Now We're Talking-Delong Takes on White Whale Sumner

     Sumner keeps complaining that Krugman and Mike Konczal aren't eating sufficient crow due to this great Market Monetarist victory we had in 2013. More to the point they aren't eating any! Sumner wants to suggest this is a vice on their parts-surely they should just admit that they were 100% wrong Sumner was 100% right and Keynesianism was born in 1935 but has died now decisively once and for all in 2013 because the economy grew at roughly the same pace it did in 2012. 

    http://diaryofarepublicanhater.blogspot.com/2014/01/sumner-continues-to-gloat-over.html

    I guess in his book gloating like a six year old is a virtue for that's all he's been doing lately. I'm happy to see that Delong has called Sumner out now and while he claims that Delong failed to do his homework in fact it's Sumner who is-as usual-missing the point and failing to see the forest for the trees. 

    "Here’s Brad DeLong:

2.  Believers in market monetarism thought that fiscal policy was nearly irrelevant, and that the adoption of QE III would substantially affect long-term interest rates and substantially spur the recovery relative to baseline.

3. Believers in regime change thought that if markets were convinced that the Federal Reserve would pursue QE III until the output gap shrank and would not then reverse its asset purchases–that QE III was actually QE ∞–that expectations of the future price level would rise and those expectations would pull current nominal demand up, accelerating the recovery relative to baseline.

.  .  .

And believers in market monetarism? They appear to be declaring victory. And damned if I can see why.

    "Wow.  That isn’t even close to being correct.  I argued that growth in 2013 would be about the same as in 2012, because monetary stimulus would roughly offset fiscal austerity.  And that’s essentially what happened.  It was Paul Krugman who suggested that monetary offset would not occur."

     http://www.themoneyillusion.com/?p=25779#comment-310649

     There he goes again. He's making it sound as if Krugman claimed growth was going to fall off a cliff in 2013 when he said nothing of the kind. This comment here by Sumner is very tricky:  It was Krugman who suggested that monetary offset would not occur.

     That isn't correct or at least it's misleading. To be truly accurate, Sumner should have written this: 'It was Krugman who suggested that full monetary offset would not occur.'

      Who exactly is gong to claim that full monetary offset did occur? I guess Sumner is and so it's he who is not close to being correct. Delong in 2 perhaps gave Sumner too much credit. He said that MMers claimed that QEIII would substantially spur the recovery relative to baseline. Sumner sniffs that he and the MMers never said anything of the kind-that all he said was that growth in 2013 would be about the same as growth in 2012. 

        The trouble here as Delong shows in his piece is that Sumner seems to think that if growth is the same in 2013 as it was in 2012 this means there was a full offset when this is not a correct definition-he gave Sumner too much credit in presuming that he knew this. To show that monetary policy wholly offset fiscal you'd have to actually see an increase in growth relative to the baseline. As Delong argues, in a neutral year for policy-net of both monetary and fiscal policy-we should see the economy close 2/5 of its output gap. That would be full monetary offset. As we did not see anything like this, monetary policy can certainly not clain anything like full offset and Delong is right-Sumner and his friends have nothing to gloat over not that he's ever let this stop him in the past.