18 Oct 2011

Sumner Ups the Ante on the Hoax of the Decade

Federal Reserve, Inflation 44 Comments

For a while now I have shared my theory that Scott Sumner, chief architect of the “target NGDP” proposal on the blogosphere, is actually playing a game with all of us. He has somehow managed to hoodwink not only Brad DeLong and Tyler Cowen but even David R. Henderson. Perhaps because of the metal plate they put into my head after a freak childhood accident, for some reason I have been immune to Sumner’s powers. (He even hypnotized Goldman Sachs! The man is unstoppable.)

The true irony in all of this is that Scott, like a serial killer, is begging to be caught. I have previously documented Scott saying that even if his policies do nothing but lead to rising price inflation, he will have no regrets. Since he got away with that one, Scott has upped the ante once again. In the comments of a recent post he declared:

In any case, I am still waiting for someone to give me an intelligent reason why inflation matters at all. Every reason I’ve heard thus far is simply a mistake in reasoning. They all apply to NGDP or RGDP, not inflation. Inflation doesn’t matter. Maybe I’ll have to offer a $100 reward: “Why should I care about inflation?”

C’mon guys, wake up! If you found out your doctor said, “In any case, I am still waiting for someone to give me an intelligent reason why cancer matters at all,” would you be so keen on his unorthodox new chemo treatment?

44 Responses to “Sumner Ups the Ante on the Hoax of the Decade”

  1. jjoxman says:

    I guess he assumes inflation is super-neutral?

  2. Major_Freedom says:

    I think by inflation Sumner means price inflation, which is indeed irrelevant to the NGDP framework. Sumner thinks that as long as NGDP rises by say 5% per year, then price inflation/deflation can be anything, depending on productivity (and of course NGDP increases!).

    • Silas Barta says:

      Yep, in his world, as long as some arbitrary metric grows at 5%/year, it doesn’t matter if he can afford bread.

      (Actually, in a sensible world, Scott_Sumner wouldn’t be able to afford bread doing what he does, since he’d have to actually produce something of value to trade for money, and that value couldn’t come from satisfying false needs that only exist because of kinks and lost purposes within the system.)

  3. Desolation Jones says:

    “Even Austrians like Hayek agree with me.”

    He’s right! If he even hoodwinked Hayek via time machine!


    “There are of course a few fields, such as the problems of the relation between the quantity of money and the price level, where we can obtain useful approximations to such simple relations – though I am still not quite persuaded that the price level is a very useful concept. ”

    But yeah, I’m pretty sure he’s not saying he wouldn’t care about 70s style inflation. Just that inflation isn’t a useful concept because it’s unmeasurable.

    • Bob Murphy says:

      DJ, all I know is that Hayek was on film (on YouTube) saying the true threat was inflation, and that Keynes agreed with him before his untimely death. Not sure how to square that with Sumner’s quote.

      • MamMoTh says:

        Threat to what?

        • Bob Murphy says:

          I give up. You guys win. Inflation isn’t bad.

          • Silas Barta says:

            Bob, I really do get the feeling some days, that guys like Scott_Sumner, James_Hamilton, Menzie_Chinn, and other big name economists, would still be parroting the line that “inflation is no big deal” even as their wives tell them it’ll be another meatless week.

            (Yeah, there’s a more gender neutral way to get that point across, I’m just too lazy to find it today.)

  4. DT says:

    Murphy, you’re so predictable.

    You just can’t stand it that Sumner is rocketing to Super Star Economist status and you’re left behind. Years from now Sumner’s name will be mentioned (in a good way) in every economics textbook published. Nobody, except for a couple dozen people who read Mises.org, will ever know or care about Robert Murphy.

    • Bob Murphy says:

      DT, keep that in mind when the harmless inflation ravages your savings. But I agree, Sumner will be mentioned favorably in the textbooks. He will be in illustrious company.

      • Tel says:

        What savings?

        Oh, you mean it ravages my debts… dreadful.

    • Major_Freedom says:

      I will always care more about Murphy than Sumner.

      Sumner contributes to the economic ills of this country. Murphy inoculates against it.

      To be favorably mentioned in mainstream economics textbooks in this age is to be forever tarnished and branded a heretic by future historians and economists, who will still be split into the same two groups: those who can’t refute Austrian economics, and those who don’t understand it.

    • MarkS says:

      “Rocketing to super start status”? Please. These market monetarists are just rebranded monetarists. Their one trick is massive quantitative easing. We saw what QE does and it totally screwed the economy by causing massive speculation, cost push inflation and a margin squeeze on the real economy. It had no positive impact despite every one of these market monetarists declaring in advance that it would work. Of course, they all changed their tunes when the economy started to go south and they claimed the QE hadn’t failed, but hadn’t been serious enough.

      It’s a joke that economists take these people seriously. Murphy is 10 times the economist Sumner is.

    • Joseph Fetz says:

      I wonder if DT has any relation to DS. Just a thought….

      • DT says:

        I give up. Who is DS?

  5. Rob says:

    yes, got to agree with you on this – I saw that comment on his blog was a bit shocked too. I’m hoping he is going to clarify.what he means.

  6. David says:

    You guys are so funny. As a freshman student I’d say 50% of the population will be lucky to be literate in the future, and if they are they will be to busy texting most of the school day to care. There’s already a good chunk of these zombies in the “higher” classes. Your saint and scholar of a friend already mentioned how books don’t sell anymore, and sadly the perportion of e-books will skyrocket in the near future.

  7. John Becker says:

    I’m laughing at that post because he was responding to me and I thought I had given him a ton of good reasons why inflation mattered. I literally don’t think he read through all my posts where I talked about it.

  8. Bill Woolsey says:


    I expect Sumner believes that all of your arguments about inflation are either really arguments about excessive nominal GDP growth or else based upon logical confusion.

    • Rob says:

      I assume he means “inflation with9n a NGDP targeting environment” doesn’t matter – since it will only be short-term.

    • John Becker says:

      Sumner doesn’t thinks that money can only be loose with high NGDP growth. I disagree and think that inflation can be harmful at low NGDP growth.

    • Silas Barta says:

      If that’s true, then we have Yet Another (infuriating) Case of someone saying, “Hah! I don’t care about $ConceptX at all! I’m so enlightened! I’ve learned to care about functionally-equivlanet $ConceptY that just happens to map precisely to what you mean by $ConceptX!”

      Another common example of this is in debates over the implications of Coase’s famous theorem, where some clever one will have X = justice/morality, Y = efficiency.

  9. John Becker says:

    The thing that bothers me most about Sumner is how he thinks that Hayek is the best Austrian economist and Hayek was on his side. Whenever I challenge him on these points, he calls me an Internet Austrian who doesn’t even understand his own sides models despite the fact that I’m usually paraphrasing something Mises, Rothbard, or Murphy said. Hayek would hate Sumner and so would any other Austrian economist.

    I encourage Bob’s readers to join me in picking apart Sumner’s arguments over on his site. I’ve been able to win a few converts over there. If people have the time, it would be very rewarding to see Sumner getting demolished by waves of real economic thinkers (people who understand Mises and Rothbard).

  10. Patch says:

    Scott summer seems to be the economic version Ivan Drago. Instead of saying “If he dies, he dies”, he just says ‘If we have inflation, we have inflation.” So much for the people holding the money.

  11. bill woolsey says:

    I understand Mises and Rothbard.

    I think Sumner is right.

    I think that you, John Becker, is wrong.

    I also like Hayek better than Mises (and Mises better than Rothbard.)

    • Major_Freedom says:

      >I also like Hayek better than Mises (and Mises better than Rothbard.)

      I think the exact opposite. How about that.

    • John Becker says:

      Will you at least admit that I’m making a free market case over there based on Mises, Rothbard, and Murphy? Btw, nice grammar. It doesn’t make people very likely to think you’re right. (kidding)

    • Dan says:

      I give you guys credit for having balls. We have PPI at about 7% and CPI at about 4% with M2 soaring at around 15% annualized basis. We also have excess reserves falling, required reserves soaring, and economic indicators turning positive. In the face of what looks like a coming wave of high inflation as we see a manipulated boom getting set to take off, you guys are saying who cares about inflation. That’s ballsy. I personally know a ton of people who care very much that their savings is being evaporated because of rising prices. You should go tell my grandmother that although she now relies on others to help pay her bills that inflation is no big deal.

    • Nicholas Glenn says:

      Yeager seemed to consider inflation a problem. He thought it interfered with economic calculation. Is his line of thinking deemed antiquated now?

  12. kavram says:

    Why inflation matters

    – it temporarily distorts relative prices in the economy, the correction of which requires a recession
    – it transfers purchasing power to those who get the new money first at the expense of those who get the money last; in our current system it benefits the banking/financial sector at the expense of basically everyone else

    – and of course there’s the textbook answers of “menu costs” and “shoeleather costs”

    If inflation truly doesn’t matter, then why are economists/central asking for it? I’m seeing more and more articles these days in which economists are arguing that what the US economy needs is “just a little inflation”

    • John Becker says:

      I’ve made those exact arguments over on his blog again and again. Just look for me as John on his most recent articles. He doesn’t think these are intelligent arguments.

      • Dan says:

        Just be glad that Dr. Murphy is collecting all these absurd posts by guys like Sumner for easy access down the line. The one positive from inflation getting out of control that I can see is that these guys are going to a very tough time explaining themselves.

      • kavram says:

        If the Fed printed new money and distributed it to everyone except Sumner I bet he’d see the problem with inflation

  13. marris says:

    Did I miss something? Since when does the Fed know how to target NGDP? I checked out a few posts which tried to explain it, but it came down to “well, if you think the Fed can create inflation, then why don’t you think it can raise NGDP?”

    This is an interesting equivocation. I think the government can create inflation. I don’t think they can “target” inflation very well. I think it’s basically just undershooting or overshooting, sometimes with massive spikes and plunges.

    • Wonks Anonymous says:

      He wants the Fed to subsidize a futures market in nominal GDP contracts.

  14. jjoxman says:

    Does it help at all to realize that NGDP targeting is functionally very similar to a productivity norm? On this issue, one can consult George Selgin’s fine pamphlet (his word) “Less than Zero.” Available for free from the Mises institute: http://mises.org/books/less_than_zero_selgin.pdf

    • Silas Barta says:

      No, it doesn’t help. What’s a productivity norm, and why should I want it targeted?

  15. Rob says:

    I’m looking forward to Bob’s comments on this…


    • Bob Murphy says:

      My nemeses unite into a common foe. I am encircled. The truth is my only ally (and Ramen noodles).

      • ArgosyJones says:

        On friday nights, I hope you treat yourself to beans and rice.

  16. jbharshaw says:

    Ah, you have to read EXACTLY what the question he was asking:

    >Why should I care about inflation?

    Note that he didn’t ask why people in general (i.e. OTHER people) should care, he asked why HE, himself should care…

    And there really ISN’T any reason why HE should or would care — he is in the type of a tenured position where his compensation and benefits are essentially (if not entirely) IMMUNE to such things — and where he is entirely unaccountable for the consequences of his statements or recommendations.

    Furthermore, rather obviously — as long as he has already “gotten his” he doesn’t give a crap about anyone else.

    Just one more reason why the “Education Bubble” cannot burst too soon (and the universities go bankrupt — so that fools like this will lose their sinecures and have to look for some form of REAL work to do, something they are qualified for… like delivering pizza, or flipping burgers).