Sumner Declares Iceland a Success For "Viking-Style Austerity"

       Many of the terms that are debated in the monetary and fiscal wars are political and definitional. On the question of the fiscal multiplier, Sumner is an outlier in claiming that it's zero. Still this fact is at best contingent on the policy objectives of the Central Bank.

       It's arguable that since the 70s this has been the case. In an earlier, more Keynesian age it wasn't. Some MMT crttics of Sumner like Dan Kervick argue that the very terms "monetary" and "fiscal" are politically contested terms. Part of Sumner's opposition to fiscal stimulus to fight an AD shortfall is an onus against the very term "fiscal."

     Kervick and company have argued that much of what Sumner argued for is more properly fiscal policy. The point is that Sumner has an interest in whatever we do that brings back AD being called "monetary" rather than fiscal. The nadir of this was Lars Christensen who declared that there is no such thing as fiscal policy period.

    The MMTers are the opposite-they want the recovery to be driven by things that are called "fiscal." That definitions are very important is underscored by the latest declared success story-namely Iceland. Krugman had written of the Icelandic recovery yesterday:

     "GDP is still below previous peak, but I think one could argue, much more so than in say America, that a significant part of that peak involved a Ponzi financial sector that isn’t coming back."

     "I think I was one of the first outsiders to notice that Iceland’s heterodoxy was yielding a surprisingly not-so-terrible post-crisis outcome."

     "And yes, the recovery is better than Estonia, and much better than Latvia."

       http://krugman.blogs.nytimes.com/2012/06/13/guess-whos-emerging-from-the-crisis/

        Krugman may have been one of the first to notice but today Sumner is the first to declare it a victory for what he calls "Viking-Style Austerity"-and Market Monetarism.

        In passing note that I have often suggested that Market Monetarism is just a call for backdoor austerity.

        Again the definitions of things like austerity tend to shift particularly when Sumner is discussing it:

        "The Norseman who settled cold, barren, windswept Iceland over 1000 years ago were not wimps."

          http://www.themoneyillusion.com/?p=14895

         Only wimps oppose austerity.

          "Iceland was hit by a massive real shock in 2008 when their ponzi-like banking/real estate sector collapsed. I find it hard to get any objective data on fiscal policy (in any country), but all the bloggers I read suggest that they opted for the only sensible policy; fiscal austerity."

           It's impossible to get any objective data on fiscal policy in any country. So we'll just believe al the bloggers he's read. What could be more scientific?

           Mind you Krugman is a blogger as well and Sumner reads him but does he "suggest" that they opted for fiscal austerity?

            Note that there are three fiscal policies-stimulus, austerity, and doing nothing though Sumner never considers this.

            He quotes Kevin Drum:

            "And state spending, although it went up in krona terms, was cut sharply in real terms. Iceland isn’t really an anti-austerity poster child."

            Sumner though further muddies the water:

            "Nor is it a pro-austerity poster child. Rather it’s a market monetarist poster child"

             Yet the post title seems to suggest it did austerity-Viking style or whatever-and he also had said a paragraph above that austerity is the only sensible fiscal policy. Sumner always tends to float from opposing austerity to supporting it to neither supporting it or opposing it. And he also claims there's no real objective way to know. So just listen to what all bloggers say-though we have some who don't say that Iceland is a testament to fiscal austerity.

             "Now you might wonder what all this has to do with market monetarism. Recall that we are the ones claiming that Britain and the eurozone need to combine tight fiscal policy with monetary stimulus. The tight fiscal policy addresses the looming debt crisis, and the monetary stimulus keeps AD (i.e. NGDP) growing at the sort of rate needed to keep the economy close to full employment"

              Ok so Market Monetarism is about austerity or "tight fiscal policy." So it is a backdoor to austerity. And what "looming debt crisis" is he talking about? There is none in the US, UK, and Japan which is clear by checking yields. Europe doesn't need to have the problem either they are choosing this by choosing not to do what's necessary.