I often say that I think Scott Sumner is “insane.” Now, on the one hand I’m obviously just joking; as I’ve mentioned a few times, Scott has a good sense of humor and I think he (mostly) appreciates my jabs (though not of course my policy recommendations).
On the other hand, though, I choose the term consciously, as opposed to some generic insult like “Scott Sumner is a fool / an idiot / a jerkface” etc. A lot of people think someone who is “insane” is a babbling idiot, unable to follow a logical argument. But on the contrary, I’m thinking of a guy in the psych ward who is (say) perfectly calm and collected, and in fact quite eloquent and intelligent. The thing is, he keeps insisting that he is Napoleon, and no matter what argument you use against him, he will bat it away with mild annoyance because he’s “already dealt with these objections a million times in the past.” What’s really interesting is, you can’t prove that he’s not Napoleon; the guy makes a surprisingly good case. But whenever you leave the conservation and take a walk in the park, you come back to your senses and remember, “No, the guy isn’t Napoleon, he’s insane.”
So that’s a good analogy for what I think of Scott. But add the caveat: The guy who thinks he’s Napoleon is a really cool guy, and you like spending time with him. But, you would never in a million years want him influencing government or central bank policy.
For those who want to explore the validity of my accusations, you can filter my blog posts for the Market Monetarism tag. Below, I’ll give two recent examples of the kind of thing I mean. So to reiterate, what I’m showing you here isn’t why I think Scott is wrong, but why I think he’s insane. There’s all kinds of bloggers making mistakes all the time, but what Scott does is special. Let me show you what I mean.
In this post from today, Scott first quotes from an Economist magazine description of the Jackson Hole monetary conference:
IMAGINE that the world’s best specialists in a particular disease have convened to study a serious and intractable case. They offer competing diagnoses and treatments. Yet preying on their minds is a discomfiting fact: nothing they have done has worked, and they don’t know why. That sums up the atmosphere at the annual economic symposium in Jackson Hole, Wyoming, convened by the Federal Reserve Bank of Kansas City and attended by central bankers and economists from around the world*. Near the end Donald Kohn, who retired in 2010 after 40 years with the Fed, asked: “What’s holding the economy back [despite] such accommodative monetary policy for so long?” There was no lack of theories. But, as Mr Kohn admitted, none is entirely satisfying.
Now I and most other self-described Austrian economists would say, “Oh, the reason this isn’t working, is that you guys are dumping poison, not medicine, into the system! So you shouldn’t be surprised that it’s not ‘working.'”
But that’s of course not what Scott says. Here’s how he responds to the above excerpt:
I’d like to solve the mystery that perplexed the greatest minds of monetary economics. Money has been ultra-tight since mid-2008.
The real mystery of Jackson Hole is why the greatest minds in monetary economics fail to recognize this fact. Milton Friedman understood. Ben Bernanke explained in 2003 that neither interest rates nor the money supply were reliable policy indicators, and ultimately only NGDP growth and inflation could tell you whether money was easy or tight. By those indicators (averaged) money’s the tightest since Herbert Hoover administration.
I’d like to offer a conjecture. If the monetary economists understood that monetary policy since mid-2008 had been ultra-tight, they would have a very different view as to what sort of policy is appropriate today.
Lots of economists have offered rebuttals to the market monetarist claim that easier money would help right now. For instance, George Selgin and Eli Dourado offered critiques of the sticky wage explanation for persistently high unemployment. But I’ve yet to see a single economist take on my claim that money’s been very tight.
It’s the last sentence above, which I put in bold, that led me to make this post. Of course lots of economists have told Scott that he’s nuts for saying that money has been very tight. It’s not just me, it’s also Brad DeLong. I mentioned this back when he said it, but for the record, here’s DeLong in November 2011 chiding Scott for saying the Fed has been tight since 2008:
Well, I would say that not just “modern Keynesians” but a lot of people believed that monetary policy was expansionary in 2008.
They believed so not just because (safe) nominal (and real) interest rates were falling, but because the money supply was expanding. Indeed, since 2007 the Federal Reserve has tripled the monetary base…
This episode of monetary expansion is surely the largest monetary expansion in the United States in a long, long time…If expanding the monetary base to three times its previous size is not “expansionary”, what could possibly be?
Now what Scott meant in his post from today is that not a single economist has convinced him that his own preferred measure of monetary tightness–namely, NGDP growth–is the wrong one to look at. But surely lots of economists have thought that, say, a monetary base tripling in 4 years and short-term interest rates being pushed down to zero, might reflect “loose money.” Maybe they’re right, maybe they’re wrong, but in Scott’s insane world, not a single economist has even argued the point with him.
We see further evidence of Scott’s insanity in a post from two weeks ago, when Scott criticized a Garett Jones post like this:
You probably already know what I’m going to say here. I always dredge up the Friedman quote that low rates usually mean money has been tight. Garett may have anticipated that objection, as he referred to the Taylor Rule benchmark when arguing money was easy. But even that won’t work, as the Taylor Rule is highly unreliable. For instance, John Taylor has a recent post showing that (according to the Taylor Rule) money was too easy during 2008. That’s right, even though 2008-09 saw the biggest drop in NGDP since the Great Depression, the Taylor Rule says money should have been even tighter! And the rule also implies money is too easy right now!! I wonder how the stock market, and the global economy, would react to a tightening by the Fed at this afternoon’s meeting. (Hint: Check out 1937.)
Do you see what’s going on here? First, this is yet another economist (Taylor) who is taking on Sumner’s claim that money has been too tight. Taylor is showing that, according to the “Taylor Rule”–which was totally standard up through the advent of Scott Sumner’s blogging–money has been too loose.
Rather than argue with that, Scott now uses that output to demonstrate that the Taylor Rule must be a bad gauge of monetary policy.
This is a crucial point, so let me walk everyone through the progression here:
(1) Back in 2007, most economists didn’t even parse the world in terms of “NGDP.” Indeed, I wouldn’t have even known what those four letters meant if you asked me.
(2) Back in 2007, if you asked economists how to tell if the Fed had “easy” or “tight” money, most of them probably would have said various combinations of, “Look at how quickly they are creating new money,” “look at at how low they cut interest rates,” and–if they were sophisticated, they might say, “Use the Taylor Rule to see if interest rates are appropriate in terms of inflation and unemployment.” Very very few would have said, “See what NGDP growth is.”
(3) Back in 2007, if you asked economists, “Suppose the Fed triples the monetary base in a few years, pushes short-term nominal rates to zero and even negative in fleeting moments, and creates all kinds of credit facilities to bail out banks, do you think this is tight money?” then most of them probably would have punched you in the face.
(4) Now, because he is so sure that NGDP is the right metric to use to evaluate monetary tightness/looseness, Scott thinks not a single economist has even challenged his position, and that any other measure that says “money has been easy since 2008” is so obviously wrong that you can safely remove it from consideration. That is how clear it is to Scott, that money has been tight since 2008.
There is a word for such a viewpoint: insane.
Last point I want to make: There is something very very disturbing about Scott’s choice of NGDP as the metric of monetary policy. In particular, Scott thinks it’s obvious that if NGDP isn’t growing, then the Fed isn’t doing enough. The problem here is that NGDP is composed of price inflation and real GDP, and real GDP growth is sluggish when “the economy is bad.”
Consider this analogy. It’s a little unfair to Scott, because he has a plausible story to explain how nominal levels affect real factors, but it gets my point across quickly:
Suppose there are a bunch of doctors trying to get a guy to wake up from a coma. They have already pumped him with unprecedented amounts of a new drug, that the producer says should cure comas. Yet for some reason, the guy is still laying there, comatose.
Dr. DeLong says, “Well, I guess we just need to stimulate his body some more. His heart rate is too low, so clearly we haven’t done enough. In the last four years of this coma, we’ve already pumped in 200 mLs, which is twice as much of the drug as we’ve ever administered to another patient over a lifetime. Still, it’s not enough–clearly–so I say we are even more liberal with our treatment.”
Dr. Murphy says, “DeLong no way! That drug is poison. What more evidence do you need that it won’t work? Let’s stop injecting the drug, and let the guy’s body clear that stuff out. Maybe he will recover if we allow it time.”
Dr. Sumner says, “Of the two of you, Murphy is dangerous–his advice would kill the patient–while DeLong is just looking at it wrong. Contrary to Dr. DeLong, the patient has been suffering from you sucking those nutrients out of his body. I don’t know why you guys have been engaged in this policy of starving the patient of this drug. My measure is not to look at the volume of liquid you have injected into his body, but rather at his heart rate. Right now his heart rate is the second lowest I’ve ever seen in a patient, so clearly you have had a stingy medication plan. Now don’t get me wrong, if you pump in the drug and then the heart rate starts racing at 250 beats per minute, clearly you’ve pumped in too much. But right now, the heart rate is consistent with a comatose patient, so clearly you haven’t pumped in enough. Your measures relying on volume of liquid are obsolete. I have an analogy with an ocean liner if you don’t believe me.”