A Market Monetarist Counterfactual: the World as it Never Was

     Here is one of Sumner's more intelligent commentators, Negation of Ideology-he's not usually too snarky and tries to debate facts as much as is possible when the underlying premise is faulty. This is basically Sumner's argument in a nutshell:

     "Great post. Imagine the alternative scenario where Obama in his first address to Congress says –

     “We have been here before, under former President Clinton, so we know what works. That’s why, because of the deteriorating fiscal situation I am regretfully dropping my health care plan, and focusing entirely on deficit reduction. I ask the huge Democratic majority to repeal the entire Bush tax cut, and bring back the pay as you go budget rules of 1990. I am appointing Christina Romer to the empty seat on the Federal Reserve to help Bernanke with the recovery.”

And he points to Bernanke in the audience and says “I will veto any stimulus plan passed by this Congress. With these tax increases and strict spending limits, if you allow the economy to recover we’ll have a balanced budget by the end of my first term. I expect you to offset any fiscal drag on the economy.”

     "Then the economy would have recovered earlier and Obama would have won reelection in a landslide rather than barely beating Mitt Romney. On the downside, Scott Sumner probably would have never gotten into blogging."

      http://www.themoneyillusion.com/?p=28466&cpage=2#comment-377353

    I don't know where to start. I mean for one thing, there was very little resembelance between the recession at the end of Bush I's term and the recession of 2008. For that matter it's not at all clear how the Paygo rules ended that earlier recession. In any case, we've had plenty of fiscal contraction starting with 2010 so how can it be argued that the Fed refused to fix the economy because of all the crazy spending? 

      Bernanke actually had asked more than once or fiscal stimulus but Sumner of course is a greater expert on Bernanke than the former Chairman himself and claims that he didn't really mean that. Assuming though the fiscal stimulus was holding the Fed back it ended in 2009 and we then had 4 years of fiscal contraction. I love a good counterfactual as much as the next guy. Here is a great one by a girl actually. 

     http://www.whiteoliphaunt.com/duckofminerva/2013/07/would-al-gore-fought-the-iraq-war.html

       Would we have had an Iraq war with a President Gore? Good question. 

    My trouble with Sumner's counterfactuals is that they are just way too strong too really be counterfactuals. He mocks others for not being real economists, but a real economist like him should realize that. 

     He talks about 'winning a bet with Krugman' in 2013 and MM passing a test with flying colors. Not exactly how a scientist of any stripe talks. 

  http://diaryofarepublicanhater.blogspot.com/2015/01/sumner-liberals-arent-allowed-to-change.html

      PS Proving counterfactuals is very difficult-at best all you can do is come up with a decent hypothesis. For instance as much as a lament what I still see as Bush stealing the election in 2000, the burden of proof is on me or any other Democrat who claims we wouldn't have gone to Iraq with a President Gore. 

      For starters the official US policy under Clinton was regime change in Iraq, so the Bush argument that that the old Clinton policy enforcing a no fly zone and a air bombing campaign now and again wasn't working towards the stated policy. 

      For Sumner's counteractuals there's nothing difficult for him to prove. He sets himself an absurdly low bar where the only way opponents of austerity can be right is for growth to fall off a cliff after fiscal contraction, This is wrong however. It could just as soon be that we have growth but less than we otherwise would have had. No one seriously claimed there would have been in a recession with just the sequester. Now if we had fallen off the fiscal cliff, maybe, but no one was predicting it without that eventuality.