Marcus Nunes Accuses Me of Lying

     I guess the grudge match between Market Monetarists and Keynesians is getting ugly. I like Marcus and enjoy his blog but I'm disappointed that he has accused me of making things up. 

    "Mike. You said:

    "Remember that MM is two things:

1. Monetary easing

2. Fiscal austerity (or tightening, contracting, etc.)

    "You´re just making this up to suit whatever..."

     http://diaryofarepublicanhater.blogspot.com/2013/05/the-facts-dont-seem-to-have-market.html

    Yeah, I'm must making this up for some perverse reason that he doesn't name. Here he sounds just like Sumner. If they don't like what you say they refuse to engage with you honestly. I mean by all means prove me wrong. But accusing me of wanting to make things up because-well that's what I want to do, is a failure to properly engage.  

     As I believe in being charitable I will provide a link to Marcus' blog which is worth reading. Here is a post where I had to disagree with him in the comments section though.

     http://thefaintofheart.wordpress.com/2013/05/07/krugmans-bias/

   

    I'm glad to see that some people appreciate my intervention into the Market Monetarist discussion. Here's the commentator, Jerry. 

   " Hey man just wanted to say your doing a great job in refusing MMers and esp. Summer. Like you I cannot stand the triumphalism of MMers."

     "As Smith said in a blog post once. They can't lose. If something works they'll take the credit. If it doesnt work then "Oh, the FED isn't doing enough." 

     "Its just ridiculous."

     "But again good job Mike."

     (BTW I think Summer and MMers do add value but I just have a problem with their ultra "we're right your wrong" attitude)

     http://diaryofarepublicanhater.blogspot.com/2013/05/why-shinzo-abe-is-not-market-monetarist.html?showComment=1368192327628#c1214776545533568549

     Their dogmatism on the fiscal multiplier makes me wonder what their game is. In truth it's the game of Monetarism going back to Friedman. Just concern trolling and trying to nibble around the edges of  Keynesianism. It's been a slow evolution. Like in the 50s on lots of stuff Friedman seemed not to disagree with Keynesianism too much but he quibbled about discretionary policy vs. a policy rule. 

     Then in the 70s he was emboldened by the problems of Keynesianism to claim more. Lucas basically took all his quibbling about expectations to the  

     For the record, I'm not making anything up. is about monetary easing and. fiscal tightening-AKA austerity. As Marcus has questioned my veracity-which I don't appreciate-here it is from Sumner's own mouth. 

      "There are some people claiming that I am “pro-austerity.”  That’s a bit misleading as my position has always been more nuanced:

1.  I favor monetary stimulus combined with fiscal austerity.

2.  If the central bank continues to stubbornly target inflation, I’ve advocated cuts in employer-side payroll taxes and/or the VAT as a way of reducing inflation, and encouraging more monetary stimulus.  So if monetary policy refuses to play ball I’ve advocated effective forms of fiscal stimulus.  I don’t favor ineffectivestimulus, such as bloated military spending merely to give us more “empty GDP calories.”

     http://diaryofarepublicanhater.blogspot.com/2013/05/sumners-nuanced-support-of-austerity.html

     How can Marcus claim made it up? This is Sumner's own mouth. I think this discussion is crucial as it gets to the difference between Keynesianism and Market Monetarism-in truth any kind of Monetarism. In reality this is an old battle between Keynesianism and Monetarism. The MM view is nicely summed up here:

     "I think the fact that we were the only country with interest rates which never went below zero is just as persuasive as your argument about the relative size of the stimulus. I think it is more persuasive given the wider context and evidence. I think your mistake is assuming that correlation implies causation."

    "Ultimately the point is that because fiscal stimulus boosts aggregate demand, inflation must also rise as well as GDP. If the RBA is targeting inflation (or preferably nominal GDP) then any fiscal stimulus is cancelled out by monetary policy, leaving a “fiscal multiplier” of zero."

     http://marketmonetarist.com/2013/05/08/grim23-on-fiscal-policy-versus-monetary-policy-in-australia/

     What it amounts to is that according to the Monetarist view, fiscal and monetary policy are more or less mutually exclusive. The more you get of F the less you get of F. The properly Keynesian view on the other hand is nicely encapsulated by Brad Delong:

     "The answer is that in expansionary fiscal policy the government prints bonds and uses them to buy stuff, and that in expansionary monetary policy the government prints money and uses it to buy bonds. If you do both together they don't cancel each other out, but rather the economy is left with (i) the government buying more stuff (and no tendency for private agents to buy less stuff out of fear of extra future taxes because there are no extra future taxes coming because there are no extra bonds left to pay off) and (ii) private agents having more money which they will tend to spend (and no tendency for spending to stay constant as people take their extra cash and hide it under the mattress because the government has already spent the money once). Expansionary fiscal policy makes it a sure thing that expansionary monetary policy is effective. Expansionary monetary policy makes it a sure thing that expansionary fiscal policy is effective by removing the channels for interest-rate and tax crowding out."

     Bear in mind what this was in answer to: Alan Reynolds absurd idea that 

      "In fiscal policy the government prints bonds, in monetary policy the government--the central bank--buys bonds, if one of these is stimulative, how can the other be?" 

      Reynold's Monetarist view is particularly confused but you see it all starts from confusion. The Keynesain view is that the two are different but complementary policies. They work better in concert than to use on exclusively over the other. 

     By the way, Sumner's support of austerity is particularly extreme. No one supports austerity now-or will at least admit it. Even the WSJ's David Wessell is saying it shouldn't be short term. Yet Sumner implicitly-without quite admitting this explicitly-claims not only that the the Fed can offset any level of austerity-which the Fed itself doesn't believe. It believes the sequester is harming the recovery. 

    http://diaryofarepublicanhater.blogspot.com/2013/05/the-fiscal-multiplier-sumner-vs-bernanke.html

    Implicitly Sumner claims that the more austerity we have the more we'll expand and grow. He still believes that now while everyone else has somewhat backed up from this. His argument is that the sequester is fine if the Fed does enough easing. 

    He also claims that if we had no fiscal stimulus in 2009 we would have have higher growth and lower unemployment today. Why? He doesn't claim the extreme idea that some in the EU have put forward that austerity is expansionary via a rise in investor's confidence. 

    What he does argue is more ingenious than that. It would be better as the Fed would have been forced to ease more if there were no fiscal stimulus-talk about perverse incentives!

     So the answer to a slow economy is more austerity: the more painful cuts the more the Fed is forced to do. Ipso facto there is no short term vs. long term problem in a recession.