Pethokoukis

Pethokoukis Podcast: An interview with economist Scott Sumner on market monetarism

In this edition of my Ricochet-AEI podcast, I chat with economist Scott Sumner, professor of economics at Bentley University and author of the must-read TheMoneyIllusion blog.

Professor Sumner is probably best known for his advocacy of “market monetarism,”   a contrarian critique of the Federal Reserve, that says a) mismanaged monetary policy — not the housing bust or Wall Street greed — caused the Great Recession, and b) its continued tight money policy is a big reason why the economic recovery is so weak and unemployment is so high. Think of it as an update on Milton Friedman’s approach to monetary policy.

Time magazine recently described Sumner as “most vocal supporter of NGDP targeting .. a strategy whereby the Federal Reserve, instead of trying to keep inflation stable and unemployment low, would announce its intention of taking any action necessary to maintain a long run nominal GDP growth rate target. This would mean that instead of buying up a certain amount of bonds like the Fed has done with QEs 1 and 2, it would set a target for the effect of those bond purchases and then, in theory, buy up as many securities as necessary to make it happen.”

That’s right, Sumner wants a more active Fed to boost the economy — and thinks other free-market conservatives should, too.

 

One thought on “Pethokoukis Podcast: An interview with economist Scott Sumner on market monetarism

  1. Aside from the merits or lack thereof in Sumner’s core argument, there is a problem with his solution: real-time measurement. Interest rates are known on a daily basis. Posted prices (and therefore inflation) can be tracked weekly. Unemployment numbers provide a more erratic benchmark, with different measures leading to widely differing results. Still, some measures are available on a weekly basis, such as the number of applicants for unemployment compensation. GDP is not only impossible to calculate on a current basis, it usually requires constant revision. Even years after the fact, numbers are being revised, so that economists can try to figure out what was actually happening back when. Nominal GDP is no easier to track than real GDP. If the Fed were to use this as its target, it would be flying blind, with only some low-resolution, backward-pointing radar to guide it.

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