Scott Sumner (2016)

1. The one's I enjoyed most were the off topic articles, like the NYT assuring us not to worry too much about Hitler, as he would have to moderate his outlandish views as he got closer to power. Where else do we hear that? Others I liked would be too long to summarize here. I also loved the sophistication of the market analysis, which often anticipated rational expectations (and EMH) thinking.

2. I don't know enough to comment, but I find Kocherlakota's discussion of TIPS spreads to be persuasive---even if they are falling due to a change in the risk premium, that's bearish for growth.

3. I think there should be a clearly defined policy rule, perhaps an instrument rule. But I prefer using NGDP futures prices to a Taylor Rule approach.

I'm not a fan of mathematical macro models, except perhaps to establish a few key implications of theory. I don't think we know enough about the microfoundations to establish which models are the most useful. In my view there are many factors involved, and each model tends to isolate just one or two. Thus there might be 10 different types of price stickiness, each with different implications.

I prefer an eclectic approach, combining theory, history and market responses to policy shocks. What I did with my Depression book, or Friedman and Schwartz.

But people are building formal models with NGDP targeting implications, Bullard recently did one, and there are numerous others.

People like Mankiw and I have certainly been highly critical of Trump, who in terms of economic irrationality is the closest to Sanders. Audit the Fed is mostly harmless. I do agree that the so-called mainstream Republicans have very unrealistic tax plans. But Sanders is at an entirely different level of unrealistic. Indeed the Democratic economists greatly underestimated the problems with his policies, as we know that European welfare states have GDP/person 25% lower than the US, if not more. So the problem is not Sander's unrealistic claim that growth would speed up to 5.3%, it's that GDP would plunge massively lower if his plans were implemented. That's a disaster on an entirely different scale from the GOP plans, (or the Reagan/W. Bush tax cuts)

Just to be fair, I think the GOP has huge problems in other areas, such as nationalism, militarism, etc. I'd support Sanders over Trump. But their tax cut plans are the least of my concerns right now.

1. I think it was a negative, but it is literally impossible to answer that question more specifically without a counterfactual. If no IOR, what else would the Fed have done differently? BTW, it is very similar to the mistake the Fed made in 1937.

2. QE was mildly effective, but would have been far more effective under level targeting, Indeed it might not have even been needed. I oppose fiscal stimulus. If QE isn't enough, then do more and more, until you own the entire world. Then think about fiscal stimulus. Seriously, you would never need to do fiscal stimulus if the central bank was more aggressive. Notice the Fed raised rates in December, which shows that our current low inflation rate has nothing to do with the Fed being out of ammo---the rate increase was designed to reduce inflation. There's a reason we are where we are.

Ideally they'd use NGDP futures prices as both a target and a communications device. If not, I think the monetary base is best if there is danger of a zero bound. The fed funds target seems to work fine when we are away from the zero bound, but you must always count on being away from it because as we've seen it's hard to change communications strategies in mid-stream.

I would add that communication would be far easier with level targeting, so that's an important consideration.

Small countries like Singapore seem to do fine with the exchange rate. Most people think that would not work for the US.

What matters is NGDP growth expectations, not inflationary expectations. And the empirical evidence overwhelmingly suggests that the NIRA wage policy was contractionary. It did not boost NGDP expectations, and so any boost to inflation reduced growth.

My new Depression book has lots of evidence. By the way, I'm a big fan of Eggertsson's monetary analysis, so I don't want to nuke the entire NK model, just things like the paradox of thrift and the paradox of toil.

1. Maybe Australia.

2. Hard to say. I think the ECB is by far the worst design, otherwise I think design is overrated, it's ideas that matter. Central banking is really easy if you have the right approach, as the Aussies have shown.

Is that the one with 50 prominent economists? I'm not a fan of that approach.

I have not spoken with him, but I've been frustrated by the slow progress. I'm still working on it. The Hypermind project was just a demonstration of the concept, we would need far more funding to get the sort of trading volume that I would like to see. I think it gave reasonable forecasts, but did not respond quickly enough to news shocks to be useful in event studies.

I actually bought my first one a month ago, I had hand me downs for a few years, which my wife would give me. They kept changing, so I couldn't keep the numbers straight. I don't like computer technology in general, and I don't like the sound of the phone ringing. I don't like being tethered to a phone.

Practical answer--lots of math and stats

My real view--lots of applied economics, history, philosophy, etc.

There are many:

Some assume I think everything is demand side, that I'm an old style Keynesian.

Some people think I want monetary policy to solve problems, I actually want it to refrain from creating problems.

Some think I'm a dove. I was a hawk in the 1970s, and my views have not changed; the problem has changed.

Some think I support the Fed in some sense, whereas I'd like a very different policy regime (with or without the Fed.)

Some associate me with NGDP targeting, whereas I think my more distinctive ideas are elsewhere. Such as how to think about easy and tight money. How to use markets in monetary policy, etc. NGDP targeting is not my idea, it's been around for a while.

Some think I'm a huge fan of QE and negative rates, whereas I favor policy regimes where those tools would not be needed. It's central bankers who disagree with me who adopt policies that lead to a need for QE and negative rates.

1. The benefits are not really psychological, they derive from the fact that wages and debt contracts are sticky in nominal terms. So unexpected declines in NGDP lead to high unemployment and financial crises.

2. I oppose helicopter drops, they are a waste of fiscal resources. The central bank should keep buying assets until they hit their target. I'd rather they create a sovereign wealth fund than do a helicopter drop.

The banks issue is misleading. Even if the Fed buys assets from non-banks, the money almost immediately flows into banks. QE does not help banks in the way that people assume (i.e. Cantillon effects). If it helps banks it does so by improving the macroeconomy.

Gold and money were dual media of account under the gold standard, so the price level can be modeled either way. The advantage of gold over money is that the latter is endogenous under a gold standard, so it's difficult to isolate the impact of any single central bank. The gold ratio allows you to see the impact of each central bank.

Regarding the money supply, the base fell in the first year of the depression, whereas the problem after that was rising demand for base money, which created an increased derived demand for gold. But that rising demand for base money was itself a function of the previous tight money policy.

I agree that Hoover's high wage policy was a problem, but the 50% fall in NGDP was a sufficient condition for a pretty deep depression, even without that policy. And of course the policy would not have mattered had NGDP not collapsed, nor would Hoover have sharply raised tax rates.

I think the differences are often subtle and nuanced, hard to explain here. Perhaps I'm a bit more skeptical of the gold standard, and the likely macroeconomic outcome of completely free banking, with no Fed. But those differences are at the margin, I am sympathetic to many of their arguments.

Friedman is my favorite. I really like Coase, but since I'm a macro guy I'd say I've also been influenced by Lucas, McCallum, Hall, Irving Fisher, Hetzel. I've left out many names here. On NGDP specifically it's been McCallum and Selgin.

I suppose even Krugman to some extent, since I read his blog so much. Not so much by his specific views, but his way of thinking, which is really sharp when he stays away from politics.

If you are thinking more broadly about influence, then people like McCloskey and Cowen have influenced how I approach intellectual issues in general.

I respect Krugman and DeLong's blogs. But they can be annoying. I both like and respect many blogs. The GMU bloggers are some of my favorites, along with Nick Rowe and other market monetarists. I also like Scott Alexander. Too many to mention here.

Not predictive ability, except in the sense that my model relies on market forecasts, which are less bad than other forecasts. The term I like is coherence, do all the components fit together in a persuasive fashion. I'm a methodological pragmatist, and I reject any single "scientific" approach to economics. To me, Friedman and Schwartz is the model of macroeconomic analysis, and it's primitive in a technical sense.

Models should be collections of paragraphs combined with lots of data and charts, not collections of equations.

Tight money (higher gold ratio) triggered it, currency hoarding worsened the fall in AD. FDR's dollar devaluation was a massive expansionary shock, which should have ended the Depression relatively quickly, but his 5 wage shocks (artificially higher wages) delayed the recovery by years. Private gold harding was a problem in 1931-32 and again in 1937-38.

Economists need to do a better job with policy, and not worry so much about public opinion. Economists as a group caused the Great Recession, with their lack of awareness about what a determined central bank could do to offset the financial crisis. Bad times produce demagogues. So we have lots of socialist and nationalist demagoguery due to the bad times we've been through.

Germany had much worse times in the early 1930s, and that boosted the two extremes. Fortunately our situation is nowhere near as bad, but that's the direction politics moves when the technocrats don't do their job. Without excusing foolish voters, policymakers need to do a better job.

There's only one possible answer to your first question.

I suspect that Italy has major structural problems, especially in the southern third of the country. In my view monetary stability can prevent sharp increases in the unemployment rate, but not much more. So while the ECB policy has clearly raised Italian unemployment in recent years, the slow trend NGDP growth rate is non-monetary. And even the natural unemployment rate in Italy is quite high, in other words most of Italy's problems are domestic structural problems.

Brexit is a close call. On purely economic reasoning I might vote to exit (Swiss model), but on balance I'd vote to stay in. I see nationalism as a rising problem throughout the world and at times like this all good classical liberals should show solidarity with global cosmopolitanism. In the words, think how Trump would vote, and do the opposite.

They should buy the safest assets possible (Treasury securities), and then when they run out of T-bonds they can buy progressively less safe assets. But I'd rather they set a NGDP growth target high enough to keep nominal interest rates above zero. Then the base would be less than 10% of GDP, and not much QE would be needed.

From the beginning of Abenomincs I've predicted it would have some positive effect, but fail to hit 2% inflation. I still believe that. But they've created more inflation so far than I anticipated. Still, they need a major policy shift, perhaps to level targeting.

The current narrative does not explain the many high frequency fluctuations in industrial production (measured monthly) That's what I try to do with my new book. The standard narrative doesn't even explain why the Depression began in late 1929

Most studies focus on either supply or demand shocks, in my view you need to focus on both.

Many people think the Depression occurred due to macroeconomic imbalances. Actually the macroeconomy was in great shape in mid-1929. More sophisticated observers blame monetary policy, and congratulate the Fed for acting differently this time. But the Fed also cut rates close to zero, and did lots of QE in the 1930s, so that's too simple. The main problem is that people didn't take the time to really think through the implications of the international gold standard. A few did understand the role of gold (Bernanke, Eichengreen, Temin, and especially Glasner, Clark Johnson, etc) but no one took that understanding and turned it into a detailed quantitative analysis of gold supply and demand shocks.

Why is the crime rate in El Paso so low? Is it because it's a Hispanic city?

The question of endogeniety is complex, it actually depends on what you are assuming about the policy regime. If they target something other than M, then money becomes endogenous. But under floating rates the central bank can adjust M if they want to, and you might want to think about things like changes in the fed funds target as backdoor ways of adjusting M as needed to hit an inflation target.

Perhaps there is a reduction in the correlation between NGDP stability and labor market stability, due to big swings in the share of income going to capital. In that case you might want to target total labor compensation. I cheated a bit, because MMs have already discussed that idea. But it's hard for me to anticipate problems that I have not yet anticipated.

Prices were in both paper money and gold terms. Both were "dollars". More importantly, you are right that sterilization would prevent any impact, but we know that central banks cared about their gold reserve ratios, and hence often did not sterilize. In some cases attempting to do so would have exhausted their gold reserves. Take a look at the huge plunge in the monetary base in Canada between 1929 and 1932, and try to explain it with regard to Canadian monetary policy, without any consideration of the international gold standard. You can't. Ultimately the question of whether cash or money is more useful is an empirical question. There has been lots of work on money, so if they are even equally important, then a book of gold policy was needed. That's why I wrote it.

BTW, markets cared a lot about gold market shocks, such as waves of private gold hoarding--under your assumption markets should not have cared.

I'm not sure I know what those terms mean. I guess I favor models with labor market disequilibrium (sticky wages) and money market equilibrium combined with efficient markets and rational expectations.

I'm a moderate on the welfare state. I don't buy the "just deserts" critique of Mankiw and others. Mankiw was really lucky to be born with so much talent and work ethic and personality. But I fear the supply-side downsides are bigger than many liberals envision. Thus I'm a big fan of wage subsidies, but not so much a fan of welfare for the unemployed.

Maybe they could be used as automatic stabilizers, but I don't think we should expect much in that regard. I think automatic stabilizers are overrated in a demand side sense, but may work from the supply side, as with employer side changes in labor costs (taxes subsidies)

On your last question, I try to encourage libertarians to switch from a natural rights approach to a utilitarian approach. In an uncertain world all we really know is that pain is bad an happiness is good.

Who knows, and no one should let that influence their vote for President.

The question of how to define "money" is uninteresting, as long as you are clear what you are talking about. I prefer to define it as the base. In that case any non-money supply factor impacts NGDP through base velocity. More debt might boost base velocity.

Pulp

It is compatible with free banking. But that would depend on how banking regulations changed. It would also reduce pressure for bank bailouts, as banking crises would no longer threaten NGDP growth. NGDP grew very fast after March 1933, despite 1000s of banks being closed during a major crisis. This was because of sound monetary policy.

Yes, I believe the Fed could easily get policy back to "normal" without a surge in inflation. But it might require a massive reversal of QE, i.e. the sale of much of the Fed's stock of bonds.

Good points. I have doubts about nominal wage targeting even though in theory it might be best, and prefer an intermediate compromise---targeting total nominal labor compensation. Like NGDP, but unlike wages, that variable picks up demand shocks quite quickly. Even though the two policies have different justifications, as you say, the two series tend to move in tandem in the short run. And in the long run money is neutral in any case. So as a practical matter, for the US I think NGDP and total labor comp do about equally well. For big commodity exporters like Kuwait I'd focus on total wage comp., not NGDP.

I love the EMH, and indeed view it as an under-appreciated theory. It still has not been properly integrated into macroeconomics. But I've always seen it as being truish, an approximation of reality. It is very useful for academics, policymakers, and ordinary investors. Perhaps there are some small weaknesses that a few sophisticated investors might be able to exploit, but I'm even a bit skeptical of that argument.

Good questions, and I'll do my best:

1. I think voters are individually stupid but collectively wise. However they are collectively wiser the more you decentralize, and the more you separate out each decision. So Switzerland's democracy will be better than India's, and markets for single goods are usually more efficient than political markets, where you vote on a bundle of policies.

2. Your question also relates to behavioral economics, nudges, paternalism, etc. In most cases I think people can make better choices for themselves than bureaucrats. But perhaps not always. The problem is deciding when bureaucrats can improve things. I don't see any reliable procedure for doing so. So with all their flaws, I'd rather take my chances on free choice. Bureaucrats often make horrendous errors, such as the war of drugs and the ban on kidney sales. The consequences of those errors are much greater than the private errors that I am aware of, such as people buying managed mutual funds. I also think it's dangerous to assume you know that other people are making foolish choices, as with smoking.

I don't want to sound closed-minded, I'd guess there are a few paternalistic polices where the gains clearly outweigh the losses, say seatbelt laws. I don't waste time objecting to those. But how do we restrain the government, once they've started down that road?

Yes, but in theory that should only be a problem under the gold standard. It's sad that central banks under fiat money regimes have not offset these effects.