Scott Sumner's Golden Age

      Reading a passage out of Greg Mankiw's paper on New Keynesianism back in 1991 Sumner for a minute is overcome. Here's the passage:

      "For the purpose of analyzing economic policy, a student would be better equipped with the quantity theory of money (together with the expectations-augmented Phillips curve) than the Keynesian Cross.  In the United States today fiscal policymakers have completely abdicated responsibility for economic stabilization.  Their inability to cope with persistently large government deficits has left them unable to even imagine trying to reach consensus on countercyclical fiscal policy in a timely fashion.  All attempts at stabilization are left to monetary policy.  When a recession ensues, as it did recently in the United States, fiscal policymakers merely begin discussions of what the Federal Reserve did wrong."

      Sumner tells us that, "Reading this brought tears to my eyes.  A mere 20 years ago we were in a golden age of macroeconomics.  Now a new dark age has set in, as the forces of old Keynesianism have made Mankiw’s vision seem like a distant dream."

        http://www.themoneyillusion.com/

       What dream was this exactly? Of a wholly neutered Keynesianism? One that Sumner thinks repudiated most of Keynesianism? Yet try as he might, Sumner can't represent this as the Golden Age-the rise of the New Keynesian school-Krugman isn't at all clear that it's on balance superior to the old Keynesian school but he does find the NK model a useful way to check his work.

         http://krugman.blogs.nytimes.com/2011/09/26/lucas-in-context-wonkish/

       The fact is that while it's true, out of context, Mankiw's vision here may seem like a fairly toned down version of Keynesianism-yes at one point Mankiw says the very term may have outlived its usefulness, though he does say that for the time being it would have to continue to be used until something better is found(here we are  20 years later and nothing better has been found).

       Yet considering the context it was just the opening salvo of the return of Keynesianism. This explains Sumner's peevishness about "I hate all Keynesian Talk." This is why he had to come back to the monetary wars in 2008 after hoping to go off happily writing about the exotic subject of cultural values and neoliberal reforms.

        Really this essay by Mankiw in 1991 was not Sumner's Golden Age, it was the first shot where things begun to get away from him. His Golden Age was in the early 1980s when it seemed that the hated "Keynesian Talk" might finally be eradicated.

       Consider Robert Lucas. Recently Krugman has been lacerated for his poor manners and not showing Lucas proper respect. In the 80s however Lucas and his friends were whispering and giggling in class if anyone mentioned Keynes-that's how respectful Lucas is. This was Sumner's Golden Age and why he's so frustrated. Keynesian talk was supposed to have been over 30 years ago. What brings tears to Sumner's eyes is that there's no giggling anymore.

        http://www.iisec.ucb.edu.bo/amercado/clases/macroeconomia_maestria/lecturas/The_reincarnation_of_keynesian_economics.pdf