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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

Capitalism caused the huge decline in global poverty

7 days ago

The evidence for this claim is so overwhelming that it shouldn’t even be up for debate. Time series evidence, cross sectional, it all points in the same direction. In this old post I explain how we know this.

Unfortunately, people continue to deny reality.

PS. Noah Smith’s post has an impressive summary of the data on poverty, but he’s wrong about capitalism.


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Films of 2021:Q1

7 days ago

Here’s what I saw over the past three months:Newer Films:Our Time (Mexico) 3.8 Carlos Reygadas is probably the least famous of the four directors in Mexico’s “new wave”, but in my view he’s the best. Each of his films seems to have at least one jaw dropping sequence, and this is no exception. The cinematography is excellent, and is best seen in either the theatre or on a really good TV. The second half of this three-hour film is often extremely dark—I had to eliminate all ambient light. You’ll never see a more beautiful airplane landing sequence than the 6 minutes that begin around the 1:54 mark. Some critics didn’t like the film, but I think they confused the views of the characters with the views of the director. It’s not an upbeat movie with easy answers to life’s

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How bad will the GOP become?

9 days ago

David Frum has a new piece in The Atlantic, which discusses the GOP’s increasing opposition to free enterprise. These tweets summarize part of his argument:

Meanwhile, the GOP is also moving away from property rights for homeowners that wish to sell their house to developers of multifamily units:

Remember when Republicans used to point with pride to Houston’s lack of zoning, and contrast that with California’s restrictive housing policies?

The GOP has always been awful on the military, social issues, voting rights, etc. Their one saving grace was they were more supportive of free enterprise than the Dems. Now they are even abandoning that ideology. What’s left?

The conservative wing of the House GOP recently put out a report that in the future the party

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Joe Biden vs. America

9 days ago

More progress on the crusade to legalize marijuana:

Yesterday, on the same day that New York became the 16th state to legalize recreational marijuana, legislators in Santa Fe approved a bill that will add New Mexico to that list. The Cannabis Regulation Act passed the state House by a vote of 22–15 and the state Senate by a vote of 38–32 during a special session convened by Gov. Michelle Lujan Grisham, who is expected to sign the bill soon.

Who wants to legalize pot?Residents of states like California want to legalize potResidents of states like South Dakota want to legalize potDemocrats want to legalize potRepublicans want to legalize potMen want to legalize potWomen want to legalize potWhites want to legalize potBlacks want to legalize potHispanics want to legalize

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Ed Nelson on Milton Friedman

11 days ago

One of my favorite David Beckworth podcasts is his interview of Ed Nelson, who has recently published a book on Milton Friedman (which I plan to read soon.) Here Nelson discusses how Friedman responded to Sargent and Wallace’s Unpleasant Monetarist Arithmetic paper:

And, it’s a good news for monetarists because you can separate monetary and fiscal policy, even with fiscal policy running large deficits. And so Friedman argued that as a practical manner, other than the early 80s, it was the case that US history was characterized by R being lower than little g, growth rate of government spending.  So when you have that, you had a situation in which you can run deficits, you can accumulate debt and you’ll still have debt to GDP, public debt to GDP, often tending to decline.

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Bartenders would hate me

12 days ago

Tyler Cowen directed me to this Adam Ozimek tweet:

When fiscal stimulus is spent in the US then we can expect inflation to average 2% during the 2020s. If fiscal stimulus is spent overseas then we can expect inflation to average 2% during the 2020s.

But interest rates in the US might be a tiny bit lower if the money is spent overseas.

PS. My fellow economists might also find me to be highly annoying.


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Back to normal?

12 days ago

A year ago I suggested that we had under-reacted in the early stage of Covid-19 and would overreact at the end of the pandemic. And that seems to be happening.I recently visited my mother, who lives in an apartment complex that caters to older people. All the people residing there have received both doses of the vaccine, and yet all sorts of restrictions remain in place. People still need to wear masks, and outside visitors are limited to 2 at a time. The front desk kept asking me if I’d recently been out of the country—as if that would have made me more dangerous!Bryan Caplan is marketing t-shirts to encourage society to get back to normal, once vaccinated:

This story caught my eye:

Biden receives high marks on COVID-19, lags on immigration, guns: POLL . . .A

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Do as we say, not as we do

12 days ago

International relations are full of hypocrisy, but rarely so obvious as in this case:

Secretary of State Antony Blinken publicly called on Paraguay’s government not to switch relations from Taipei to Beijing. 

Decades ago, the US government “switched relations” from Taipei to Beijing. Did we switch back?

Meanwhile, China’s most influential newspaper says Covid-19 may have come from a Chinese lab. I never bought this conspiracy theory, but if a major Chinese newspaper says so . . . well, what should I believe?

And China is making a big deal out of the fact that a retired US military officer suggested that the CIA may want to use Uyghurs to destabilize China:

In a 2018 speech retired US army colonel Lawrence Wilkerson said: “If the CIA has to mount an

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MMs, MMTers, Larry Summers, young tweeters, and politicians

21 days ago

Larry Summers sees a roughly equal chance of three outcomes: high inflation, a soft landing, and the Fed slamming on the brakes so hard that the economy falls into recession. That’s a nice prediction, as whatever happens he won’t be wrong. (I’m being sarcastic. I don’t have much better to offer, other than to look at market forecasts.)

Larry now seems viewed as some sort of old fuddy duddy, to be contrasted with hip young pundits who think worry about inflation is as old fashioned as a 70s-era disco music.

Some people associate the “What, me worry?” school with MMTers, which seems kind of strange. As far as I can tell, MMTers are the most likely to believe that inflation is caused by big deficits. If inflation is rising, then the MMTers say that tight money won’t

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AIT is increasingly credible

25 days ago

The Fed recently forecast 2.4% PCE inflation for 2021. The TIPS markets are showing evidence that investors expect 2% PCE inflation over 30 years, and somewhat higher inflation over the next 5 years. This is all consistent with the Fed’s 2% AIT framework, as some make-up is required for the 2020 undershoot of 2% inflation. Mostly because of AIT, the economic recovery will likely be much faster than during 2009-19.Note that TIPS are indexed to the CPI, which runs at least 25 basis points above the PCE that is being targeted at 2%. So TIPS spreads need to be adjusted downwards by at least 25 basis points to get a crude estimate of market PCE inflation forecasts. And finally, TIPS spreads are not a perfect indicator, as there may be a time-varying liquidity premium:

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More Trump China lies

26 days ago

From today’s Bloomberg:

The U.S. intelligence community concluded with “high confidence” that China didn’t attempt to change the outcome of the 2020 election, an assessment that contradicts repeated assertions by former President Donald Trump and his allies.“We assess that China did not deploy interference efforts and considered but did not deploy influence efforts intended to change the outcome of the U.S. Presidential Election,” the Office of the Director of National Intelligence wrote in an unclassified report released on Tuesday. “China sought stability in its relationship with the United States” and “did not view either election outcome as being advantageous enough for China to risk getting caught meddling.”

Instead, it was Trump’s pal Putin who was actively trying

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Taiwan, Hong Kong, and the Uyghurs

March 10, 2021

A new book details Trump’s lack of concern for the China threat:

Former President Donald Trump once dismissed the possibility of U.S. intervention in case Beijing invades Taiwan, according to a new book.“Taiwan is like two feet from China,” Trump was quoted as saying to an unnamed Republican senator in 2019, according to the book by Washington Post columnist Josh Rogin. “We are eight thousand miles away. If they invade, there isn’t a fucking thing we can do about it.”

Let’s hope Biden is not so spineless.

Yes, Trump’s first official call was from Taiwan, but it was a mistake:

According to the book, Trump took the call from President Tsai without being aware of its significance, and later promised Xi Jinping he would accept no more such phone calls. For example,

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Will we have high inflation in the 2020s?

March 8, 2021

Probably not, at least if the Fed sticks to its 2% AIT. But I’m not reassured by the arguments being offered:

Actually, things like globalization and a lack of COLAs don’t matter it all. It mostly boils down to NGDP growth (a variable that globalization and COLAs do not significantly impact.)

If we have fast NGDP growth during the 2020s, say 5% or more, then we’ll likely have high inflation. If we hold NGDP growth below 4% then we’ll have moderate inflation. Below 3% and we’ll fall short of the Fed’s target. (These are decade average claims; 2020-22 will be unusual.)

It’s all about monetary policy. When it comes to inflation, fiscal policy doesn’t matter. Globalization doesn’t matter. Unions and minimum wage laws don’t matter. It’s completely up to the

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National socialism

March 8, 2021 describes the GOP’s search for a new identity:

Hawley’s rhetoric echoes progressives who say the government has a larger role in providing equal economic opportunity. He has been a vocal supporter of direct cash payments to Americans, even teaming up with democratic socialist Sen. Bernie Sanders, I-Vt., recently on the issue.But despite his interest in fiscal liberalism, Hawley breaks sharply from Democrats by embracing Trump’s cultural conservatism, skepticism of immigration and even his promoting of conspiracy theories about the 2020 election result — a potential new model for the party.“Republicans need to have a broader conversation about what we’re going to do to support working people, working families in the middle of the country, where I’m from, but all

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Christopher Hanes on New Deal wage shocks

March 6, 2021

George Selgin has a couple of new posts on the 1937-38 depression, which are part of his excellent series on the New Deal. I cannot find anything significant with which to disagree. He directed me to a new paper by Christopher Hanes, which studies the impact of New Deal policies on the labor market. Here’s the abstract:

Wage inflation surged in the 1930s though unemployment remained high and output below trend—an anomaly in terms of the usual “Phillips curve” relationship. Proposed explanations include New Deal labor policies, hysteresis in unemployment, downward nominal wage rigidity, and a new Keynesian expectational mechanism through which Roosevelt’s monetary policies would have boosted real activity and created anomalous inflation by raising the expected future

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Did the Covid virus originate in Thailand?

March 6, 2021

A new WSJ article suggests that they are beginning to zero in on the origin of the Covid-19 virus:

At least four recent studies have identified coronaviruses closely related to the pandemic strain in bats and pangolins in Southeast Asia and Japan, a sign that these pathogens are more widespread than previously known and that there was ample opportunity for the virus to evolve.Another new study suggests that a change in a single amino acid in a key component of the virus enabled or at least helped the virus become infectious in humans. Amino acids are organic compounds that form proteins. Public-health officials say it is critical to identify the origin of the pandemic to take steps to avert future outbreaks, though it may take years to do so. These latest pieces of

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A celebration of diversity

March 3, 2021

Years ago, I used to read a book to my (half-Chinese) daughter entitled, “And to Think That I Saw It on Mulberry Street”. It was Geisel’s first children’s book. As you probably know, that book has now been cancelled. Others have already pointed to the utter insanity of this book still being under copyright. (It was first published in 1937.) Extending copyright protection beyond 20 years makes America both less efficient and less equal—a lose/lose proposition.The story itself is a celebration of diversity. The world is so much more interesting when there are all kinds of people to look at. Here’s the offending picture:

The picture is a bit offensive by today’s standards, but most of the problems were solved years ago. Here’s what the picture looked like in the

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Random comments

March 2, 2021

1. Part two if my critique of MMT is finally available online here. Part one is here.

2. Commenter Lin asks:

If attempting to control the supply of food kills one hundred million people, then why do economists think controlling the supply of money will yield a better result?

I presume Lin is referring to the Fed controlling the supply of Fed money. This is how markets work. Ford controls the supply of Ford cars, Apple controls the supply of iPhones, and the Fed controls the supply of Fed money.

It’s a free country and alternatives such as travelers checks, Bitcoin, one ounce bars of silver, and other types of money are freely available if you don’t like using Federal Reserve Notes.

3. Until I read this four part series, I knew nothing about the guy who was

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Arnold Kling on monetary and fiscal policy

March 1, 2021

Arnold Kling has a new article on monetary and fiscal policy. Because he slightly mischaracterizes my views, I should probably respond:

Scott’s argument for monetary dominance is that the Fed, which sets monetary policy, is way more agile than Congress, which sets fiscal policy. It’s like a game of rock, paper, scissors in which if Congress shows rock, the Fed shows paper. Or if Congress shows scissors, the Fed shows rock. The Fed can always win.

I do think the Fed is more agile, but the decisive factor is that the Fed is much stronger. If you want a metaphor that is better than rock, paper, scissors, imagine I’m driving my car and my 6-year old daughter pushes the steering wheel to try to change direction. I’d simply push back more strongly.

I believe in fiscal

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No hay esperanza

February 27, 2021

There’s a country of 130 million people on America’s southern border—one of our largest trading partners. Interestingly, Americans pay almost no attention to what’s going on in Mexico. How many could even name its leader? Indeed, how many Americans with PhDs could name its leader? I’ll bet more people could name Canada’s leader. Even I couldn’t remember Amlo’s formal name when I sat down to write this post. Here are some facts about him:

1. Andrés Manuel López Obrador was defeated in presidential elections in 2006 and 2012, and then claimed the elections were stolen from him.

Sound familiar?

2. In 2018, he campaigned on revising the NAFTA treaty, and did so after being elected.

Sound familiar?

3. He toughened his southern border to prevent illegal

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Focus on the target, not the instrument

February 25, 2021

This tweet caught my eye:

While rising three-year yields might represent a lack of commitment on the Fed’s part, rising interest rates are equally consistent with bond market participants now becoming more optimistic about the economy. This might well be good news.

Interest rates are only a means to an end; the only credibility that matters is the Fed’s 2% AIT.


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Lael Brainard on monetary policy and employment

February 24, 2021

Joe Weisenthal directed me to a recent speech by Lael Brainard. Here’s one excerpt:

The new framework calls for monetary policy to seek to eliminate shortfalls of employment from its maximum level, in contrast to the previous approach that called for policy to minimize deviations when employment is too high as well as too low. The new framework also defines the maximum level of employment as a broad-based and inclusive goal assessed through a wide range of indicators.

Some pundits regard this as a significant change, perhaps indicating that the Fed will stop being so mean to workers looking for jobs. While I don’t oppose the change, I don’t see much difference from previous policy.

This is a really complicated issue with lots of moving parts and lots of subtle

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Middlebrow science

February 23, 2021

When I studied economics at Chicago in the 1970s, I was taught that the FDA was a highly flawed institution, which was structured in such a way as to avoid errors of commission at all costs and not worry so much about errors of omission, even if 100 times more consequential. That’s the system, and we’ve known it for 50 years. The current vaccine fiasco was entirely predictable. This isn’t “Monday morning quarterbacking”.I presume that FDA officials are decent people, but they are embedded in a bureaucracy that operates with a really bad set of incentives. The solution is not to replace one FDA bureaucrat with another, it’s to take government out the the process of deciding what vaccines are acceptable, who gets them first, and at what price.

Alex Tabarrok recently

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Ricardo Reis on debt sustainability

February 19, 2021

David Beckworth has an excellent podcast where he interviews Ricardo Reis. Here Reis discusses four options for paying for government debt (and by implication government spending):

What is Fiscal Sustainability and Why is it Important?Reis: Look, there’s a simple flow constraint, which is, in order to pay for the current debt, and particularly the interest that’s due on it both principal and interest, you can only do one of four things. You can either issue more debt. You can either default on the debt and say, “Forget it, I’m not paying.” Or you can collect fiscal surpluses, more taxes than revenue, say, or finally, you can inflate away some of that debt that is have enough inflation so that even though you pay nominally in real terms you do less.

Notice that while

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We did much worse than Obamacare

February 17, 2021

Tyler Cowen has a post on various topics. This caught my eye:

Perhaps two things I was right about, but still not recognized as correct are: 1) post-2012 or so (but not earlier), unemployment was fundamentally a re-matching problem, and would not have been helped much by nominal decisions by the Fed, and 2) we could have done much better than Obamacare and no I don’t mean single payer.

Obviously I disagree about the post-2012 period, but I’d like to focus on Obamacare. Tyler’s right that we could have done much better, but he doesn’t mention that we’ve actually done much worse. But wait, didn’t we end up with Obamacare?

In fact, the most valuable part of Obamacare was the so-called “Cadillac tax” on health insurance, which would have gradually phased out the

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Understanding middlebrow

February 13, 2021

I’ll get to the NYT eventually, but first let’s look at the middlebrow sector of the film industry. And by the way, middlebrow is not the middle of the population, it’s roughly the 90th to the 99th percentile. Highbrow is the top 1%. And then there’s rest—Kardashians, professional wrestling, etc.

This is from American Splendor:

Mattress Guy 1: So how smart is she?Mattress Guy 2: I don’t know. I guess she’s about average.Mattress Guy 1: Average? Average is dumb!”

[BTW, nothing wrong with being dumb. I’m not dumb about movies, but I’m dumb about plenty of other things. I used to get Cs in French class—do you know how hard that was to do in the 1960s? And then there’s my “computer skills”.]

I often check out middlebrow TV entertainment on Netflix, and almost

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Expansionary monetary policy causes recessions

February 12, 2021

Imagine a large flat piece of land out West. If a series of rivers run through this land for millions of years, it will create a series of canyons. In order to cross this land, hikers have to trudge up and down, up and down. Not good.Instead assume that a set of giant piles of rock are dumped on this flat land, creating a series of mountains. Hikers must climb up and down these mountains to cross the land. Not good.Suppose you start with a stable monetary policy, and no business cycles. They you start doing tight money every few years, creating a boom and bust cycle in the economy. Not good.Or, suppose you start with a stable monetary policy, and then do a highly expansionary policy every few years. Once again, you create a series of business cycles, booms and

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Cat People is a horror film

February 11, 2021

I’m referring to the classic 1942 version, directed by Jacques Tourneur and produced by Val Lewton.

But as explained in Reason magazine, it’s nowhere near as horrifying as this cat:

Read it and weep. Just one more sad casualty in the War on Drugs.


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Liberalism’s darkest decade

February 10, 2021

Perhaps you are a boomer, currently outraged that millennials seem unable to understand that it’s not OK to sign a petition to have your boss fire one of your colleagues. You wonder what’s wrong with the younger generation. Have they no sense of basic human decency?Or perhaps you are a member of the Greatest Generation, who were appalled that the young boomers reacted to all their sacrifices (WWII) and accomplishments (1960s prosperity) by becoming a bunch of drug addled hippies who rejected conventional morality.But no generation was betrayed worse than the liberals of the late 19th century. In a period of 7 short years, a supposedly “liberal” president presided over the most appalling string of policy outrages in US history. Here are just some of the highlights:1. In

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Great stuff

February 10, 2021

Brought a tear to my eye:

Farewell to Lou Dobbs, the most North Korean broadcaster America has ever seen— The Daily Show (@TheDailyShow) February 9, 2021People keep asking why I won’t give up on my obsession with Trump. Here’s Matt Yglesias:

And if you want to know why Yglesias is one of the best tweeters, these 4 tweets also appeared right before the one I cited.


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