess reserves are now fully substitutable to T-Bills now, and they were just an inferior version of T-Bills before Fed started paying interest.”

    That’s precisely the problem, they created a liquidity trap.

  62. Gravatar of [citation needed]» Blog Archive » academic bloggers on blogging [citation needed]» Blog Archive » academic bloggers on blogging
    26. May 2010 at 21:56

    […] for academics to blog? Depends on who you ask. Scott Sumner summarizes his first year of blogging this way: Be careful what you wish for.  Last February 2nd I started this blog with very low expectations. […]

  63. Gravatar of Dia de Blog: Scott Summer | Na Prática a Teoria é Outra Dia de Blog: Scott Summer | Na Prática a Teoria é Outra
    4. June 2010 at 21:53

    […] o post comemorativo de 1 ano de blog do cara (nhénhénhé, calouro).Para começar, McCloskey é cruel, muito cruel. Be careful what you wish […]

  64. Gravatar of TheMoneyIllusion » Links to my views on money/macro TheMoneyIllusion » Links to my views on money/macro
    23. September 2011 at 04:46

    […] views on methodology (one of my […]

  65. Gravatar of What do Current Low Interest Rates Mean? « azmytheconomics What do Current Low Interest Rates Mean? « azmytheconomics
    14. September 2012 at 13:41

    […] Good economists don’t predict. Good economists interpret market predictions. Interest rates have confused me personally for awhile now. I honestly thought they’d be much higher by now, but the efficient market hypothesis suggests I’m wrong, and who am I to argue? […]

  66. Gravatar of TheMoneyIllusion » Old anxiety (and a bit of auld lang syne-ity as well) TheMoneyIllusion » Old anxiety (and a bit of auld lang syne-ity as well)
    31. December 2012 at 20:52

    […] I reread my posts from the first year it sometimes seems like they were written by a completely different (and better) person.  Slightly […]

  67. Gravatar of Zamba Zamba
    9. May 2013 at 12:27

    Thanks for all the insights, Scott. I learned a lot from you and most of the bloggers. Keep the good job.

    When Brazil fall in a depression, maybe I could help using some recipes from the great Scott Sumner, the legendary economist that seemed to have a rather inadequate view of himself.

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