What Sumner Has in Common With RBC

     A lot. What he has in common with it is much more important than the differences. I made this argument recently, and Tom Brown still doesn't get what I mean. What I said though seemed to be important as it also garnered a response by Nick Rowe. I'm happy to see Nick still reads Diary.

     I certainly still like Nick a lot and read his blog regularly. As for me having Sumner Derangement Syndrome, well, do you think he has Mike Derangement Syndrome? Let me look at both Nick and Tom's responses to what I wrote. Actually let's start with what I wrote and then we''l look at their responses.

      "So maybe Mark has wagered his whole economic life on the defeat of RBC but Sumner has wagered his whole economic life on the victory of RBC. Again, hope you know I'm not picking on you Tom. However, this is a key issue. It's the basis of my whole argument with Sumner. If there are-really-such a thing as liberal MMers then I'm wrong. I say, there aren't appearances perhaps to the contrary."

      http://diaryofarepublicanhater.blogspot.com/2014/02/mark-sadowski-tom-brown-and-ed-prescott.html?showComment=1391816809360#c8838973938828518555

      The Mark in question, of course, is Mark Sadowski. This was Nick's response:

       "Mike: "...but Sumner has wagered his whole economic life on the victory of RBC."

       "Rubbish."

       "Short Sumner: "Business cycles are caused by fluctuations in AD caused by bad monetary policy."

       "Short RBC: "Business cycles are not caused by fluctuations in AD caused by bad monetary policy."

       This can all get rather subtle. On monetary matters it's true that Sumner and RBC totally disagree. If you can find where I denied this you win a pony. My argument is that on everything else they agree. I mean listen to Tom:

       "Re: RBCers, when I asked Sumner just a few days ago he flat out said that Prescott was a decent economist, but a bad monetary economist. BTW, I asked him how he felt about Woodford (to get another data point), and he said (w/o qualification) that Woodford is both an excellent economist and monetary economist. Isn't he the quintessential NKer? That doesn't tell me anything about how he feels about Woodford's politics (assuming any of us know)."

      Exactly-a decent economist but a bad monetary economist. I saw the same quote and knew that was Sumner's view even before reading it. However, what about the other part? He does say he's a decent economist right? Ok. so what part of Prescott's economics does Sumner agree with? Answer this and you're getting my point. 

       Here's what they do agree on: fiscal policy. They both would like to shrink the size of government. Both are religiously opposed to using fiscal policy to be any part of fighting a recession. Both believe in a Supply Side fiscal policy that deregulates big business and the financial sector-which led to the 2008 crisis and long recession and slow recovery-along with low taxes on the rich and high taxes on the poor along with deep cuts inn the social safety net-fiscal austerity. If I'm wrong here, prove it.  Sumner's whole theory of monetary policy is that the Fed should do NGDPLT and the fiscal authorities should do supply side reforms-please deny this is Sumner's position. 

       Tom claims that this is somehow incidental that you can follow him on NGDPLT and still be a liberal on fiscal policy. Logically that seems possible but it's a chimera. Sumner's theory of monetary offset makes it so-he's gone as far as 'suggest' that the fiscal stimlus of 2009 may have had a negative multiplier. Ie, by doing the stimulus. we cut back the amount of QE the Fed would have done by such an amount that we would have been better to have not done the FS. 

     Tom seems to have some novel interpretation of the post I linked to of Sumner here where he said that the goal is for RBC to be the last school standing. 

     "Regarding that last link you provided: (Sumner on Keynesians and RBC), I get a very different message that you do I guess. I don't see Sumner as taking the RBC side on things there necessarily. I think it's a more subtle message. Can you explain in detail what your interpretation of that article is?"

      I don't get what this subtle interpretation Tom has here. I mean I think that Sumner's point is fairly subtle. What he's saying is that if we do NGDPLT the economy will then work as the RBCers think it already does. The point of Keynesianism is that the business cycle is ustable and that there's no hope of an RBC world. 

    Sumner is saying that RBC is wrong now but it will be right after NGDPLT. Ergo, we can safely apply their supply side regressive policies then. I think it's pretty clear that's what he's saying.  Tom then left this comment which he thinks shows Sumner's true intent.

    "To me the only interesting question is how much more volatile is RGDP as compared to an economy where the Fed has adopted the optimal policy. That’s a pragmatic way to define the real effects of monetary policy. It’s a definition with policy implications. It tells us how much we can hope to improve things.""

      Here is more on Sumner's 'pragmatism.'

     "I’m a pragmatist.  For me “the” fiscal multiplier is what happens when the federal fiscal authorities change federal spending, and all other sectors of the economy (S&L, the Fed, private investment) respond to that action in the way they actually do respond in the real world.  In other words, I want to know the counterfactual change in RGDP with or without that federal action, holding nothing constant."

      http://www.themoneyillusion.com/?p=26098

    This should once and for all answer Tom's belief that Sumner only cares about monetary policy-and that fiscal is a matter of secondary importance-what he's saying is that you can't look at fiscal policy in a vacuum you have to factor in how a change in FP effects monetary policy. For him it's a zero sum game-the more FP the less MP and vice versa. 

     I don't see what he says here as in any way contradicting my point about his affinity for RBC. To recap I think that Sumner is much closer to RBC than appreciated. We can offer for example the way he reacted when Krugman and Delong criticized Cochrane and Lucas back in 2010. Scott was outraged and went on full tilt for a month with Krugman bashing post after post. 

     http://diaryofarepublicanhater.blogspot.com/2012/01/scott-sumner-becomes-even-more-shrill.html

     This is kind of circumstantial evidence perhaps. Still if he differed with RBC so much why was he so eager to defend the RBCers? Yes, he kind of took a 'centrist' position where he criticized 'both sides'-much like are currently useless very serious media which always takes 'both sides'-but if you look at it, he agreed with RBC-fiscal stimulus was wrong and would have ill effects.. He just argued in Monetarist vein. 

     This is really the nub of it. Just like with Prescott he disagrees with RBC on MP but agrees on FP and politics. Where I've said that Sumner has 'lied' or given a false impression is the claim that monetary policy is what really matters. No, Monetarism going back to Friedman was always just a stealth road to the same conservative fiscal and political positions but much more subtle as through the back door not the front door. If you come through the front door then Tom and even Mark Sadowski will think you're nasty Right wingers. Come through the back door, they'll welcome you to their household.