In particular, check out this post on Friedman and Schwartz's success with their Monetary History. It is a very long post and you need to just sit down and read it (if it interests you), but here is an excerpt to show why I am so impressed with this guy:
The difference between my view and Krugman’s view cannot be resolved through econometrics, it is a complex question of interpretation, including how one thinks about the relevant counterfactuals. For instance, for me the relevant counterfactual is what would have happened if the Fed had abandoned the gold standard as soon as it began to constrain their policy. We know that after they did so in 1933, NGDP rose very rapidly. So what Krugman views as evidence of monetary policy ineffectiveness (say the failed 1932 open market purchase program), I view as merely reflecting the constraints of the international gold standard. On the other hand Krugman could point to recent liquidity traps in Japan and the U.S., which occurred under fiat money regimes. And you already know my views on those episodes.
One of the things that has most puzzled me about recent events is that many of the very same economists who were persuaded by F&S’s evidence, most notably Ben Bernanke, now seem strangely passive in their evaluation of current Fed policy options. And almost none blame the Fed for the rapid decline in NGDP that began last September. So does that mean Krugman wins the argument? More likely it means both Krugman and I will lose in the short run.
OK. I'll bite.
ReplyDeleteWhy did you like this article?
I like Sumner's rhetorical style, but don't see how an Austrian can like his theoretical substance.
Help me out here.
He sounds to me like a tenured professor with a lot of time on his hands.
ReplyDeleteI loved it because:
ReplyDelete(a) he challenged the received wisdom, something I've noticed too about F&S where everyone just asserts "they showed such and such" when no they did not,
(b) he is very methodical and quotes people at length, and then carefully lays out his own nuanced view,
and
(c) he recognizes that two economists can look at the same data and feel vindicated in their opposite conclusions because you need an interpretative framework. The facts don't just speak for themselves.
Like I said, I don't agree with his views, but--to quote the bad guy in the awful King Arthur movie--"At last, a man worth killing."
"A man worth killing" -- I'll take that as a compliment. Seriously, I greatly appreciate the kind comments. I notice somebody mentioned Austrian economics. I take a little bit from many different schools. Monetarism, Ratex, the price of money approach, and even Austrian. For instance, like Hayek I much prefer a NGDP rule to inflation targeting. Not much Keynesian, unless you include sticky wages and prices.
ReplyDeleteYes, I like that as well.
ReplyDeleteBob writes:
"he recognizes that two economists can look at the same data and feel vindicated in their opposite conclusions because you need an interpretative framework. The facts don't just speak for themselves."
Scott -- "sticky wages and prices" is Marshall, and was common in economics before Keynes -- i.e. this idea predates Keynes by about 60 years, and it's a mistake to identify it as "Keynesian".
ReplyDeleteScott writes:
"Not much Keynesian, unless you include sticky wages and prices."
Oops. I probably would have employed a different movie reference if I knew Sumner would come here.
ReplyDelete