Are Sumner's Market Monetarists Gloating Too Much?

      Sumner asks the question in a recent post:

      "George Selgin has a characteristically thoughtful column warning against excessive gloating by market monetarists. He points out that the new Fed policy is far from optimal (and far from the recommendation of us market monetarists) and that there’s a danger of it generating another cycle of boom and bust–just like the low rate policy of 2003-04."

      http://www.themoneyillusion.com/?p=16273&cpage=1#comment-184381

      Let me give you a short answer first: no. They aren't gloating too much. First of all, I-speaking only for myself here!-have no problem with gloating if its justified. If you've walked the walk go ahead and talk the talk.

       My buddy Bill Ellis left a comment I disagree with:

        "After all the celebrations what will be interesting how different camps observe this experiment. Fed has not given us the a really clear experiment, so there will be lots of weasel room for everyone.
You know my Keynesians will be looking at the short comings as proof that Monetary policy is not an magic bullet and that we still need fiscal stim."

      "Others will try and conflate anything less than perfection as refutation of NGDP targeting.

     See, speaking as a Keynesian, I won't be looking for short comings as proof this has failed. I'll be llking for proof it has succeeded. I will only agree this hasn't worked very reluctantly. I don't think monetary policy is a magic bullet, but having said that I don't think it's a total blank either. Maybe there will be some Keynesians-more likely the MMTers and the Post Keynesians-who do this, though I don't think all will.

     I for one, though, want this to succeed. Think of me as Fox Mulder: I want to believe! Sumner for his part, of course came back at Bill this way:

     "Bill, The results are in. This policy boosted NGDP growth expectations by a little, but not by a lot. There’s nothing more to say. No “results to come in.”

      This is because Sumner and the MMers see monetary policy as operating at long and variable lead unlike Freidman's traditional Monetarism who saw it as operating at variable lags.

      Sumner sees the 200 point market rise on Thurdsay, along with a rise in TIPS spreads as already telling us what this policy will do. This is why it's Market Monetarism-the market is ahead of any analyst no matter how brilliant. If the market rises on the news, then it's been successful, game over.

      I'll say this. I give them tons of credit for no other reason than Major Freedom has mostly shut up since making a few early caustic comments about the silliness of people taking pride in raising inflation. So I'm ready to call it a success as well.

      The early going seems to suggest most mainstream economists like it though a number see the lack of specific targets as a problem. Yet, I see it as a brilliant way of achieving Chicago Fed President's program through the back door-Evans had argued that the Fed announce it will accept 3% inflation until a specific benchmark on unemployment is reached-7% or 6%.

      What Bernanke did here was essentially give us this in a politically palatable way. While no doubt, Sumner and the rest of the MMers deserve a lot of credit, it was Woodford's paper at Jackson Hole that was the immediate catalyst.

      Listen, I need no more reason to love this policy than hear the apocalyptic things Romney, Ryan and the rest of the GOP are saying about it.

      http://www.nytimes.com/2012/09/17/opinion/krugman-hating-on-ben-bernanke.html?_r=1&partner=rssnyt&emc=rss

      Dan Kervick, a major MMTer, on the other hand had this to say:

      "Will quantitative easing work? I’m skeptical. But who can say for sure? Perhaps business people are excited enough by Bernanke’s fertility dance to start planting their economic fields again and begin investing more heavily in work and production. Maybe there are enough suckers believers out there to drive the economy forward with their new zeal over this confusing Fed something. Or maybe we’ll just get a brief asset rally followed by nothing – or even another dangerous and unproductive bubble blown up by short-term profit seekers who will accelerate the QE hype just long enough to make a buck for themselves before cashing out."

    "But if the expectations magic does work a bit that is in itself worrisome. The continued practice, and occasional success, of shamanistic economics will add to the vanity of the elites who are drawn to this way of thinking about macroeconomic governance. They will argue for even more transfers of economic policy power away from the elected, political branches of government to the central bank. They will be more convinced than ever before that they are in the possession of special magical powers or wisdom, and even more strongly convinced of their divine right to govern. They will redouble their commitment to top-down, plutocratic economic governance. And transitory successes in shamanistic economics will increase the superstitious tendencies and political passivity of others who don’t know any better, and who assume that the elites always know best."

     I guess I find all this kind of abstract right now, He seems to be saying that even if this does work he has a problem as it's undemocratic for an unelected bureaucrat to have such power. I can't say this is a worry of mine right now. I agree with him on more fiscal spending but as we're not getting it, why fight the Fed doing something? I think the most important thing is a recovery at this point but Dan almost sounds like he's worried about a recovery that we get in the wrong way.

     For me what matters is the recovery and of course re-electing the President. For me much of what he says there is almost too philosophical for us to have the luxury of worrying about right now.