01 Dec 2014

Can I Pass the Scott Sumner Turing Test?

Scott Sumner 17 Comments

I have been reading Scott pretty regularly since mid-2009 at least, and at this point I’m pretty sure I have learned his pet peeves. For example, when this analyst writes: “Might falling oil prices affect AD? Not with monetary offset–the Fed will simply adjust the date at which they start raising rates.”

…then I think Scott would tear his hair out and respond along these lines:

Man, Milton Friedman must be rolling over in his grave. How many times do I need to tell people that the “ultra-low” rates since 2009 go hand-in-hand with tight money? If the Fed did the sensible thing and targeted nominal GDP growth, then inflation expectations would rise and so would the natural rate of interest. Thus rising nominal rates would go hand-in-hand with looser money. I can’t believe how many times a week I still have to point out this basic stuff, that you can’t gauge the stance of monetary policy by looking at interest rates. It’s like the Great Depression and Japan never happened. If you tell me that the Fed will postpone rate hikes beyond 2017, that tells me the Fed will continue with its ultra-tight monetary policy for the next three years, meaning the Fed is holding down AD, not boosting it as the commentator above implies.

What do you guys think? Would you have believed the above was Scott writing?

17 Responses to “Can I Pass the Scott Sumner Turing Test?”

  1. Ag Economist says:

    So it’s all Fisher Effect and no Wicksell Effect for Scott?

    • Enopoletus Harding says:

      I’d say “no, Murphy does not pass the Turing test” and call his attempt “all something Scott would say, but not in response to this claim”. Sure, low interest rates can go hand-in-hand with tight money, but there’s no necessity the Fed would raise rates in a time of monetary looseness. For example, Sumner credits the ECB rate hikes for causing the 2011-2013 EZ double-dip. I think Scott will be accepting of the implication that beneficial oil-supply shocks may raise AD/NGDP.

      I think Scott would agree with the original statement and not tear his hair out. Scott, what do you think?

  2. Scott H. says:

    I’m going to go out on a limb here and say Scott probably would take back “start raising rates” as his delayed monetary offset action of choice (in this environment).

  3. Transformer says:

    Just because “the “ultra-low” rates since 2009 go hand-in-hand with tight money?” doesn’t mean that low rates always mean tight money. If low oil prices caused (for reasons that escape me) AD to start falling then keeping rates lower than otherwise in these circumstance actually would be looser money not a continuation of ultra-tight money as Bob’s parody claims

    • Enopoletus Harding says:

      I think low oil prices would cause AD to start rising.

      • Transformer says:

        I do too, but the context of the linked-to post suggested that they might cause it to fall (otherwise why would it cause the fed to delay increasing interest rates?). Perhaps falling oil prices would be a symptom rather than a cause of falling AD ?

        • Bob Murphy says:

          Transformer I think you and I misread Scott. I think he means the Fed would move *up* the date of rate hikes if low oil prices led to a surge in AD. But like you, I originally thought he meant the Fed would postpone rate hikes if (somehow) falling oil prices led to a collapse in AD.

          • Transformer says:

            oh, that does make more sense.

  4. Yancey Ward says:

    Scott is going fall off a wall and we will spend 20 years trying to put him back together.

  5. John Becker says:

    I don’t think I’ve ever seen Scott Sumner start a blog post with “Man.” Big red flag there.

  6. Bob Murphy says:

    Yancey Ward and John Becker share the trophy for best comments.

  7. Enopoletus Harding says:

    Note: before this comment, I wasn’t even aware the “analyst” was Sumner himself.

  8. Major.Freedom says:

    Haven’t we learned yet that Sumner is allowed to make such arguments because he really really really understands the subtleties and nuances of analyzing monetary policy based on prices and interest rates?

    His opponents are not intellectually equipped enough to be permitted to write the exact same arguments.

    It is an amusing pasttime. Point out what people are really saying when they say XYZ but are too dumb to know otherwise, and then the next day write the same XYZ because you know it always meant NGDP targeting is optimal.

  9. Matt M says:


    Completely unrelated anecdote – I just wanted to share and figured this would be the best place for you to see it.

    I was in class yesterday (Marketing, not Econ) and while giving an answer, a classmate dropped a reference to Pigouvian taxes, and just about the entire room looked around at each other in abject confusion. I realized I was one of the few people who knew what the guy was talking about, entirely due to a Mises Academy course you taught a couple years ago. So thanks for that.

    And to the rest of you – consider this an endorsement. Take a Mises Academy course taught by Bob, and you too can be somewhat less confused when an econ geek goes off on a tangent in an unrelated course!

  10. Dan W. says:

    Sumner claims that it was a drop in AD that caused the drop in housing prices which caused the collapse of housing debt which created the financial crisis that lead to the great recession. If a collapse in oil prices sinks the US oil industry and the finance industry that funds it and this bust lowers GDP will Sumner claim that a drop in AD caused the collapse in oil prices?

    The rapid decline in the price of oil can be attributed to the market realization that there is a glut of oil. It is a supply issue and a great problem to have unless one is a lender or borrower and payment of the loan depends on oil being at a high price. The housing bust can also be described as a supply problem.

    Alas, the problem of industry taking on excessive financial risk to oversupply a product is not solved by bureaucrats in Ivory towers. So it is understandable why both Sumner and Krugman refuse to frame economic problems this way.

    • Enopoletus Harding says:

      Sumner’s pretty clear the housing price fall came before the NGDP fall and the financial crisis had little to do with the recession.

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