Sumner's Trouble is He Doesn't Know What Monetary Offset Is

     Sumner and friends just want a mea culpa and they get more and more peevish the more they don't get one. 

    "I didn’t think 2013 was a good test of MM.  (There is no “wait and see” in macro.)  What disappointed me is that lots of other people did think it was a test, were all set to pounce on us when they thought we’d lose, and then said “nevermind” when we won."

     http://www.themoneyillusion.com/?p=25795#comments

    The trouble is that if he admits it wasn't a good test, then how can he claim he won?  Sumner got impatient with me as well. Why can't I just stick to the part where he was right and Krugman was wrong?

    "Mike, You said:

   “Scott. part you didn't quote Delong on is important-basically a ‘neutral’ year for policy-neither easier or tighter-should by definition make up 2/5 of any output gap. IN 2013 we didn’t see that. So it was less than an neutral year-which means that we did not have full monetary offset which means there’s no MM victory.”

Can you just once in your life stick to the topic being discussed and comment on the actual post? We aren’t discussing whether monetary offset occurred.

    http://www.themoneyillusion.com/?p=25779

    I disagree as I argued in my response. 

    "That is the topic Scott. Maybe you just want to wallow over whether or not Krugman has been proved wrong or not. But that’s just small potatoes. Monetary offset is the whole point. The whole point of MM is that fiscal policy doesn’t matter. This is what the test of MM comes down to. Can it wholly offset fiscal policy or not?"

     "Judging by 2013-or 2010, 2011, or 2012-the answer is not even close-so the fiscal multiplier is not zero-again, not even close."

     "Why don’t you try to do something for the first time in your life. Answer a direct question-did monetary policy wholly offset fiscal last year or did it not? Because that’s really the meat of the argument. You want to construe it as narrowly as possible-but at this level it’s just a pedantic game of ‘I told you so.’ My point is what have we really learned. What we’ve learned is there isn’t total monetary offset."

     Sumner and the MMers need to learn what a neutral policy looks like-it's not the same growth level in 2012 and 2013. 

     What a shock he had no answer for that. Ok, so what did Krugman say? The trouble is that we have the MMer wildly mischaracterizing what he said. Here is Bill Woolsely:

     "Sumner had already commented on Paul Krugman and Mike Konczal's prediction  that the fiscal austerity in 2013 would throw the economy into recession along with their statement that it would provide a test of the Market Monetarist claim that the Fed can offset the effect of such a contractionary fiscal policy.    Sumner has generally been of the view that the Fed would in fact provide a monetary offset."

       So where has Krugman claimed that there would be a recession or even that growth would collapse dramatically? Here is the comment by Krugman back in April that Sumner is belaboring-'Ha ha! Ha ha!' It's amazing that the Market Monetarists find this a commentary on Krugman's character with all of Sumner's gloating. Here is Krugman last April:

     

     "And the results aren’t looking good for the monetarists: despite the Fed’s fairly dramatic changes in both policy and policy announcements, austerity seems to be taking its toll. I would add that the UK experience provides a similar lesson. Mervyn King advocated fiscal consolidation – I’d say that he shares equal responsibility with Cameron/Osborne for Britain’s wrong turn — but more or less promised (pdf) that he would and could offset any adverse effects on growth with monetary policy. He didn’t and couldn’t.

I’m not claiming that there is nothing the central bank can do; but as I’ve tried to explain before, monetary policy can, for the most part, gain traction under current circumstances only by changing expectations about future actions (and changing them a lot). Meanwhile, fiscal policy has a direct, current effect on the economy, which easily trumps attempts to move the economy by changing the Fed’s messaging."

    "Sorry, guys, but as a practical matter the Fed – while it should be doing more – can’t make up for contractionary fiscal policy in the face of a depressed economy.

     http://krugman.blogs.nytimes.com/2013/04/28/monetarism-falls-short-somewhat-wonkish/?_r=1

     Where was the prediction of a recession. While Sumner and friends claim that Krugman is engaging in revisionist history we have MMers like Woolsey just plain making things up.