Sumner has his usual stock answer-'never reason from a price change'-the idea is that a price change can have two causes-it could be due to AD or AS so you should therefore stick to nominal GDP.
"Here’s CNBC:
"What would happen if rates were low because the public didn’t expect the policy to be effective?"
Indeed, this was also the one real natural experiment we've had for fiscal stimulus-albeit Sumner may well argue that somehow fiscal spending on defeating Hitler doesn't count-so maybe there's something to this suggestion. In any case, Mosler has given us an example of monetary policy that would work.
Comparatively, Sumner always claims that fiscal policy is ineffective because of full monetary offset. However, by his own words there's an important qualifier here:
"Fiscal policy ineffectiveness is one byproduct of modern central banking with its focus on inflation targeting."
http://mercatus.org/sites/default/files/Sumner_FiscalMultiplier_MOP_090313.pdf
Exactly, so whatever level of monetary offset there is comes from politics. If the political agenda of of the Fed was as it was in WWII rather than the inflation phobic stance of the last 30 years we wouldn't have full monetary offset. So there is more than one way around the problem. Incidentally, Mosler's claim about forward guidance only working if the market doesn't believe it will work is no more perverse than Sumner's explanation of why fiscal policy is to be avoided in dealing with demand shortfalls.
"To see why monetary offset continues to be operative consider the sorts of statements continual made by Fed officials. We never hear them explicitly say they'll sabotage fiscal stimulus, but we do hear them say they will calibrate the level of monetary stimulus to the healthy of the economy. For instance, the recent Evans Rule commits the Fed to hold interest rates close to zero until unemployment falls to 6.5% or core inflation rises above 2.5%. Because fiscal stimulus would presumably make this happen sooner, it would also, ipso facto, cause the Fed to raise interest rates sooner than otherwise. Thus fiscal stimulus would lead to tighter money over time. Of course, that doesn't necessarily fully offset the effects of fiscal stimulus, but it's an explicit admission by the Fed that if the fiscal authorities do more, they will do less."
So let me make sure I have this straight. If we have fiscal stimulus and this brought us down to 6.5% sooner rather than later this would be a bad thing because it would mean less QE3? You see why I think this argument is fully as perverse as he may claim Mosler's is? His claim that monetary policy is always in any possible case preferable in terms of AD policy is never very convincing-that it will leave us with too much public debt. He always ignores the counterargument that interest rates are at historic lows and that while we can quibble whether the Obama stimulus of 2009 had any effect and how much, it certainly did not have the effect of raising interest rates-and so why worry about public debt in the middle of a recession?
I know, these are all rhetorical questions as Sumner can't meet them honestly and explain himself-easier just to say 'You aren't qualified to have an intellectual discussion with me because you don't agree with me so I'll ignore the question."
Yes, I know he sometimes answer criticism but only of the relatively 'friendly fire' variety-you have to belong to the Neoclassical camp for starters. He tried to debunk Mosler today only because of the consternation he felt that try as he might to claim they are bunch of marginal wackos, MMT and MR ideas-post Keynesian more generally-are making some headway. Good job, Mr. Mosler.
P.S. I guess the one impact of the ARRA stimulus of 2009 that Sumner is certain of is that if we hadn't had it, we'd have more QE-and you can never get enough QE.
"Here’s CNBC:
Let’s say that the market believes Bernanke’s theory about the effectiveness of forward guidance in boosting the speed of the economy. In that case, the market should react to by raising longer-term interest rates sooner than it would otherwise—because it should expect to pass the Fed’s economic condition thresholds for higher short-term rates sooner.Obviously this makes forward guidance at least somewhat self-defeating.As economist Warren Mosler points out, this has an ironic consequence: forward guidance will only work if the market doubts its effectiveness.
"What would happen if rates were low because the public didn’t expect the policy to be effective?"
What I find notable about his is that Sumner is replying to something Mosler says at all. While at one time he tried to engage MMT he has long since quit that arguing that it's a waste of his time because the same comments keep getting made after he's so patiently and without snark (!) debunked these comments entirely.
Why then does he respond to Mosler now? I think that the main reason is that he's very perturbed-not only by Mosler's argument that forward guidance only works to the extent the market doesn't believe the Fed-after all, according to Sumner only fiscal policy works in such a perverse way-but even more that Mosler's argument is being taken seriously in such a mainstream, respectable place-a CNBC article by the its senior editor.
Mosler's suggestion to this impasse he identifies is interesting and bears repeating:
"From Mosler Economics:
"Seems to me the only tool left is unconditional guidance or purchasing securities on a price basis, rather than a quantity basis. Which does of course work, to the basis point."
"That is, if the Fed announced it had a 2 percent bid for unlimited quantities of 10 year notes they would not trade higher than 2 percent while that bid was active. My recollection was that this was done during WWII."
"And that we didn't lose."
Indeed, this was also the one real natural experiment we've had for fiscal stimulus-albeit Sumner may well argue that somehow fiscal spending on defeating Hitler doesn't count-so maybe there's something to this suggestion. In any case, Mosler has given us an example of monetary policy that would work.
Comparatively, Sumner always claims that fiscal policy is ineffective because of full monetary offset. However, by his own words there's an important qualifier here:
"Fiscal policy ineffectiveness is one byproduct of modern central banking with its focus on inflation targeting."
http://mercatus.org/sites/default/files/Sumner_FiscalMultiplier_MOP_090313.pdf
Exactly, so whatever level of monetary offset there is comes from politics. If the political agenda of of the Fed was as it was in WWII rather than the inflation phobic stance of the last 30 years we wouldn't have full monetary offset. So there is more than one way around the problem. Incidentally, Mosler's claim about forward guidance only working if the market doesn't believe it will work is no more perverse than Sumner's explanation of why fiscal policy is to be avoided in dealing with demand shortfalls.
"To see why monetary offset continues to be operative consider the sorts of statements continual made by Fed officials. We never hear them explicitly say they'll sabotage fiscal stimulus, but we do hear them say they will calibrate the level of monetary stimulus to the healthy of the economy. For instance, the recent Evans Rule commits the Fed to hold interest rates close to zero until unemployment falls to 6.5% or core inflation rises above 2.5%. Because fiscal stimulus would presumably make this happen sooner, it would also, ipso facto, cause the Fed to raise interest rates sooner than otherwise. Thus fiscal stimulus would lead to tighter money over time. Of course, that doesn't necessarily fully offset the effects of fiscal stimulus, but it's an explicit admission by the Fed that if the fiscal authorities do more, they will do less."
So let me make sure I have this straight. If we have fiscal stimulus and this brought us down to 6.5% sooner rather than later this would be a bad thing because it would mean less QE3? You see why I think this argument is fully as perverse as he may claim Mosler's is? His claim that monetary policy is always in any possible case preferable in terms of AD policy is never very convincing-that it will leave us with too much public debt. He always ignores the counterargument that interest rates are at historic lows and that while we can quibble whether the Obama stimulus of 2009 had any effect and how much, it certainly did not have the effect of raising interest rates-and so why worry about public debt in the middle of a recession?
I know, these are all rhetorical questions as Sumner can't meet them honestly and explain himself-easier just to say 'You aren't qualified to have an intellectual discussion with me because you don't agree with me so I'll ignore the question."
Yes, I know he sometimes answer criticism but only of the relatively 'friendly fire' variety-you have to belong to the Neoclassical camp for starters. He tried to debunk Mosler today only because of the consternation he felt that try as he might to claim they are bunch of marginal wackos, MMT and MR ideas-post Keynesian more generally-are making some headway. Good job, Mr. Mosler.
P.S. I guess the one impact of the ARRA stimulus of 2009 that Sumner is certain of is that if we hadn't had it, we'd have more QE-and you can never get enough QE.
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