That Sumner . . . always the contrarian

Conventional wisdom in 2008: This is a real shock, a financial crisis. Merely cutting interest rates won’t help.

Me: The real problem is nominal; we need easier money.

Conventional wisdom in 2020: We obviously need more fiscal stimulus, only an idiot would fail to see that fact.

Me: This is a real shock. Unemployment is falling at by far the fastest pace in history, and complete recovery is being held back by social distancing, not a lack of disposable income.

(See my new Econlog post on this topic.)



11 Responses to “That Sumner . . . always the contrarian”

  1. Gravatar of Thomas Hutcheson Thomas Hutcheson
    2. October 2020 at 08:52

    The reason to provide relief to people, states, and local governments who have lost income because of this (or any other) recession is not to stimulate the economy — The Fed can do that if they chose and they can prevent the relief from affecting NGDP if they chose, relief or no relief. The reason to provide relief to people who have lost income because of the recession is to provide relief. And I would add, this ought not to depend on a special act of Congress but be built into the Federally financed unemployment system and intergovernmental transfers.

  2. Gravatar of ssumner ssumner
    2. October 2020 at 09:03

    Thomas, Yes.

  3. Gravatar of Gene Frenkle Gene Frenkle
    2. October 2020 at 11:39

    The fact manufacturing jobs started increasing in 2010 after being decimated from 2001-2008 is evidence the 2001-2008 period was an energy crisis that was solved by fracking.

    Why anyone would want to resuscitate the economy of the last 20 years is beyond me?!? I would reboot the economy by simply giving descendants of American slaves $40k along with a guaranteed mortgage with no interest of $150k (which buys a nice house in a city like St Louis). We can do it with Fed action or fiscal policy…Trump has thrown so much money at coal miners and steel companies and farmers that Democrats should just ram reparations for descendants of slaves down the throats of Republicans. Republicans will complain like they always do but once we hit 4% GDP in 2021 they will get back to business and try to get those dollars into their pockets.

  4. Gravatar of Carl Carl
    2. October 2020 at 12:36

    @Gene Frenkle
    How are you going to control against fraud?

  5. Gravatar of Gene Frenkle Gene Frenkle
    2. October 2020 at 14:15

    Carl, reparations would primarily be for stimulus so you just create a slightly over inclusive group—so every American ages 30-50 that had a Black American citizen in 1960 gets the $40k. And you have an income limit so Black doctors and investment bankers don’t get the $40k. So you want the money going to Americans that live paycheck to paycheck.

  6. Gravatar of Carl Carl
    2. October 2020 at 15:54

    @Gene Frenkle
    Okay then it’s not for the descendants of slaves. It’s for people who share the race of former slaves regardless of their ancestry.
    Would you get rid of all affirmative action after this payment? If not, why not? We would have presumably paid the debt owed. Or are you going to hold open the option of future reparations even though this round will cost about $5 or $6 trillion?
    And, you’re going to have the government subsidizing and guaranteeing home loans to low income people. Any concerns that we might repeat the housing crash of 2008?

  7. Gravatar of Gene Frenkle Gene Frenkle
    2. October 2020 at 16:31

    Carl, America’s history of white supremacy and racism towards Black Americans is very well known and so the vast majority of Black Americans in 1960 would have been descendants of slaves because 1924-1965 was a period of low immigration for even whites so obviously Blacks weren’t trying to get to America. So Obama and Harris would be excluded from reparations due to their income but also because they didn’t have Black ancestors that were citizens in 1960.

    I believe “diversity” is overt racism towards whites so in principle I oppose colleges using race in admissions…but the reality is colleges have always considered things like geography in admissions. So Dick Cheney was admitted to Yale in large part because he was from Wyoming and Yale wanted geographic diversity. Affirmative action just for descendants of slaves would be inconsequential because, like Cheney, there just aren’t enough descendants of slaves that can hack it at competitive schools due to poor secondary schools (a product of racism). So instead of affirmative action we should be targeting descendants of slaves with STEM aptitude and making sure they graduate with STEM degrees from regional state universities and not going to competitive colleges and ending up with BAs. Part of reparations would include tuition for 2 years of community college while living at home and then 2 years everything paid at a state university…and every college could get access to that money if they covered the difference. I think we should be moving away from student loans for undergraduate and private colleges should be using endowment to cover tuition for students from middle class families which is what the Ivy League already does. And for those younger than age 30 they wouldn’t get the $40k but they would get $10k upon graduating from college, serving 4 years in the military, or getting a certain number of SS credits.

    Reparations only works if everyone understands it is a one time thing for a particular group of people…otherwise you are correct we could end up with a Venezuela type situation. And it would cost $1 trillion…and those dollars would be injected right back into the economy for productive Americans to receive as payment for goods and services. And the reason you only have a $150k mortgage is to prevent a bubble because the down payment must come out of the $40k and then cities like St Louis will be encouraged to offer incentives to lure the descendants of slaves with things like no property taxes for a year much like they try to lure Amazon and Tesla. So this would be a boon for affordable cities in red states that need to expand their tax base and have infrastructure in place for hundreds of thousands of more residents.

  8. Gravatar of Ray Lopez Ray Lopez
    2. October 2020 at 16:44

    Let’s hear what a real contrarian economist says (from today’s Economist): “When Americans vote in November, unemployment will be below 6%,” declared Lars Christensen, a maverick economist, in May. Given that lockdowns had sent the unemployment rate soaring to 14.7% only the month before, it was a bold prediction. In June at least 14 of the Federal Reserve’s 17 interest-rate-setters forecast that quarterly unemployment at the end of the year would still be above 9%. Most other prognosticators were equally gloomy. They expected American GDP to collapse in 2020 and recover relatively slowly. Mr Christensen insisted that natural disasters, unlike financial crashes and recessions brought on by economic policy mistakes, are typically followed by rapid recoveries.

    Since C-19 is a natural disaster, ergo, we’ll have a V-shaped recovery says Christensen, exactly what the stock market is assuming. So much for Sumner’s thesis; Sumner is always fighting the last war…

  9. Gravatar of ssumner ssumner
    2. October 2020 at 18:16

    Ray, They copied my blog post making the exact same point. When you read the Economist you get old news.

  10. Gravatar of Michael Sandifer Michael Sandifer
    2. October 2020 at 21:51

    I agreed with Christensen, except I thought his timeline was too optimistic. The recent uptick in new Covid cases is quite possibly seasonal.

  11. Gravatar of Bob Bob
    5. October 2020 at 09:37

    The uncertainty makes it difficult for companies that are on the right side of this problem to decide whether to invest or not. We aren’t getting a long term increase in demand for, say, vacuum cleaners. Buy how about home gyms? Alcohol at home, as opposed to bars? Home cooking vs restaurant? How long does practical social distancing last? How good are the vaccines going to be?

    Does stimulus here help companes invest to the right level, or tempt them to overinvest, and get a punch in the face next summer?

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