Now Scott Sumner is Just Playing Mind Games

      A recent post of his was entitled "Did Krugman UNDERSTATE the fiscal multiplier?" I got to give him credit. He really is good.

    http://www.themoneyillusion.com/?p=13196

    With all the ingenuous arguments he comes up with for opposing fiscal stimulus this is one of the most impressive-talk about concern trolling?

    Not to spoil the ending for you but no he doesn't want fiscal stimulus in Britain, specifically, which is what the post is about. Here he is on fiscal stimulus:

    "I think there are two arguments for a fiscal multiplier, both of which are somewhat problematic:

    1.  The traditional Keynesian NGDP argument, which relies on incompetent central banks which fail to hit their nominal target (inflation or NGDP.)

    2.    Real arguments that work to some extent under any monetary regime, but are more likely to raise RGDP than living standards."

     Argument 2 is basically a convoluted argument that no self-respecting Keynesian would make. Argument 1 is important as it does show that Sumner's argument that fiscal stimulus is not effective, or that the "fiscal multiplier is roughly zero" is contingent on a Fed that is not "incompetent." His definition of not incompetent is one that will always work to neutralize any fiscal stimulus.

    What it comes down to is this-incompetent central banks were basically the pre-Volcker Fed, competent central banks are the post-Volcker Fed.

    If we had the Fed that took seriously it's aim of full employment we wouldn't have this fiscal multiplier of zero, though of course Sumner would denigrate it then as incompetent.

   
     "Take the current situation in the UK.  If I’m not mistaken, the British political system is different from that in America.  British governments are basically elected dictatorships, with no checks and balances.  Even though the Bank of England is independent, the government can give it whatever mandate it likes.  If I’m right then both fiscal and monetary policy are technically under the control of the Cameron government."

    
    "So I read the UK austerity critics as saying:


      "Because you guys are too stupid to raise your inflation target to 3%, or to switch over to NGDP targeting, fiscal austerity will fail.  We believe the solution is not to be less stupid about monetary policy, but rather to run up every larger public debts."

      Sumner claims that any criticism of austerity is "consdescending."

     "Don’t talk down to Cameron and Osborne!  Don’t say “austerity will fail.”  Say “austerity will work, but only if the BOE becomes much more aggressive, otherwise it will fail.”  That sort of advice would be USEFUL.  Instead we are getting a bunch of pundits getting ego boosts because they can say “I told you so.”

    The goal never changes  though novel plays in the playbook all the time. Old wine new bottles.