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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

Alternatives to interest rate targeting

[Over at Econlog, I have a post explaining 3 MMT fallacies In my recent Mercatus paper I criticized interest rate targeting and also suggested an alternative. One problem with interest rate targeting is that it doesn’t work well when nominal rates fall to zero, or slightly below zero. Fortunately, there are many possible alternatives. One famous alternative is money supply targeting, as proposed by Milton Friedman. But even Friedman moved away from this idea late in his...

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An even greater achievement

Tyler Cowen recently linked to this tweet: Topol describes this as a great achievement, and he’s right. (My wife used to work in vaccine development, so I’m well aware of how long this usually takes.) At the same time, I can’t help thinking that the following would have been an even greater achievement, one that would have saved the lives of 100,000 Americans and also prevented many small business bankruptcies. (Yes, Trump would have been re-elected, but that’s a price...

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Why money matters

Some commenters who are sympathetic to MMT seem unfamiliar with the standard view of why money matters. They argue that swapping base money for an equal dollar value of bonds doesn’t matter, because the recipient of the new money is no better off than before. It’s true they are (approximately) no better off, but that’s NOT why economists think money matters. It would be nice if commenters showed they understood the traditional view, and then explained why it’s wrong and MMT...

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Surely the polls can’t be 17 points off!

In the weeks before the election, I viewed Wisconsin to be the most likely “tipping point state”, as it was in 2016. It turns out I was correct on that point. So goes Wisconsin, so goes America.In September, I had expected Trump to win. But when I saw the following story on October 28, I couldn’t in good faith predict that Trump would win. Thus in the end I wimped out and predicted nobody. Biden up 17 points in new Wisconsin pollDemocratic presidential nominee Joe...

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A – B – C, Does A imply C? — Scott Sumner

A – B – C, Does A imply C? — Scott Sumner The basic problem is that people like Sumner or Noah Smith actually believe that there is such a thing as mainstream macro, that is as intelligible, internally consistent, useful and true as say phlogiston or even caloric in physics, both of which led to solid physics, the first of which really does exist. Though I think the MMTers make pedagogical mistakes, don't put and use some definitions prominently enough. And they know what...

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A –> B –> C, Does A imply C?

I believe the answer is yes, due to “transitivity”. But what do MMTers believe?Let’s say A is: Big open market operations occur when interest rates are positive. And B is: Interest rates change by a large amount.And C is: Has a significant impact on the economy.The MMT textbook I’ve been reading suggests that A does not imply C: Monetarists are hostile to the creation of base money to finance deficits because they claim it is inflationary due to the Quantity Theory of...

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MMT bleg, one more try — Scott Sumner

MMT bleg, one more try — Scott Sumner  Scott Sumner is not satisfied with the answers he received. If I were to try to develop a radical new macro theory, I’d try to come up with a way of explaining my new model using the framework of existing models. Actually, I often do that here, translating market monetarism into New Keynesian language. I’m not seeing that with MMT. And it’s not just me. I see other bloggers like Noah Smith, Paul Krugman, Brad DeLong, Nick...

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MMT bleg, one more try

I received a number of comments from my previous post on MMT. No one gave me a satisfactory answer, but one commenter (Sam Levey) did actually answer the question. Recall that I wanted to know what would have happened in 1998, when T-bill yields were 5%, if the Fed had suddenly doubled the base from $500 billion to $1000 billion by purchasing bonds. The standard model says that money is neutral in the long run, but the MMT textbook suggests that OMOs are “irrelevant”. But...

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Stop obsessing over interest rates

I have a new Mercatus working paper explaining why monetary economics needs to stop focusing on interest rates. Of all the economics papers that I have written, this one best captures how my view of monetary economics differs from the mainstream. Here is the abstract: In recent years, Keynesians and NeoFisherians have debated whether a low-interest-rate policy is inflationary or disinflationary. Both sides are wrong; interest rates are not a useful indicator of the stance...

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