Monday, July 11, 2016

A Review of Scott Sumner's King Midas

Since the Brexit vote, I've been reading a little more on economics again. I've actually had Sumner's King Midas in my Amazon Kindle que for awhile but figured what better time to read it than after our latest knockdown drag out fight?

I called him the Donald Trump of economists, but of course that was after he had gotten pretty snarky with me.

For whatever reason he and I have never gotten along. Greg could be onto something here:

"I didn't mean to imply that you had taken a shot at him recently only that you have tried to make him, in the past, defend his positions or "show you his work" He doesn't think he has to show YOU his work. You dont just blindly accept what he has to say as many of his commenters do."

I think that could have something to do with it. Also he may be generally frustrated that he's not taken more seriously by his own colleagues.

It may be that it's the Rush Limbaugh effect: where you get punished for knowing things. 

Still, let me put aside for the moment my bad personal history with Sumner and try to give a fair review of his book. A fair review means no more negative-or positive-than it objectively deserves. 

Now on the topic of economics, Scott has always insisted that:

1. I know nothing about economics 

2. I never will know anything about economics. 

If number 2 is correct of course, there's no reason for him to talk to me at all. After all, this would make it a total waste of time. 

I will argue that it's about 50-50. I think there may be something to 1. I disagree totally with 2. 

Honestly, with such an attitude, it's hard to believe he was an economics teacher for all those years at Bentley. Surely, the worse way to teach a student is to say 'You are hopeless and will never learn a thing.'

But that is what his message to me has been. Perhaps he was better as a teacher. But what is interesting is that while he says he's not a natural blogger, once he started blogging he quickly got bored of teaching. 

Still, I will strive to be fairer with him than I believe he's been with me. I can agree that I know a lot more about economics since I started reading him. And his banning me from commenting will not lead me to stop reading-why would I let him off that easy?

Now regarding King Midas, I am only 37 percent of the way through; that's the beauty of reading books on Kindle: you always know exactly how far into a book you are. 

Some thought so far:

1. Similarities between Sumner and Keynes. While a major part of the book is refuting Keynes, at least the Keynes of General Theory, it strike me that stylistically, Sumner and Keynes share something in common. 

Keynes was always critical of attempts to over mathematize economics. He himself tended to write in  a much more simple style. 

Sumner himself tends to write almost solely 'in English' and not in the highly formalized language of many Necoclassical economists full of symbols from advanced calculus, etc. 

To an extent this may be why Sumner is not taking so seriously by the Neoclassical Establishment. 

But it does make him easier to understand for most laypeople. 

Paul Krugman also is capable of writing in a very simple prose. The difference is that Krugman can write more formally if he wants to. Sumner needs help to do so. 

This is not necessarily a vice in my mind but it might show why he is less well regarded with the Establishment. 

2. Similarity between him and the MMTers. This is a connection he would have no use for-as would the MMTers. 

Sumner's theory of recessions is basically this. When you have an AD shortfall, you want to use monetary policy to deal with the problem. Monetary policy is for AD shortfalls. 

Fiscal policy is for the supply side of the economy. 

The MMTers on the other hand argue that monetary policy is largely ineffective and prefer fiscal stimulus. 

Yet what both Sumner ins King Midas and the MMTers share is a preference for fiat money. 

When he explains why monetary policy failed to do the job to avoid the Depression, he believes that it would have been very difficult to do so in the interwar gold standard. 

He does suggest that maybe the classic gold standard was different but the post WWI gold standard was more or less unworkable in his mind. 

Each country's CB was too much at the mercy of the worldwide monetary system and needed the cooperation of other CBs. 

So he thinks that FDR did a great job in getting the country off the gold standard in 1933 and devaluing the dollar. 

To be sure, he also blames FDR for while ending one depression, starting another. He claims that FDR's NRA was contractionary-that it delayed recovery for 7 years. 

But this belief that a fiat money standard frees up the CB to do anything needed to fight a recession is symmetrical to the MMTers belief that the 'Modern Monetary Theory' they espouse only fully becomes reality with fiat money. 

Basically what makes the monetary theory 'modern' is the Nixon Surprise-when he closed the gold window. 

Parenthetically, I seem to recall Greg arguing after Brexit that the UK could take away the stress I had over the pound by ending the float of the pound. 

In theory yes, but, remember, MMT is based on a world of floating currencies. 

3. Two Depressions. According to Sumner, FDR getting off the gold standard in April 1933, ended the Depression. He argues it was over as an AD shortfall by late 1934. 

However, the National Recovery Act by raising wages and cutting production led to a new supply side Depression that started in 1935 and when on until 1941. 

His argument is fiscal policy should only be used for supply side reasons. For instance in theory there can be good SS reasons for building infrastructure-like dilapidated roads and schools. But this has nothing to do with AD stabilization. 

Ok, seeing as I've only gotten through 37% of the book just yet, as the MMTer Bill Mitchell always says at the end of his posts, 'That's enough for today.'

I should amend it to 'That's enough for now.' 

You know me. I could get a new thought about this in 25 minutes and write a new post. 

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