Unlearning Econ Points out Sumner's Ignorance on Keynes

     I like Sunner don't get me wrong. But forget expecting him to give Keynes a fair hearing or even a fact based look. And that applies especially to the General Theory which Sumner tends to say two things that taking together are rather problematic.

    First he says it is not worth reading, then he admits he never really read it and never understood it. This is similar to what he says about IS-LM. First it's wrong. Secondly because he doesn't like it he never learnt it very well. He has gone as far as calling Keynesianism "mind numbingly stupid" yet he also admits not to understanding it. Here's typical Sumner "critique" of IS-LM-of course IS-LM and the General Theory are two different things and Post Keynesians see it as a bastardization of GT anyway:

   "Everyone enjoys seeing at least one type of disaster. Pyromaniacs like watching buildings burn. Brad DeLong likes seeing new classical economists say really foolish things. I like seeing people make the IS-LM model look absurd."

    "Nick Rowe has finally come up with a plausible version of the IS-LM model. The most interesting feature is the upward sloping IS curve. It also features an L-shaped LM curve (not a backward-L, as is usually assumed.)"

    "I suppose it sounds like I am mocking Nick, but just the opposite. I think Nick is right, the IS curve is upward sloping. My satisfaction comes from elsewhere."

    "A couple years ago Brad DeLong did a post asking me to explain why I didn’t like IS-LM. I wrote one of my typical ultra-long early posts, throwing everything against it I could think of. But I so dislike IS-LM that I never learned it well enough to critique it effectively."

    http://www.themoneyillusion.com/?p=10721

     Unlearning Econ has an interesting point to make about Sumner regarding his NGDP level targeting regime vs. what Keynes wrote about the matter in General Theory. I came across Econ's post over at Daniel Kuehn's excellent blog Facts and Other Stubborn Things. If you have not read it I really recommend it. To be sure I was aware of Econ prior to this but I was not aware of Daniel.

     http://factsandotherstubbornthings.blogspot.com/

      One thing I appreciate is that he-like I try to be-is very prolific. He writes a lot. Second he knows a lot about economics, and, third he also provides lots of great links to other econ blogs and running debates and commentary-some great controversies too. If you like Noah Smith-and to be quite certain, yours truly-enjoys a good econ smack down then Facts and Other Stubborn Things is your site.

     Now to Econ. Again, he suggests that Sumner's NGDPLT is not as novel as he would have us believe:

    "I  thought I’d offer a brief note on Scott Sumner’s latest offering to the field of economics – the ‘Sumner Critique.’ Sumner offers an apt example of why macroeconomists who ignore TGT are basically wasting their time – virtually every macroeconomic insight is already in The General Theory. Sumner says he has ‘never been able to take the book seriously.’ Maybe he just needs to read it properly."

   "The ‘Sumner Critique’ states that if the path of NGDP is stable, all macroeconomic effects become classical in nature. Sumner and others appear to think this is new and original, but, unfortunately for them, it was stated 76 years ago by Keynes:

    "Our criticism of the accepted classical theory of economics has consisted not so much in finding logical flaws in its analysis as in pointing out that its tacit assumptions are seldom or never satisfied, with the result that it cannot solve the economic problems of the actual world. But if our central controls succeed in establishing an aggregate volume of output corresponding to full employment as nearly as is practicable, the classical theory comes into its own again from this point onwards. If we suppose the volume of output to be given, i.e. to be determined by forces outside the classical scheme of thought, then there is no objection to be raised against the classical analysis of the manner in which private self-interest will determine what in particular is produced, in what proportions the factors of production will be combined to produce it, and how the value of the final product will be distributed between them. Again, if we have dealt otherwise with the problem of thrift, there is no objection to be raised against the modern classical theory as to the degree of consilience between private and public advantage in conditions of perfect and imperfect competition respectively. Thus, apart from the necessity of central controls to bring about an adjustment between the propensity to consume and the inducement to invest, there is no more reason to socialise economic life than there was before."

     "There you go. Replace ‘NGDP’ with full employment, and Keynes said it a long time ago. Keynes’ primary policy prescription of long term interest rates also has the benefit of being tried, and of working, after WW2. Conversely, NGDP targeting relies on expectations fairies and continually pumping up the value of asset prices. In other words: Keynes said it, but better."

     http://unlearningeconomics.wordpress.com/2012/05/31/the-sumner-critique-or-why-not-to-ignore-keynes/

      To be sure Market Monetarists will argue that "full employment" is something very different that NGDPLT. However Econ further argues:

       "The riposte the NGDP and full employment are sufficiently different to make my criticism void does not hold. As Jonathan Catalan

         Parenthetically, it seems to me that part of the problem with Keynesianism in the later 70s as it had been practiced since the 40s is that it was supposed to go part and parcel with the Bretton Woods regime that came to an end in the early 70s. In an era of fiat money and floating exchange rates maybe a Keynesian approach today would have to change?

       Sumner has his virtues however one is not that he's a good source of information about Keynes. Another is that he's not always so good at answering comments that disagree with him. I give him credit for taking the time to answer all comments and appreciate how busy he is. Still his answers are often too glib and just an answer for an answer's sake.

      While you can't blame him for getting aggravated by Major Freedom this is an area that could use work. I do feel that he's sometimes someone who tries to "pad" what he knows, and attempts to give himself an air of authority on econ matters he doesn't necessarily deserve. I appreciate anyone with knowledge but I sometimes think he tries to fall back on some imaginary authority of his that isn't wholly warranted.

     Interestingly that he admitted the other day that while he had read Monetary History of the United States many times he's never finished it. I'm not observing this to take a cheap shot-it's not relevant to whether he's right or wrong on any particular question nor is he the only one that can't finish certain books. But one wonders if he's read GT at all if he hasn't finished the magnum opus of his hero. Why then bad mouth it so much?

    For an idea what I'm getting at consider an argument he had last year with Mike Kimel who writes over at the Angry Bear. One of the ideas that Sumner insists on is that FDR's devaluing the currency and gold buying spree was very instrumental in a huge reversal in the deflation of producer prices and lead to a huge gain in industrial production between March of 1933 and March of 1934.

    He'll go on and on about how this is what he discovers in "my studies of the Great Depression" though typically he doesn't give us any idea of what in particular does he study. Mike Kimel came out and disagreed with him and said that FDR's gold buying program had little effect and that it was the hated New Deal programs like the NIRA that led the recovery-the opposite of what Sumner always claims. For him it was FDR's actions on gold that did the trick whereas the NIRA retarded a strong recovery. Listen to Sumner's answer and you'll see what I'm getting at:

     "Mike Kimel continues to insist that I don’t know what was going on in 1933, a period I’ve spend 20 years studying. He insists that FDR’s dollar depreciation program began in October 1933, even though all economic historians agree in began in mid-April 1933, when the exchange rate for the dollar began declining (against gold and against other currencies.) He insists prices began rising before FDR took office off, which is not true. He presents a graph that he claims shows prices rising before FDR took office, but his graph shows inflation rates, not the price level. In fact, the graph actually supports my argument that inflation didn’t turn positive until after FDR took office. There’s a difference between the rate of inflation and the price level"

      http://www.themoneyillusion.com/?p=11919

      Again, note the gloss about "a period I've spent 20 years studying." Really, whether one has studied it for 20 years or 20 minutes is not the point. All that matters is accuracy. It's him trying to set himself up as unimpeachable authority on the Depression. It shows a man with some insecurity. This by the way is not true I find with most of the Market Monetarists. Not Nick Rowe, or Lars Christensen, or David Glasner.