I've often argued that if you play on my team-I play on Team Keynes-then you have to take a decent amount of skepticism into reading a post by a Scott Sumner, or a Nick Rowe, Lars Christensen, etc.
Don't get me wrong. I like most of these people on a personal level. You won't find a much nicer guy anywhere than Nick Rowe unless you make the mistake of criticizing Sumner in his presence as I discovered in the recent argument about progressive consumption taxes. I argued that they are a contradiction in terms. Please get the whole story below.
Sumner and I achieve Dentente http://diaryofarepublicanhater.blogspot.com/2012/05/sumner-and-i-achieve-dentente.html
But there's no doubt you have to have a certain level of healthy skepticism. This does not mean don't read them. Some may say if they don't like an opinion they would rather abstain from them. That is not my way. To paraphrase Scott Waldman over at Interfluidity, "Keep your friends close and your frenemies closer."
http://www.interfluidity.com/v2/3087.html#comments
I think there's a lot to be said for Steve's approach. While I like some of the insights of the MMTers I often find their bedside manner wanting. They are mostly not so great at the political game of backslapping and gladhanding that you sometimes need to build multi alliances. Often there is a need at least tactically to collaborate between Right and Left. People too pure miss the boat.
Steve's point that what links the Market Monetarists along with the MMTers as well as more mainstream New Keynesians like Krugman and Delong is a belief that the problem during this crisis has been depressed demand. Steve may well be right that each school has someting we can take from it.
"Market monetarists make excellent points about how cumbersome and unsuitable a legislature is to the task of managing high-frequency macro policy. They point out that fiscal interventions may have limited or even paradoxical effect if they are offset with countermoves or diminished activism by the central bank. They emphasize the nimbleness of monetary operations, their inexhaustibility and fast reversibility, and how those characteristics combine to make central banks extremely credible expectation-setters. They suggest that we rely upon consistent rule-oriented monetary policy, and argue that this can be implemented more by anchoring expectations (which become self-fulfilling) than by direct market intervention."
\ "Mainstream saltwater economists are accustomed to operationalizing monetary policy as interest-rate policy, and pay great attention to the zero lower bound on nominal interest rates. They point out that regardless of your theories of central bank “ammunition”, as a matter of practice or politics, expansionary monetary policy seems to become difficult once the zero lower bound of conventional interest rate management has been hit. They suggest we rely upon monetary policy in “ordinary” times, but that we supplement it with fiscal policy at the zero bound. Conventional “neoclassical synthesis” models did not do a great job of foreseeing or predicting the crisis, but they have done a good job of explaining and predicting macro behavior during the crisis, in the context of “depression economics” or a “liquidity trap”.
"Post-Keynesians did predict a crisis, on broadly the terms that we actually experienced. They argue that there are adverse side effects to using monetary policy to manage aggregate demand. Although in theory this might be avoidable, post-Keynesians point out that in practice monetary stabilization, even above the zero bound, seems to engender increasing indebtedness and financial fragility, and to distort activity towards overspecialization in finance and real estate. They pay much more attention to the details of financing arrangements than the other schools, and emphasize that vertiginous collapses of aggregate demand are nearly always accompanied by malfunctions in these arrangements. Aggregate demand, post-Keynesians argue, cannot be managed without concrete attention to the operation of financial institutions and the conditions that lead to their fragility. Post-Keynesians make the deep and underappreciated point that fiscal policy, even if it is conventionally tax-financed, can deleverage the private sector and reduce financial fragility in a way that monetary operations cannot. Monetary operations, if you follow the cash flows, amount to debt finance of the private sector by the public sector. The central bank advances funds today, in exchange for diverting precommitted streams of future cash from private sector entities to the central bank. Fiscal expansion is more like equity finance of the private sector by the public sector. Public funds are advanced, and captured by parties with weak balance sheets as well as strong. But taxes are not withdrawn on a fixed schedule. They are recouped “countercyclically”, in good times, when private sector agents are most capable of paying them without financial distress. Further, the private sector’s tax liability is distributed according to ex post cash flows realized by individuals and firms, while debt obligations are distributed according to ex ante hopes, expectations, and errors. So tax-financed fiscal policy acts as a kind of balance-sheet insurance. Both by virtue of timing and distribution, taxation is less likely than monetary-policy induced debt service to provoke disruptive insolvency in the private sector. Plus, during a depression, fiscal expansions may never need to be offset by increased taxation. [2] Never-to-be-taxed-back fiscal expenditures, if they are not inflationary, shore up weak private-sector balance sheets without putting even a dent into the financial position of the strong. They represent a free lunch both in real and financial terms."
"When I think about these three groups, I don’t think, HIghlander-style
Again, maybe. I think this is a good perspective. As long as you maintain along side it, healthy skepticism. Take the debate with me and Scott over a progressive consumption tax. I said and still think that's largely a contradiction in terms. Sure W. Peden made the case for a consumption tax that was basically a progressive payroll tax. Bu that begs the question: why not just call it a progressive payroll tax rather than a consumption tax?
At bottom, what all the MMers share is a common commitment to supply-side fiscal policies. This is maybe not appreicated by the many non-Righty people that visit Scott's site everyday and see him as offering progress and a way out of the partisan logjam of gridlock that is our current government in Congress.
The fact that Sumner and company seem to be on the same side as we Keynesians during this whole crisis makes it seem like both schools share a common focus on the demand side. This is not true. What's really striking is that all of the MMers are supply-siders. Seriously if you know of any who aren't point them out to me, I don't think there are any.
Far be it from the case that they are "demand-siders" like us on Team Keynes they are staunchly on the supply-side.
Again I do like a lot of them personally. And maybe Steve Waldman's right that some of the ideas could go together. It would almost seem I'm being unfair to Scott Sumner when I write posts like the following link where I call him out as being a "Paul Ryan Republican."
http://diaryofarepublicanhater.blogspot.com/2012/05/scott-sumner-paul-ryan-republican.html
Yet do the following thought experiment: jot down a list of how many things in the Ryan budget do you think Scott objects to? Do you think he objects to Ryan's block grant scheme? If you do you are quite mistaken.
Often I argue that Morgan Warstler is sort of Scott's alter ego, saying all the things that Scott-wisely-does not say. But if you doubt what I'm saying about the relationship between Market Monetarism and supply-side fiscal policy consider what he said the other day that got the whole thing between me and Scott going the other day:
"My dream is that in a few more years I’ll be able to do a post entitled “We’re all zero fiscal multiplier, market monetarist, progressive consumption tax, supply-sider, neoliberal Yglesians now” so that I can retire to some place warm and sunny"
If you as a member of Team Keynes believe that Waldman's right and that some workable relationship with Team Sumner is possible you must assume that you can accept the Market Monetarist idea of NGDP baby and simply throw out the supply-sider bathwater. But if this is true, why are all MMers also supply-siders? Does Scott sound like supply side fiscal policy is optional to you?
Now Benjamin Cole-a regular commentator at the Money Illusion-I recently wrote a positive post about his post at Marcus Nunes-said this today in a comment. It bears quoting in full:
"I wonder if in the USA people realize what a supply side policy would entail. "
•Progressive consumption taxes.
•Wipe out the ethanol program.
•Radically curtail military-homeland security and VA outlays.
•Eliminate the vast federal subsidy of rural areas.
•Cut welfare spending (although it is not a large part of federal outlays).
•Raise Social Security retirement age
•Adopt euthanasia for Medicare patients who are terminally ill and aged
•Opening up our borders to immigrants
"An even tougher nut to crack are various obstructive state and local governments, who insist on licensing professions and trades, regulating whole industries such as alcohol, and limiting real estate development."
"In short, the likelihood of structural impediments being quickly torn down is zero. These are sacred cows of out political parties. As you can see, the GOP may even be worse than the D-Party.
This is what makes Scott Sumner’s approach so important. It is practical, it can happen immediately."
In other words, the American people would never sign off on the "structural reforms" of the supply-siders-the same structural reforms now being rejected by European electorates in Greece, France, Holand, Rumania, and even in Germany.
However, Sumner's NGDP targeting could enable it to be done over the people's heads by unelected bureaucrats. The prosecution rests but reserves the right to recall Mr. Cole back to the stand at any time. Under oath.
No comments:
Post a Comment