31 Aug 2013

Yes, There Are Indeed Two Scott Sumners

Scott Sumner 5 Comments

In a recent post, Scott whimsically wondered whether there were two of himself. But actually, there are, in the sense that he will hammer home a particular perspective, then apparently violate it himself. One example is that he constantly says that interest rates are a poor indicator of the stance of monetary policy, yet then points to the Fed’s raising of interest rates in 1937, and the ECB’s raise mid-crisis, to show that tighter money can cause a double dip. (Sorry can’t look up links right now.)

Recently I saw another example. One of Scott’s trademark claims is that there’s no such thing as “waiting to see” if, say, QE has worked or not; you can tell immediately based on the market’s reaction to an unexpected policy announcement. For example, here is Scott in his own words in September 2012:

I’ve also tried to convince the blogosphere of other ideas, such as “targeting the forecast” and that there is no “wait and see.” I think it’s fair to say I’ve completely failed (thus far) to make headway in that direction. Roughly 100% of the blogosphere has reacted to QE3 by discussing likely future outcomes for AD/NGDP, as if in the future we’ll learn more than we already know. I view that as akin to astrology.

Yet when it comes to recent suggestions that the Fed’s policies are hurting Indonesia, Scott says: “I’d encourage everyone to take a deep breath and let’s wait 12 to 18 months, by which time it may be easier to see what’s going on right now.” I guess we’ll ask a Sagittarius.

5 Responses to “Yes, There Are Indeed Two Scott Sumners”

  1. Yancey Ward says:


  2. Tom Brown says:

    Robert (or Bob? which do you prefer?),

    I have a very different view of the world and macro than you, being more favorably impressed by the PKE camp. However, I have to agree with you on this. I’ve said the same thing many times about Scott. I’m not sure that two is the right number actually… there could be a multiple Sumner personality disorder going on there! I’m always trying to figure out what the big advantage of QE is (and ER > 0), according to MMists, when the Fed already implicitly promises to provide all the reserves needed.. to target the FFR (short term) and inflation (long term). I always figured it was the hot potato effect (HPE) they’re always going on about, until one day I see Scott write that the HPE is “very weak” at “zero rates!” “Very weak??” .. Me: “Scott, are there more than one HPEs??” … Scott: “No, there’s just one.” (?!?!?)

    Which led to this interchange between me (TB) and Scott (SS):

    “OK, so if you agree with David [Beckworth] here, and HPE is “very weak” when we’re at “zero rates” then why not ditch the QE and the ER > 0, and just promise that base money will be made available when needed. And then… if we do that, how is that different than what we have been doing prior to 2008? Except that now there’s an explicit NGDPLT?”


    (The above was my “last point” BTW)

    “And I certainly agree with your last point [above]. In a sensible system the base money is endogenous. You set the NGDP target, and the public tells you how much base money they want to hold. I’m all for that. But we don’t have a sensible system, the Fed uses QE to signal its target. That’s why it’s such a mess.”


    So… in a “sensible system” just have the Fed do what it’s always been doing: providing exactly whatever “base money” the system required: no need for a “very weak” HPE at the ZLB… just carry on as it has prior to 2008, no need for extra asset purchases to push base money stocks (reserves) past their required levels… just set an NGDPLT, and that’s all you need. Correct? I don’t know how much more explicit I could have gotten. My only question here… the one caveat is … what do we need to do to get a “sensible system?” Anything other than what I’ve laid out here? Is there something else preventing it from being “sensible?”

    He also accused me of being “new” and that he’s been saying this same thing for the past five years! Really? We don’t really need QE, it’ just makes a “mess?” Let’s just do what we’ve always done, only we change from inflation targeting to NGDPLT. That’s what he’s been saying? Is that your impression Robert?

  3. von Pepe says:

    I often wonder why Milton Friedman never wrote journal article stating that low interest rates are a result of tight money (even though interest rates are not a useful indicator of monetary policy – S.S.). Prof. Sumner always cites a line from an interview, I think, on Japan. Did Milton write this in 1950-1980 anywhere?

    Was it a life long rule Milton had? A theoretical model (citation?). Or, maybe it was an observation about a specific case at a specific time and place?

    • Jonathan Finegold says:

      He doesn’t say it so explicitly, but the argument is in A Monetary History of the United States (see, for example, pp. 312–315; Friedman and Schwartz talk about the banking crisis, low interest rates, and high government bond yields).

  4. Major_Freedom says:

    Scott Sumner sarcastically noted:

    “That’s right. Turning an industry into a monopoly with zero competition has always been a good way to improve quality.”


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