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The author 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".

S. Sumner: Money Illusion

Random comments

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...

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Arnold Kling on monetary and fiscal policy

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...

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No hay esperanza

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...

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Focus on the target, not the instrument

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. Tags:      

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Lael Brainard on monetary policy and employment

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....

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Middlebrow science

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...

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Ricardo Reis on debt sustainability

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...

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We did much worse than Obamacare

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....

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Understanding middlebrow

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!”...

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Expansionary monetary policy causes recessions

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...

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