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Scott Sumner

Scott Sumner

Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment".

Articles by Scott Sumner

What I’ve been watching

2 days ago

I used to do a best of the year film list, but things have changed. First, I no longer see films at the theatre. Even last year I had started watching some films at home, now I watch all of them at home. And I watch mostly older films, with a few recent ones sprinkled in. When the NBA closed up shop I started watching documentaries while exercising.With Amazon Prime, I watch far more films than before. Unfortunately, with everything at one’s fingertips the masterpieces of the past don’t seem quite as precious as when I tramped through the snow to Harvard Square to watch old classics. It’s like eating every night at a 4 star restaurant. So I try to add in some mediocre films, to mix things up.

With so many films, I thought it made sense to stop at the half way point

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How does yield curve control work?

3 days ago

Many readers had difficulty understanding my recent post on interest rates, exchange rates and monetary shocks. That’s probably because most of us have been brainwashed to think of monetary policy in terms of interest rates.Suppose that 30-year bond yields are 2%. Then the Fed suddenly announces a plan to peg the 30-year bond yield at 1%. What happens?The interest parity condition tells us that the 30-year forward exchange rate should appreciate roughly 30% relative to the spot exchange rate (ignoring compounding effects.) That sounds highly contractionary, and indeed it might be highly contractionary.But what really matters is what happens to the 30-year forward exchange rate in absolute terms. If the spot exchange rate depreciates by more than 30% on the news, then the

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Western ostriches

3 days ago

And yes, I’m including myself.

This article linked to by Tyler Cowen caught my eye:

In the second week of February, Kobinger traveled to Geneva for a scientific meeting at the WHO that was attended by experts from around the world. The Asian scientists were all extremely nervous, Kobinger recalled, mentioning that a South Korean scientist he knew was shaky.“I’ve never seen him like this, and I’ve known him for 15 years,” he said, without naming the scientist.But a number of the Europeans at the meeting expressed the belief the virus would not come to Europe in a big way, noting they’d been testing and not finding anything at that point.“In Europe, they … are convinced it’s going to die off, that it won’t come to Europe,” Kobinger said after the meeting. Looking back on

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Identifying monetary policy shocks

5 days ago

People generally visualize monetary shocks as a univariate phenomenon, perhaps a change in the short-term interest rate, or a change in the monetary base. Up or down.Over at Econlog, I recently argued that monetary shocks are a multivariate phenomenon. For example, a monetary shock might impact both the spot exchange rate and the forward exchange rate.

Here I’ll present a graph that illustrates various possible monetary shocks. I define Et at the spot price of foreign currency. Thus if Et gets bigger, then the domestic currency depreciates, and if Et gets smaller than the domestic currency appreciates.

In the graph below, the vertical axis shows the change in the one year forward exchange rate (Et+1), while the horizontal axis shows the change in the spot

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A monologue about “a conversation about race”

5 days ago

I’m hardly the first person to notice that we haven’t yet had a useful “conversation about race”, and are not likely to have one in the future.There are multiple reasons for this. Many on the right have an unimaginative view of the black community, seeing it as “the other”. Thus problems of unemployment and drug use are assumed to reflect cultural failings in the black community. When the same sorts of problems of unemployment and drug use hit many working class whites in the eastern Rust Belt, those impacted were romanticized by some conservatives as innocent victims of Globalization and Neoliberalism. Republican politicians who opposed providing economic help to inner city blacks suddenly began favoring policies to help unemployed working class whites.

Conservative

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Most Nordic countries flattened the curve

8 days ago

I’m not sure the precise definition of “Nordic”, but these countries seem to fit the bill:

Switzerland was hit hardest in its Italian section, so it’s less of an outlier than it appears. The Netherlands is clearly an outlier, although it has also flattened the curve.

In the US, the death rate appears to be falling rapidly. The average death rate has been about 5% of reported cases (although closer to 1% of actual cases.) Now the marginal death rate of newly reported cases is falling very fast, and may soon fall close to 1%. The actual death rate relative to total actual cases will likely fall far below 1%, albeit not as low as in Singapore.

A portion of this may be increased testing or better medical care, but it seems to be mostly due to illnesses shifting

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Trump doesn’t kid. (Just kidding)

8 days ago

[This post is silly. If you want a good post then check out my newest at Econlog.]

Reporters asked Trump if he was kidding when he discouraged testing for coronavirus:

“I don’t kid,” Trump said when pressed by reporters on Tuesday. “Let me make it clear.”

Most people were sucked in by that. But not me. I suggested that he might be one of those Andy Kaufman type comedians, who prolonged the act far past the point where most comedians give up. And now Trump has confirmed that hypothesis:

President Donald Trump on Thursday said he had “sarcastically” claimed that a decrease in coronavirus testing would lower U.S. infection rates, adding a new twist to the weeklong scramble by the White House to clarify the president’s comments on virus testing.“Sometimes I

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As I keep saying, lockdowns are mostly endogenous

10 days ago

Roughly 99% of people think that low interest rates are an expansionary monetary policy. But the readers of this blog know otherwise. They know that low rates often reflect the delayed effect of previous tight money policies.

Roughly 99% of people think lockdowns are a restrictive Covid-19 policy. I hope to convince you that lockdowns are mostly endogenous. That countries like Taiwan did not close their restaurants precisely because they had quite effective Covid-19 policies. That lockdowns are often (not always) a sign of failure, of previous excessively lax policies.

Check out today’s Bloomberg headline:

Hmm, two states going in opposite directions. Who has the more lax polices? It’s a complicated question, isn’t it?

It’s not about a single “concrete

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Adam Smith Institute seminar on NGDP targeting

11 days ago

I recently participated in an Adam Smith Institute seminar on NGDP targeting (with Anthony Evans and Matt Kilcoyne.) I had my usual technical problems with Zoom, and lost my train of thought a few times. But otherwise it went well.

I also updated my 2011 NGDP paper.

Commenter Matt Moore pointed me to another pro-NGDP targeting paper by another UK think tank (The Centre for Policy Studies). It’s written by Sajid Javid, who was recently the Chancellor of the Exchequer.

Perhaps the tide is turning in the UK. In any case, it’s only a matter of time.

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Have you noticed . . .

11 days ago

. . . that the same sort of conservative who regards the mercy killing of a 91-year old man with terminal lung cancer as a moral abomination, brushes off those who worry about healthy 76-year olds dying of Covid-19.. . . the same sort of conservative who thinks 9/11 was a great national tragedy because 3,000 died, and who favored going to war with much of the Muslim world in response, and who favored intrusive bureaucracies such as “Homeland Security”, regards wearing a mask to prevent a disease that kills more than 3000 a week as acting like a coward.

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Trump kills Americans to look good? No kidding!

11 days ago

I have argued that Trump would gladly kill enormous numbers of Americans to get re-elected. On the other hand, that’s not the sort of thing that a president admits publicly. It sounds kinda bad.To his credit, Trump is willing to admit this quite publicly. His administration was so horrified by his recent comments that they rushed out a statement saying that he was just kidding, as they did after numerous other “gaffes”. But Trump’s having none of that, he continues to insist that he’s dead serious:

A day after the White House said President Trump was joking about ordering a slowdown in coronavirus testing to avoid an embarrassing increase in the number of cases, Trump responded to a question about the incident by saying, “I don’t kid.”Trump made the eye-opening claim

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Slate Star Codex is more valuable than the New York Times

12 days ago

Update: If this tweet is accurate, the NYT thought it was more important to out Scott Alexander than to get an interview with him—which would have made the story ten times more interesting.

As you may know, Slate Star Codex was recently deleted because the NYT has threatened to print a story with the real name of Scott Alexander.When I suggest that Slate Star Codex is more valuable than the NYT, I mean in an intellectual sense. Obviously the NYT has a greater market value.If the NYT disappeared tomorrow, we could still learn about the world by reading the WaPo, the WSJ, the FT, etc. That mix of news outlets would not be a perfect substitute, but it would be a close substitute. There is no close substitute for SSC, and its loss will further degrade an internet that was

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Hard money is giving us socialism

16 days ago

Over the past few years, I’ve occasionally done some posts with titles like “Inflation of socialism?” It’s now clear that society has decided on socialism. So how did we get here?

I’ve recently listened to some excellent discussions in a Cato seminar on reforming the Fed. Many of the participants have suggested that the recent increase in activist credit and fiscal policies is an inevitable and/or desirable outcome, given the severity of the recession. Obviously I don’t agree, but just as obviously I’m in the minority.

By far the most important cause of the rise in credit/fiscal policies is the fact that interest rates have fallen to zero. This impacts policy in two unfortunate ways:

1. When rates fall to zero, most people (wrongly) assume that monetary policy

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Power corrupts (others)

16 days ago

Yes, we all know about Lord Acton’s famous aphorism. But power doesn’t just corrupt the person who wields it, it also corrupts those who observe power in action.Power causes outside observers to adjust their views in such a way as to make the most powerful men seem more virtuous. When an outsider criticizes a powerful man, many people will naturally gravitate in support of the powerful man, even if their actual views would suggest more sympathy for the attacker. (Perhaps this is true of powerful women as well, I am less sure of that claim.)Most conservatives have outlooks and personalities more aligned with people like Bolton, Sessions, Mattis, Tillerson, Kelly etc. than with Donald Trump. But when Trump is attacked, they instinctively believe that the attacker is lying,

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Donald Trump sucks up to China

17 days ago

John Bolton has lots to say about the worst president in US history:

Mr Bolton wrote that Mr Trump “stunningly turned the conversation to the coming US presidential election, alluding to China’s economic capability to affect the ongoing campaigns, pleading with Xi to ensure he’d win”. The Financial Times reported last year that Mr Trump had told Mr Xi in Osaka that he would tone down criticism of China’s handling of pro-democracy protests in Hong Kong to help revive then-stalled trade negotiations. The White House did not refute the claims at the time.

Please Mr. Xi, help me to win.

Mr Bolton said Mr Trump did not want to get involved in the debate about China and Hong Kong ahead of the G20 summit in Osaka, telling his adviser that “we have human rights problems

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As Matt Yglesias likes to say, look at levels, not growth rates

17 days ago

This tweet caught my eye:

Adam Tooze (who I greatly respect) is presenting a widely held view. And he’s technically correct.

But is worry about whether your wi-fi will go down actually equivalent to the “tough start” our pioneer ancestors had?

I guess this is why old people like me become reactionaries. A different frame of reference. Were the old also reactionaries on economic issues back in earlier centuries, when we had a steady state economy? I wonder.

HT: Razib Khan

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Neanderthals with nukes

18 days ago

This FT story reminded me of the opening scene in 2001, where a primitive club turned into a space station:

Brutal details emerge of deadly China-India border clash

Soldiers battered each other with clubs during fight that claimed at least 20 lives

I predict that the hominids currently clubbing each other to death on the China-India border will eventually be capable of sending rockets into space.

PS. Et tu, Nepal?

Tiny Nepal has snubbed its powerful neighbour India by adopting a new political map depicting disputed mountain territory as its own in the latest example of rising geopolitical tensions in strategic areas of the Himalayas. Under the changes, which come as New Delhi and Beijing are vying for influence in the region, the Nepali parliament this

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The bizarre data continues

19 days ago

In May, retail sales regained about 80% of the losses from March and April. That’s in one month! In contrast, even a year after the trough in retail sales in March 2009, retail sales had recovered only about half the losses.

I understand that these are strange times, but I fail to understand how forecasts can be so far off:

Retail sales jumped by a record 17.7% in May over April, coming in at more than double the consensus estimate for a rise of 8.4%.

I don’t doubt that market forecasters are competent individuals. So I assume that these data points are intrinsically difficult to predict. But does anyone know why? Don’t we have real time daily data on credit card sales? And don’t most people use credit cards these days? So how can the forecast for May be 9.3%

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Do well behaved countries do better against Covid-19?

19 days ago

Just as low interest rates can be a sign of a monetary policy that was previously too tight, lockdowns can reflect Covid-19 policies that were previously ineffective.I’ve argued that we need easy money, not low interest rates, and that we need masks, testing and voluntary social distancing, not lockdowns. Others are beginning to agree:

While the culpability could appear to be on a so-called “rushed reopening,” one expert said the blame should instead be placed on the lack of a comprehensive testing and contact tracing system in the US.

And there are increasing suggestions that lack of mask wearing is the big failure:

Jerks are everywhere. But it’s fair to say there are more jerks in the northeastern US than in Utah or Oregon. And people are more likely to follow

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Imagine no police

21 days ago

The NYT is certainly in decline. The recent Tom Cotton op ed got a lot of attention, but you can find many similar examples of sloppy reasoning. Yesterday, an op ed called for the abolition of police:

When people, especially white people, consider a world without the police, they envision a society as violent as our current one, merely without law enforcement — and they shudder.

No, that’s certainly not what they “envision”. Most people don’t envision a world as violent as our current one, they envision a world that’s 10 times more violent. Unless you understand the thinking of those on the other side, you won’t get anywhere.

I’m not saying the world would be 10 times more violent if the police were abolished; perhaps it would be no more violent than our current

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Am I half right?

21 days ago

The Nazis killed people by the tens of millions. So did the Maoists. We don’t see anything remotely comparable in the modern developed world. To even suggest so is hysterical or offensive—probably both. Readers know that I’m a utilitarian, which means I think quantities are important, indeed all important.And yet . . . to compare two things is NOT to suggest that they are comparable. At least not in the “similar” sense of the term ‘comparable’. At a stylistic level there are deep similarities between modern (Western) political movements and the worst excesses of the 20th century.Maoists believed in the idea of “capitalist privilege”. Even if you were poor, the mere fact that your ancestors were landlords meant you needed to acknowledge this taint and be apologetic.

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Bearish long run Fed forecasts are hawkish policy

23 days ago

The Financial Times attached a bizarre headline to a recent news story:

Jay Powell delivers dovish message to financial marketsJay Powell could have used this week’s meeting of Federal Reserve policymakers to project confidence that the US economy had turned a corner after the shock of the coronavirus pandemic, with the jobs market showing signs of early recovery and equity prices continuing to rally. Instead, the Fed chairman and his fellow monetary policymakers reinforced their dire assessment of the country’s economic prospects for the coming years, which will require a heavy dose of support from the US central bank just about as far over the economic horizon as they can see. In their first economic projections since December, Fed officials estimated that by 2022, the

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Masks, not lockdowns

23 days ago

It’s becoming more and more obvious that we completely blew it, with a wide variety of villains (including me.)We went for lockdowns, when the actual solution was masks, testing and voluntary social distancing. If we had done those things in early February then the death total would likely be less that 115, not 115,000. Yeah, I know this would have been politically impossible in the USA, but it still needs to be said. We blew it.A new study suggests that masks alone will keep R0 below 1.0, if worn by just 50% of the population. If you have near 100% usage as in some East Asian countries then R0 will be far below 1.0.

The study found that if people wear masks whenever they are in public it is twice as effective at reducing the R value than if masks are only worn after

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Long past time to re-evaluate Fed policy

24 days ago

After the Great Recession, the Fed should have rethought its entire approach to policy and come up with a more effective regime. It only began this sort of re-evaluation quite recently—too late to help in the current crisis. That was a major institutional failure, and yesterday we all saw the results.The Cato Institute and the Mercatus Center are planning a seminar to consider alternative approaches for the next crisis. (Click link to register). I’ll be there (electronically).

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A few thoughts on political correctness

24 days ago

1. Almost every hour of every day, academics say things that are offensive, often quite offensive.2. One can certainly imagine an academic saying something so offensive that they deserve to be fired.3. Academics almost never say things so offensive that they deserve to be fired.

I don’t ever recall hearing an academic saying things as offensive as the garbage Trump spews out. And yet 42% of Americans support Trump. I’m not comfortable with speech codes that say 42% of Americans cannot hold certain jobs unless they keep their mouths shut. 4. Fight offensive speech with wise speech.

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Way too tight

25 days ago

The Fed’s new inflation and unemployment projections show that monetary policy is currently way too tight. Unemployment is projected to remain high through 2022. That may be excused by the Covid-19 pandemic, but there is no excuse for the low inflation, especially low core inflation:

The Fed had the option of switching to level targeting, and blinked. That error will be quite costly in terms of both inflation and growth.

Again, unemployment may be beyond the Fed’s control at the moment, but at a minimum they need to target the inflation forecast. I can’t even comprehend the 1.7% PCE inflation forecast for 2022. Does the Fed plan to acquiesce to this sort of policy failure for two whole years, without even attempting level targeting?

PS. The implied

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WHO’s on first?

25 days ago

The NYT has a story discussing how the WHO has had to backtrack on a variety of claims. They initially underestimated the danger from China. Then they discouraged mask wearing. Then they reported that asymptomatic carriers of the Covid-19 virus very rarely infected others. At one point they tried to draw a useless distinction:

A key point of confusion is the difference between people who are “pre-symptomatic” and will go on to develop symptoms, and those who are “asymptomatic” and never feel sick. Dr. Van Kerkhove suggested that her comments were about people who are truly asymptomatic.

Back in the comment section, I pointed out that people were mixing up those two concepts. People are highly infectious for a couple of days before symptoms first appear.

I say the

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“The” fatality rate for Covid-19

26 days ago

I use scare quotes because obviously “the” fatality rate for Covid-19 varies widely between countries. In Italy, 23% of the population is over 65, and only 1.1% of Covid-19 deaths have been people younger than 50. In some African countries the share of population over 65 is only 2% or 3%, so obviously they’ll have much lower infection fatality rates than Italy. Nonetheless, it’s worth looking at some data:

Weekly testing by the UK Office for National Statistics (ONS) indicates that 6.8 per cent of the population in England has been infected (and thus developed antibodies to the virus). The latest national survey in Spain published last week indicated that 5.2 per cent of the population had been infected.

Based on current fatalities, those ratios imply a fatality rate

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Congratulations to New Zealand

27 days ago

New Zealand hit zero active cases today, so it appears to be entirely Covid-19 virus free. I visited NZ in January, and very much wish I were there now. (I’d be there now if they’d take me without a quarantine.) Good for the Kiwis!

Note that New Zealand will occasionally have a few imported cases, as they wish to restart tourism. Fortunately, tourists from East Asia and Australia don’t pose much risk. And there is great value in ordinary Kiwis being able to go about their lives without fear of infection.

I am currently in a fairly large hotel in Tucson. The hotel has closed the restaurant and swimming pool. If you want maid service you need to request it. (I don’t.) The place is almost empty—I feel like I’m in one of those post-apocalypse films. Yes, Tucson is

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A week in the wonderful world of medical research

29 days ago

First a comment on the previous post. The title was supposed to be half sarcastic, a poor choice on my part. (Be 100% sarcastic or not at all.) Obviously the economy is still in really bad shape, and we are not out of the woods yet. But it’s not as bad as I had feared a month ago.

All the following tweets are from the past three days. The study that claimed masks don’t work has been retracted:

Ditto for the study that claimed hydroxychloroquine is dangerous:

But it still doesn’t work:

And I hope this is another bogus study:

The Morbidity and Mortality Report came after news that poison control centers have received increased calls regarding exposure to bleach and other cleaning products during the coronavirus. To learn more, the CDC conducted an online

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