Scott Sumner askes some questions of Keynesians, whom he seems to confuse with New Keynesians, who aren't actually Keynesians if Keynesian means in the tradition of the work of J. M. Keynes. Has Greg Maniw even read Keynes?
I’d also love to know what Keynesians think of the Dems having a socialist as their lead member on the Senate Budget Committee, who then appoints a MMTer to be chief economist. And Krugman says the GOP relies on voodoo economics!The Money Illusion
Questions for Keynesians
Scott Sumner | Professor of Economics at Bentley University
May be best to avoid all of this economics sectarianism Tom... we can't win that...
ReplyDeleteThere is an old saying "A fool can ask more questions than a wise man can answer..."
Perhaps take the message right to the non-economic sector...
Most if not all of these economists are morons imo...and they are running the academe...
Imo dont fight this in the academe that has been what has been going on and getting nowhere as most economists are not the sharpest tools in the shed....
Scott Sumner’s “monetary offset” idea is rubbish. It’s the idea that if the central bank (CB) is targeting inflation, fiscal stimulus is pointless because the CB will counteract such stimulus with an interest rate hike.
ReplyDeleteThe flaw in that argument is ultra-simple: in circumstances where fiscal stimulus is applied (i.e. a recession) it’s likely the CB will agree that stimulus is needed, thus it WON’T counteract fiscal stimulus.
Doubtless there are cases where a CB has implemented “offset”. But to claim that CBs will ALWAYS offset is nonsense.
For monetary offset explained by Sumner himself, see:
http://mercatus.org/sites/default/files/Sumner_FiscalMultiplier_MOP_090313.pdf
"It’s the idea that if the central bank (CB) is targeting inflation, fiscal stimulus is pointless because the CB will counteract such stimulus with an interest rate hike."
ReplyDeleteWhich if it did would cause a constitutional crisis - since you would have an unelected bod directly contradicting the orders of the elected body.
That happened in 1910 in the UK when the House of Lords vetoed the elected house's budget. The result was the removal of the House of Lord's ability to veto budgets.
Monetary offset is behind the theory of "expansionary austerity" - the economy still grows aa fiscal policy is tightened.
ReplyDeleteCanada did this in the 1990s. The Fed govt tightened fiscal policy, while the Canadian dollar weakened and interest rates were low. This allowed for fairly sluggish growth, while the Fed govt reached a surplus. (This is the conventional interpretation; my view is that Canada was also lucky that the housing and tech booms started.)
This episode is always harkened back to within Canada when discussing fiscal policy. Everyone wants to go back to a surplus.
Even if the central bank were solely targeting inflation, there is no reason to think the offset will occur in an economy in which there is minimal inflation pressure and room for expansion.
ReplyDeleteI will ignore this post, but it's good to see so many of favorite economic commentators here at MNE.
ReplyDeleteTom-- Thanks for all the posts! I read everything, but haven't had a chance to comment much recently.
I think that the primary significance of the post is that Stephanie's appointment is getting noticed on the "other side."
ReplyDeleteThere's likely to be a lot of flak coming if MMT seems to be making a dent, so MMT proponents have to be ready with answers to mainstream objections.
The basic objection is that fiscalism doesn't work and monetarism does, with the added objection that even if it were to work, it would bust the budget in first place and also be inflationary.
Scott Fulwiler has a good post on this at Naked Capitalism -- MMT Versus the CBO: Replacing the Budget Constraint with an Inflation Constraint
ReplyDeleteI asked the following question back:
ReplyDeleteIf the Federal government decided tomorrow to cut the budget by 50% tomorrow, make no changes to tax rates, cut any unemployment benefits, and the FED keeps policy the same what would happen to NGDP?