Sumner always claims that his chief interest is getting monetary policy right-basically the CB should follow a rule for an NDGP target, preferably a level target, and preferably it should be done by the market itself via an NGDP futures market along the lines of the TIPs spreads market for expected inflation.
Interestingly, the Market Monetarist Nick Rowe just had a piece that criticized the idea of a legislated Taylor Rule in the U.S.-but what occurs to me is the same complaint could be leveled against NGDP targeting as well or any kind of 'rules based' monetary policy. His point can be seen as an argument for discretion in monetary policy no matter what the proposed policy rule.
In any case, though Sumner is allegedly chiefly concerned with monetary policy it's pretty clear he seeks to 'demolish' Thomas Piketty after the latter's big book on inequality and the capital-labor split.
http://diaryofarepublicanhater.blogspot.com/2014/07/sumner-picks-apart-piketty-or-is-he.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29
On the subject of income inequality Piketty argues that the reason for the big spike in inequality in the U.S.-and to a large extent also in Britain-since 1980 is an explosion in CEO pay. On the one hand, according to him this puts the U.S. in historical record territory-joining Europe on the eve of WW1.
What is different is the composition of income inequality. The post 1980 U.S. is in a way a special case. The main thrust of Piketty's book is that a sharp increase of the ratio of income going to capital vs. labor is causing a spike in inequality worldwide, and particularly in Europe and Japan.
However, as the U.S. rise in inequality has largely been driven by an explosion in the pay of top managers, it's caused primarily not by an increase in the capital to income ratio but rather by a surge in labor income itself going to the top 10% but especially the top 1%.
Sumner takes issue with Piketty's claim that the explosion in CEO pay-in both big non-financial as well as financial firms- is not explained by an explosion of the marginal productivity of CEOs. Sumner claims that this an explain it:
"On pages 330-31 he points out that US corporate managers are now paid far higher salaries than Japanese corporate managers. He then claims it is “naive” to assert that the pay might reflect productivity. No mention of the fact that while the Nikkei is up 2 fold since 1982, the Dow is up 20 fold. I don’t know about you, but I’d rather be a shareholder in US firms getting ripped off by the outrageous pay packages of the American CEOs, rather than invest in Japanese firms with their low paid CEOs. You get what you pay for."
http://www.themoneyillusion.com/?p=27027
Of course, he makes his case easier by pointing to Japan which has stagnated since the 90s. Is he going to give up saying that the BOJ is responsible for this but that what Japan really needs is to start paying Japanese CEOs much more money?
Germany and Sweden also pay their CEOs a lot less than we do and their economies are fairly healthy. It's tough to show causality-you can draw any number of correlations but showing that there is a necessary cause and effect is more difficult.
It seems to me that the unprecedented wage inequality in the U.S. can be seen as quite a bad thing or even something of a good thing-partly depending on how one judges the existence of economic inequality in principle.
The fact that this is the largest level of income inequality since pre WW1 Europe is certainly sobering. Still, some no doubt will make the argument that as it's more driven by labor income than capital, you could call this inequality in some sense 'meritocratic'-one can't help but recall an old phrase-a 'natural aristocracy.'
I'd probably come down in the middle of these two extremes However, Piketty is clearly doing God's Work as it were in documenting it-with the reaction of Sumner and other conservatives, clearly he's kicked a real hornet's nest.
Unlearning Econ chronicles must of the alarmism of conservative economists in the face of Piketty's work.
http://www.pieria.co.uk/articles/capital_in_pikettys_capital_2
http://www.pieria.co.uk/articles/perverting_piketty
UPDATE: I forgot to mention, but Piketty thinks that in place of the standard marginal productivity story-'CEOs are paid so much because they are so productive'-Sumner's argument above is just another gloss on this idea, Piketty argues that in large part the reason you have seen this explosion of pay for top managers in the U.S. and to a large extent also in Britain and all the English speaking developed countries has to do with political and social norms of what's considered fair and right.
In this sense, then social perceptions are self fulfilling-CEO pay rises to the extent it is seen as socially acceptable-Sumner's attempt at rebutting Piketty here is an attempt to maintain the perception that such large pay packages are justified based on merit.
Obama's recent stated intent to raise the minimum wage may point to a change in social perception in the U.S. one which Sumner if you read him regularly clearly wants to cut off at the pass.
Interestingly, the Market Monetarist Nick Rowe just had a piece that criticized the idea of a legislated Taylor Rule in the U.S.-but what occurs to me is the same complaint could be leveled against NGDP targeting as well or any kind of 'rules based' monetary policy. His point can be seen as an argument for discretion in monetary policy no matter what the proposed policy rule.
In any case, though Sumner is allegedly chiefly concerned with monetary policy it's pretty clear he seeks to 'demolish' Thomas Piketty after the latter's big book on inequality and the capital-labor split.
http://diaryofarepublicanhater.blogspot.com/2014/07/sumner-picks-apart-piketty-or-is-he.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29
On the subject of income inequality Piketty argues that the reason for the big spike in inequality in the U.S.-and to a large extent also in Britain-since 1980 is an explosion in CEO pay. On the one hand, according to him this puts the U.S. in historical record territory-joining Europe on the eve of WW1.
What is different is the composition of income inequality. The post 1980 U.S. is in a way a special case. The main thrust of Piketty's book is that a sharp increase of the ratio of income going to capital vs. labor is causing a spike in inequality worldwide, and particularly in Europe and Japan.
However, as the U.S. rise in inequality has largely been driven by an explosion in the pay of top managers, it's caused primarily not by an increase in the capital to income ratio but rather by a surge in labor income itself going to the top 10% but especially the top 1%.
Sumner takes issue with Piketty's claim that the explosion in CEO pay-in both big non-financial as well as financial firms- is not explained by an explosion of the marginal productivity of CEOs. Sumner claims that this an explain it:
"On pages 330-31 he points out that US corporate managers are now paid far higher salaries than Japanese corporate managers. He then claims it is “naive” to assert that the pay might reflect productivity. No mention of the fact that while the Nikkei is up 2 fold since 1982, the Dow is up 20 fold. I don’t know about you, but I’d rather be a shareholder in US firms getting ripped off by the outrageous pay packages of the American CEOs, rather than invest in Japanese firms with their low paid CEOs. You get what you pay for."
http://www.themoneyillusion.com/?p=27027
Of course, he makes his case easier by pointing to Japan which has stagnated since the 90s. Is he going to give up saying that the BOJ is responsible for this but that what Japan really needs is to start paying Japanese CEOs much more money?
Germany and Sweden also pay their CEOs a lot less than we do and their economies are fairly healthy. It's tough to show causality-you can draw any number of correlations but showing that there is a necessary cause and effect is more difficult.
It seems to me that the unprecedented wage inequality in the U.S. can be seen as quite a bad thing or even something of a good thing-partly depending on how one judges the existence of economic inequality in principle.
The fact that this is the largest level of income inequality since pre WW1 Europe is certainly sobering. Still, some no doubt will make the argument that as it's more driven by labor income than capital, you could call this inequality in some sense 'meritocratic'-one can't help but recall an old phrase-a 'natural aristocracy.'
I'd probably come down in the middle of these two extremes However, Piketty is clearly doing God's Work as it were in documenting it-with the reaction of Sumner and other conservatives, clearly he's kicked a real hornet's nest.
Unlearning Econ chronicles must of the alarmism of conservative economists in the face of Piketty's work.
http://www.pieria.co.uk/articles/capital_in_pikettys_capital_2
http://www.pieria.co.uk/articles/perverting_piketty
UPDATE: I forgot to mention, but Piketty thinks that in place of the standard marginal productivity story-'CEOs are paid so much because they are so productive'-Sumner's argument above is just another gloss on this idea, Piketty argues that in large part the reason you have seen this explosion of pay for top managers in the U.S. and to a large extent also in Britain and all the English speaking developed countries has to do with political and social norms of what's considered fair and right.
In this sense, then social perceptions are self fulfilling-CEO pay rises to the extent it is seen as socially acceptable-Sumner's attempt at rebutting Piketty here is an attempt to maintain the perception that such large pay packages are justified based on merit.
Obama's recent stated intent to raise the minimum wage may point to a change in social perception in the U.S. one which Sumner if you read him regularly clearly wants to cut off at the pass.
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