Saturday , September 18 2021

Finally!

Summary:
My new book (entitled The Money Illusion) can now be ordered online. My intended audience for the book is mostly younger people that are studying macroeconomics. While I welcome older readers, for a couple of reasons many of them won’t be persuaded by my arguments: First, I don’t fit neatly into any of the tribes out there. Right-wingers won’t like the fact that I blame the Great Recession on tight money policies of the sort advocated by conservatives. Progressives won’t like the fact that I blame the Great Recession on government policy (the Fed), not the “inherent instability of capitalism”. They won’t like my dismissal of fiscal policy, or my claim that unemployment compensation boosts unemployment. I didn’t write this book to win friends. A second problem is

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My new book (entitled The Money Illusion) can now be ordered online. My intended audience for the book is mostly younger people that are studying macroeconomics. While I welcome older readers, for a couple of reasons many of them won’t be persuaded by my arguments:

First, I don’t fit neatly into any of the tribes out there. Right-wingers won’t like the fact that I blame the Great Recession on tight money policies of the sort advocated by conservatives. Progressives won’t like the fact that I blame the Great Recession on government policy (the Fed), not the “inherent instability of capitalism”. They won’t like my dismissal of fiscal policy, or my claim that unemployment compensation boosts unemployment. I didn’t write this book to win friends.

A second problem is that my views are pretty contrarian. I reject the conventional way of looking at monetary policy, which focuses on central bank control of interest rates. Instead, I argue that what really matters is central bank policies that influence the supply and demand for base money. I deny the existence of asset price bubbles.

So I’m looking to convince people who haven’t yet adopted a tribe, who still have an open mind about how the world works. Those are often younger people.

George Selgin wrote a nice review of the book for Barron’s. At one point he noted that I hadn’t given much attention to the case for NGDP targeting:

The Money Illusion is more than a restatement of the tenets of Market Monetarism because it also looks at sundry other monetary economics topics, albeit always from Sumner’s distinct point of view, and because it includes Sumner’s account of his own intellectual journey. But by pursuing these other agendas, it sacrifices the advantage of a narrower scope, and correspondingly sharper focus. The case for NGDP targeting is among the casualties of this approach: Arguments for it may be the warp of the book. But too often they disappear behind its weft. 

While I do make a forceful case for NGDP targeting, that’s certainly not the main focus of the book, and not the focus of what I’ve been doing for the past 13 years. So what has been my focus? On policy questions I’ve emphasized three points:

1. Level targeting of a nominal aggregate. Commit to return to the previous trend line after a nominal shock.

2. Target the market forecast. Set policy at a position where the market expects success.

3. A “whatever it takes” monetary policy. The central bank should do as much as necessary to hit its target, and should not rely on fiscal stimulus. Failure is not an acceptable outcome.

To me, these are the core ideas of market monetarism.

Another theme of my blogging has been “never reason from a price change”. Interest rates do not tell us anything about the stance of monetary policy. This is also a monetarist idea.

Obviously there’s much more in the book. I tried to write the sort of book that I would have enjoyed reading at age 20. I hope you enjoy it and I welcome your feedback.

PS. Over at Econlog I have some additional thoughts on the book.

PPS. I originally intended to write the book using the breezy informal style of my blog posts, but was strongly dissuaded by reviewers. (I kept one page of that style as an example for readers that never saw my blogging.) Chapter 1 was originally entitled “The Autistic Economist”—you can image how that went over in this woke era! On a serious note, I do thank a number of reviewers for making the book better, for preventing me from repeatedly embarrassing myself.

PPPS. I have a Mercatus working paper coming out this fall that presents economists like Paul Krugman and Ben Bernanke in a more favorable light than this book. There’s no direct contradiction, just a focus on the positive contributions in my new working paper.


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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".

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