Scott Sumner vs. David Glasner on the Fiscal Multiplier

     We've had lot of back and forth and debate about Sumner and his good faith or lack thereof. I must say I've always found him interesting and very shrewd, but I've always questioned his good faith. One reason is that he has always refused to engage me when I've questioned any aspect of MM. 

     While I've found much of MM interesting and intuitive-intuitive ideas are by definition interesting; however a trick that we know at least from Kant is that because an idea is intuitive doesn't mean it's true, and, Sumner's precursor, Milton Friedman also was very intuitive with his money supply rule which also proved wholly wrong-I've had come questions on Sumner's continue insistence of this idea that the fiscal multiplier is zero. It's not just that he argues for this but the vehemence with which he does it and the dogmatism he seems to have with it. 

    More than this, he gets very cagey when I ask any questions about it-and I'm not the only one who gets like this, but perhaps he really has it in for me because I haven't become discouraged in questioning him on it no matter how much he's tried to claim that my questions betray me as somehow being too ignorant of economics to engage in it. He does always argue that there is no public opinion in economics so I guess he has me pigeonholded as a member of this kind of intellectual 47%. After my recent dust-up with MMer extraordinaire Mark Sadowski, Tom Brown put in a defense of them. 

    "I'll say this about the MMists (in their defense):

1. I don't think you have to be a conservative to be an MMist. It helps if you're a libertarian and a Milton Friedman fan, but it's not actually necessary.

2. I don't see them as bomb-throwers. A lot of the Tea Party folks have worked themselves (or have let themselves be worked) into a tizzy about the size of government and the debt. They are convinced that the both need to be dramatically reduced ... NOW! Not even Lars Christensen thinks that's as big an emergency as they do (see his latest "tin foil hat" article).

3. I think they genuinely want a better economy than what we have now. They might be wrong about how to get there, but that's at least a noble goal. I don't think they want to stick it to the "lazy people" or immigrants or the 47% or the 99%. I have some real reservations about Tea Party people and cynical billionaire plutocrats in that regard... but MMists in general... I give them the benefit of the doubt. Even Morgan Warstler (who in my opinion is wrongly focuses on reducing the size of gov above all else) I hold in higher regard than the billionaire cynics, Tea Party, and right-wing hate-on-Obama-24/7 media.

    "When I see Tea Party types with their signs showing Obama as simultaneously all of the following:

1. Nazi/Hitler/fascist
2. Marxist/Maoist/Stalinist
3. Iron-fisted ruthless Tyrant/King/Dictator
4. Weakling coward "boy"
5. Diabolically clever Dr. Evil
6. Bone-through-the-nose ignorant Savage or Ape
7. Muslim/Al-Qeda member
8. Atheist/God-hater

    "... my conclusion is they see him as just a plain monster. He is the embodiment of all their fears however contradictory. Anything negative about him is immediately accepted as true with no further thought given to it. It's impossible to be too extreme. No checking for internal consistency. It's at that point I have a hard time seeing the rabid opposition to him as being based on anything but out and out ignorant fear, paranoia, xenophobia, and yes, bigotry."

     "I know Tea Party people HATE to be accused of bigotry... and love to show off the Hispanics or blacks that are part of their camp. And I truly don't think it's JUST Obama's color that sets them off: it's the combination of his color/international-past/Keyan-father/Arab-sounding-name/manner of speaking/party. That alone would not account for the vitriol... but it provided the seeds needed to be exploited by the true scum of the Earth: the right-wing media entertainment complex, which is nothing but a bunch of irresponsible profiteering hucksters, who have zero ethics. They are borderline sociopaths, playing to the worst of the worst aspects of humanity."

    "And it's the conspiracy theory element which is a common thread. That's why I don't like the Austrian school very much: it seems to me to be the most amenable to be picked up by conspiracy theorists. I really hate conspiracy theories, right or left."

    "At the very least the MMists, and the traditional monetarists don't stoop that low. There may be some that pander to the cynical billionaire plutocrats, but at the very least the cynical billionaires (though probably sociopaths themselves) like stability. There is an anti-establishment strain in the Tea Party which is distrustful of this billionaire set... and that at least I can sympathize with a bit, but pretty much everything else about the Tea Party repulses me. Maybe I'm being unfair, but that's the impression I have both from the "mainstream" media and media which is more friendly to them."

   "Put it this way: if we were going to turn the reins of power over the the Tea Party or to the MMists, it's a no brainer for me. I'd chose the MMists in a heartbeat. Perhaps that would be a terrible mistake, but it's my gut reaction. I think the Tea Partiers are just too ignorant, impatient, destructive, bigoted, arrogant, enraged and hateful to be trusted. At least the MMists are just arrogant :D ... they may even be capable of learning something, who knows! (not that I could teach it too them... I mean learn something from reality if they had the reins of power). I'm not sure the Tea Party is capable of any learning whatsoever."

     http://diaryofarepublicanhater.blogspot.com/2013/10/mark-sadowski-and-my-apparent-war-with.html?showComment=1382787764970#c5763315450821400854

   For me it kind of seems like the MMers sound good just in comparison with the Tea Party. This is a great strategy by the way. The Tea Party sounds so unreasonable that the MMers sound good in comparison. I'm not so concerned with what exactly makes someone 'centrist' or not but why Sumner is so dogmatic about the idea of the zero fiscal multiplier and monetary offset. I mean because he's never personally questioned whether Obama was born in Kenya makes him a centrist? Then being a centrist is not too important. More important than whether Sumner classifies as a centrist is whether or not he writes in good faith and what are the real policy implications of the zero fiscal multiplier. Tom offers the most charitable view.

   "Mike, here's my take: You could buy into the concept that the fiscal multiplier is zero and still be a centrist or even moderately left of center. I won't attempt to dig up the quotes, but I'll point out places where I think either Sumner or Sadowski have made statements similar to what I write below:

   "Just for laughs, assume they're right. Assume that pretty much (w/ a few exceptions) the only way that fiscal helps you ***when you're in a recession*** is if you don't fight it with monetary offset (in other words you do monetary stimulus too)... so why do the fiscal?. That's the key I think. It might be a dead wrong concept, but it's not inconsistent with being moderate to moderately left of center. Why? Sumner himself has said that fiscal policy should be evaluated on its own merits. He's opposed to using it to do the job he thinks is better handled by monetary alone. And of course since he's more libertarian than not, he's not in favor of most gov spending either, but that is a separate issue. Well right there, that opens up space for a variety of approaches to fiscal, taxes, and gov spending, but all based on the merits of each program. Single payer health care? Let's look at the merits. Build a particular bridge or another? Again, evaluate it on it's own. Same for a tax cuts or building highways, etc. Some of those things might be very good for the economy overall, but don't confuse that stuff with what monetary is supposed to do. Don't tie the project/policy to the concept of the ZLB or a recession, etc. Let monetary take care of that. Chuck Norris and a rule based CB and NGDPLT will set it all right: it won't prevents busts and booms (Sumner doesn't believe in "bubbles" but he does believe in busts and booms), but it'll keep silly monetary problems from getting in the way. It's not that tax cuts or spending or particular programs are bad or good regarding what monetary policy does, it's that they shouldn't be evaluated in that regard."

      Again,  Sumner is brilliant. This makes it sound like we can debate fiscal policy on it's own merits, but that these debates are about the 'long term' whereas we abdicate short term demand stabilization to the CB. Yet, I think this apparent freedom to do as we like on fiscal policy as long as we obey his rule of the zero fiscal multiplier is more apparent than real and I think that's by design. A feature not a bug. I think you can argue that more persuasive than Tom's charitable view is Morgan Warstler's view which he means very charitably too. 

     "Miles is nearly on the GI / CYB train:

      http://blog.supplysideliberal.com/post/63725670856/janet-yellen-efficiency-wages-and-monetary-policy

     "And I think after back and forth, he’s even more cozy.My point is that, the other part of common ground here is that:

       "BAD fiscal sucks."

      "It’s not just that MP can do the lift during bad fiscal (more of the PK view of QE), but that since we are going to use MP, we ought to free our minds and let go of Bad Fiscal when we look at a given policy and say “well at least it creates jobs” etc."

     "As such, once we commit ourselves to MP, it’s morally wrong to have BOTH Minimum Wage and a Safety Net."

      "These things compliment each other as much as the French: The Safety Net is the Wealth Transfer.

      "The Minimum Wage simply raises prices so that the Transferred Wealth buys less stuff."

So when we look the People in the eye, and say “Trust us we’re monetarists, this isn’t going to hurt a bit”…

It’d go a lot farther, if we said, “we don’t just inflate willy-nilly, we are always on the look out for sticky wage and price policies (BAD FISCAL) that are antithetical to our MP”

     http://www.themoneyillusion.com/?p=24223#comments

     So while Tom and Mark Sadowski may think that Sumner is the opposite of Ted Cruz, Morgan sees a deep affinity between the two. I think, for me, who has often considered Tom's charitable take and might even have accepted it more of Sumner hasn't gotten so vitriolic in my personal exchanges with him, if he would speak more like David Glasner, my skeptical radar might be turned down just a little. 

     Tom says of Glasner:

     "Oh, and BTW, I did ask Glasner once about fiscal vs monetary. As I recall he was in favor of doing both, but of course he put more emphasis on the monetary, but he more had the attitude of not opposing fiscal policy when in a bad recession "Why not do both?" is what he said if I recall correctly. And then of course Beckworth has laid out a helicopter drop style fiscal policy to be used in extreme emergencies. I don't think Sumner was in favor of that though."     

     Right,  Sumner's dogmatism on this point is puzzling. I found a very interesting post by Glasner back in early 2012 regarding fiscal stimulus and the claim of Robert Lucas that it can't work because of Ricardian equivalence. 

      "Robert Barro, that monetary policy can stimulate an economy in an economic downturn, it is easy to construct an argument that fiscal policy would do so as well. I hope that my post won’t cause anyone to conclude that real-business-cycle theory must be right that monetary policy is no more effective than fiscal policy. I suppose that there is that risk, but I can’t worry about every weird idea floating around in the blogosphere. Instead, I want to think out loud a bit about fiscal multipliers and Ricardian equivalence."

        "I am inspired to do so by something that John Cochrane wrote on his blog defending Robert Lucas from Paul Krugman’s charge that Lucas didn’t understand Ricardian equivalence. Here’s what Cochrane, explaining what Ricardian equivalence means, had to say:

So, according to Paul [Krugman], “Ricardian Equivalence,” which is the theorem that stimulus does not work in a well-functioning economy, fails, because it predicts that a family who takes out a mortgage to buy a $100,000 house would reduce consumption by $100,000 in that very year.

     "Cochrane was a little careless in defining Ricardian equivalance as a theorem about stimulus, when it’s really a theorem about the equivalence of the effects of present and future taxes on spending. But that’s just a minor slip. What I found striking about Cochrane’s statement was something else: that little qualifying phrase “in a well-functioning economy,” which Cochrane seems to have inserted as a kind of throat-clearing remark, the sort of aside that people are just supposed to hear but not really pay much attention to, that sometimes can be quite revealing, usually unintentionally, in its own way."

     "What is so striking about those five little words “in a well-functioning economy?” Well, just this. Why, in a well-functioning economy, would anyone care whether a stimulus works or not? A well-functioning economy doesn’t need any stimulus, so why would you even care whether it works or not, much less prove a theorem to show that it doesn’t? (I apologize for the implicit Philistinism of that rhetorical question, I’m just engaging in a little rhetorical excess to make my point a little bit more colorfully.)"

     "So if a well-functioning economy doesn’t require any stimulus, and if a stimulus wouldn’t work in a well-functioning economy, what does that tell us about whether a stimulus works (or would work) in an economy that is not functioning well? Not a whole lot. Thus, the bread and butter models that economists use, models of how an economy functions when there are no frictions, expectations are rational, and markets clear, are guaranteed to imply that there are no multipliers and that Ricardian equivalence holds. This is the world of a single, unique, and stable equilibrium. If you exogenously change any variable in the system, the system will snap back to a new equilibrium in which all variables have optimally adjusted to whatever exogenous change you have subjected the system to. All conventional economic analysis, comparative statics or dynamic adjustment, are built on the assumption of a unique and stable equilibrium to which all economic variables inevitably return when subjected to any exogenous shock. This is the indispensable core of economic theory, but it is not the whole of economic theory."

      http://uneasymoney.com/2012/01/03/on-multipliers-ricardian-equivalence-and-functioning-well/

      Of course, if the economy is well functioning the debate is mute. Full Ricardian equivalence only kicks in-at all, assuming you even believe in it-in a well functioning economy. So Lucas' point is moot. If anything I think Glasner does a better job of refuting Lucas here than Krugman himself did. Krugman had a some good takedowns but he too let this 'well fucntioning' qualifier go by him. I think that whether you believe in MM or not, or Neoclassical econ or not-Glasner is both-he's still does some of the best quality work on the economic blogs. I definitely find him a much more honest broker than Sumner and I appreciate hims saying that while, yeah, her prefers monetary policy for demand management, he's not a dogmatist about it, by all means at least give it a try if the adequate level of monetary stimulus is not forthcoming."

    P.S. Glasner also has a great piece about the vexing microfoundations debate in answer to Simon Wren-Lewis.

    http://uneasymoney.com/2013/10/25/microfoundations-aka-macroeconomic-reductionism-redux/

    He is highly skeptical of the insistence on microfondations which is one more reason to like him. Also, even when he disagrees with commentators he usually does it without being disagreeable. Even certain commentators who really deserve to be put in their place he does it in away that doesn't have him sinking to their level or well beneath that even. 

   Yes we can debate whether the Neoclassical school has anything redeemable at all, Still within this school Glasner is of the highest quality. One thing that sets him apart and makes him superior to not just Sumner but both Krugman and Wren-Lewis et. al-despite their status as "Keynesians' of the "New' variety-is that he actually knows the history of economic ideas. This is something that today's establishment NC school is tone deaf on. The history of economic ideas may as well be a dog whistle.