17 Sep 2013

Scott Sumner Is of Two Minds When It Comes to the Monetary Approach of Michael Woodford

Scott Sumner 6 Comments

Apparently it’s “Bash Scott” month here at Free Advice, but again, I don’t think I’m quibbling over trivialities here:

Back on September 10, Scott wrote a post titled, “Listen to the expert” which quoted a news article touting Columbia University’s Michael Woodford as one the world’s most important and influential scholars publishing on monetary policy. After quoting liberally from the cheery article, Scott commented:

The expert says NGDPLT [nominal GDP level targeting–RPM]. So just do it. (Yes, he also says taper, but that’s a trivial issue compared to NGDPLT.)

PS. Gauti Eggertsson (Woodford’s student) has a new blog.

PPS. Woodford was born in 1955 and is currently 57. Ditto for me. Bernanke and Krugman were born in 1953. Boomers rule!

So you’d think from the above that Scott thinks Woodford is an (the?) expert on monetary policy, and that because Woodford is in favor of Scott’s policy proposal (namely, targeting the level of NGDP), this is evidence that it is a good idea.

That’s why I was intrigued to read today, September 17, Scott write the following in a post about whether a central bank can depreciate its currency in the midst of a liquidity trap:

PS. The exchange rate does help in one respect. It forces people out of the horrible Keynesian/Woodfordian “rental cost of money” approach to monetary policy, and into a much more enlightening Fisher/Warren “price of money” approach. By doing so it allows us to think about the problems much more clearly…

As usual with my posts on Scott (and Krugman), this isn’t an outright contradiction. But it’s also not as if Scott said Woodford had a horrible approach to making eggs, or that he had a cumbersome approach to monetary policy. No, the guy Scott held up as a (the?) world’s expert on monetary policy one week ago–and since that expert agreed with Scott’s policy ideas, it was evidence we should implement them–is now someone who has a “horrible…approach to monetary policy.”

Ishn’t dat veird?

P.S. I’m assuming it’s the same Woodford in both posts. Technically, maybe there are two of them running around, but I’m pretty sure Scott’s talking about the same guy.

6 Responses to “Scott Sumner Is of Two Minds When It Comes to the Monetary Approach of Michael Woodford”

  1. Scott Sumner says:

    Bob Murphy is an expert on many things, but has a horrible approach to the Federal Reserve.

    Seriously, I thought it was clear from the context that the profession viewed Woodford as the expert. I provided several quotes to that effect in the post. OK, so if he’s the expert, then why not follow his policy advice?

    • Bob Murphy says:

      Bob Murphy is an expert on many things, but has a horrible approach to the Federal Reserve.

      Right, Scott, so after you said the above, it would be weird if you said, “Bob is in favor of abolishing the Fed, so we should listen to him on it.”

      Now if you told people, “If you want to know how to be a pain in the a**, by all means emulate Bob’s blogging!” then that would make perfect sense.

    • Major_Freedom says:

      There are other “experts” who don’t want NGDPLT.

      So why do we have to listen to the expert Woodford, but not those other experts?

      I think what Bob is saying is that he suspects that you’re not recommending Woodford because he’s an “expert.” After all, Murphy is an expert, but you wouldn’t recommend his monetary policy views. He thinks you’re recommending Woodford because he recommends NGDPLT.

      Convenient, isn’t it?

    • JP Koning says:

      Bob, I was wondering the same thing about Scott’s two references to Woodford.

      Actually, I find Scott Sumner and Michael Woodford to be 99.9% identical, so I’m somewhat mystified by his grumpiness. They both advocate permanent monetary action in the face of the ZLB, and they both love the unit-of-account function of money.

      • Matt Tanous says:

        “They both advocate permanent monetary action in the face of the ZLB, and they both love the unit-of-account function of money.”

        Ironic, given that all that monetary action virtually decimates the unit-of-account function that money provides. I’d add something about economic calculation here, but my impression is that if one don’t understand the concept already, they will repeatedly fail to do so and think themselves intelligent for doing so. (*cough* LK *cough*)

  2. James says:

    Since it’s beat up on Scott time, I guess I’ll beat up on his terrible marketing skills.

    If I were a neoclassical economist and I wanted to make a case for some new kind of monetary policy, I’d present estimates of what the future would be like under my preferred policy and under the most likely policy other than the one I favored. This would be to provide a point estimate of the size of the costs and benefits associated with my preferred policy. I would also make a point of publishing many public forecasts of whatever variables I thought would respond to my preferred policy. This would be to show the credibility of my claims and allow for the construction of an out of sample confidence interval. Yes, this is professionally risky, but if I didn’t have sufficient confidence to provide this much, I would never expect anyone else to be confident in the policies I was recommending either.

    Of course Scott can clear up the matter right now. Scott: In what variables would you expect to see improvements and what do you estimate as the size of those improvements? In what variables would we see things get worse and how much worse would things get (or are you claiming to have found a free lunch policy?) Is there a place where we can find a comprehensive archive of your previous forecasts for those variables?

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