Scott Sumner

Last updated

Scott Sumner
Born1955 (age 6566)
Nationality United States
Field Monetary economics
School or
tradition
Market monetarism
Alma mater University of Chicago (Ph.D.) University of Wisconsin (B.A.)
Influences Milton Friedman
Information at IDEAS / RePEc

Scott B. Sumner (born 1955) is an American economist. He is the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University, a Research Fellow at the Independent Institute, and professor 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 Federal Reserve and other central banks should target nominal GDP, real GDP growth plus the rate of inflation, to better "induce the correct level of business investment". [1]

Contents

In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea. [2]

After Ben Bernanke's announcement on September 13, 2012, of a new round of quantitative easing, which open-endedly committed the FOMC to purchase $40 billion agency mortgage-backed securities per month until the "labor market improves substantially", some media outlets began hailing him as the "blogger who saved the economy", for popularizing the concept of nominal income targeting. [3]

Academic career

Sumner received a PhD in economics from the University of Chicago in 1985. His published research focuses on prediction markets and monetary policy. [4]

In the wake of the 2008 financial crisis, Sumner began authoring a blog where he vocally criticized the view that the United States economy was stuck in a liquidity trap. [5] Sumner advocates that central banks such as the Federal Reserve create a futures market for the level of nominal gross domestic product (NGDP, also known as nominal income), and adjust monetary policy to achieve a nominal income target on the basis of information from the market. Monetary authorities generally choose to target other metrics, such as inflation, unemployment, the money supply or hybrids of these and rely on information from the financial markets, indices of unemployment or inflation, etc. to make monetary policy. [6]

In 2015, Sumner published The Midas Paradox: A New Look at the Great Depression and Economic Instability. The book argued that the Depression was greatly extended by repeated gold market shocks and New Deal wage policies.

Market monetarism

A school of economics known as market monetarism has coalesced around Sumner's views; The Daily Telegraph international business editor Ambrose Evans-Pritchard has referred to Sumner as the "eminence grise" of market monetarism. [7] In 2012, the Chronicle of Higher Education referred to Sumner as "among the most influential" economist bloggers, along with Greg Mankiw of Harvard University and Paul Krugman of Princeton. [8] In 2012, Foreign Policy ranked Sumner jointly with Federal Reserve chair Ben Bernanke 15th on its list of 100 top global thinkers. [9]

Nominal GDP targeting

Sumner contends that inflation is "measured inaccurately and does not discriminate between demand versus supply shocks" and that "Inflation often changes with a lag...but nominal GDP growth falls very, very quickly, so it'll give you a more timely signal stimulus is needed". [10] He argued that monetary policy can offset fiscal austerity policies such as those pursued by the British government in the wake of the 2007 economic crisis. [10]

In April 2011, the Reserve Bank of New Zealand responded to Sumner's critique of inflation targeting, arguing that a nominal GDP target would be too technically complicated, and make monetary policy difficult to communicate. [11] By November 2011, however, economists from Goldman Sachs were advocating that the Federal Reserve adopt a nominal income target. Nathan Sheets, a former top official at the Federal Reserve and the head of international economics at Citigroup, proposed that the Federal Reserve adopt a nominal consumption target instead. [12]

Sumner has argued that one cannot account for the impact of fiscal policy without first considering how monetary policy may affect the outcome; fiscal stimulus may not succeed if monetary policy is tightened in response. Economic journalists have referred to this as the Sumner Critique, akin to the Lucas critique. [13] Summarizing this thinking, The Economist suggested that

the economy will almost certainly not grow at a 5.3% rate no matter what Congress does. Arguments to the contrary are subject to what econ bloggers have come to call the Sumner Critique, after economist and blogger Scott Sumner. It is reasonable to assume, by this critique, that the Federal Reserve has a general path for unemployment and inflation in mind and it will react to correct any meaningful deviation from that path. A 5.3% growth rate is well outside the range of current Fed projections. Growth that rapid would almost certainly bring down unemployment quite quickly, triggering Fed nervousness over future inflation and prompting steps to tighten monetary policy. [14]

Personal life

Well known in Bentley's economics department as a "technophobe," Sumner, who purchased his first cell phone in 2011, apparently "triggered expressions of surprise and amusement when he informed his colleagues that he was starting a blog." [1]

Bibliography

Books

Articles

The Hill

U.S. News & World Report

  • Sumner, Scott (December 26, 2017). "Low Inflation Nation". U.S. News & World Report. Retrieved April 18, 2021.
  • Sumner, Scott (July 10, 2017). "Demystify the Fed". U.S. News & World Report. Retrieved April 18, 2021.
  • Sumner, Scott; Horan, Patrick (May 30, 2017). "Fed Up With Congress". U.S. News & World Report. Retrieved April 18, 2021.

Mercatus Center

Cato Institute

Others

See also

Related Research Articles

Milton Friedman American economist and statistician

Milton Friedman was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and the complexity of stabilization policy. With George Stigler and others, Friedman was among the intellectual leaders of the Chicago school of economics, a neoclassical school of economic thought associated with the work of the faculty at the University of Chicago that rejected Keynesianism in favor of monetarism until the mid-1970s, when it turned to new classical macroeconomics heavily based on the concept of rational expectations. Several students, young professors and academics who were recruited or mentored by Friedman at Chicago went on to become leading economists, including Gary Becker, Robert Fogel, Thomas Sowell and Robert Lucas Jr.

Inflation Rise in price level in an economy over time

In economics, inflation is a general rise in the price level of an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. The opposite of inflation is deflation, a sustained decrease in the general price level of goods and services. The common measure of inflation is the inflation rate, the annualised percentage change in a general price index, usually the consumer price index, over time.

New Keynesian economics

New Keynesian economics is a school of macroeconomics that strives to provide microeconomic foundations for Keynesian economics. It developed partly as a response to criticisms of Keynesian macroeconomics by adherents of new classical macroeconomics.

Money supply Total value of money available in an economy at a specific point in time

In macroeconomics, the money supply refers to the total volume of money held by the public at a particular point in time in an economy. There are several ways to define "money", but standard measures usually include currency in circulation and demand deposits. The central bank of each country may use a definition of what constitutes money for its purposes.

Monetary policy Policy adopted by the monetary authority to control the short-term interest rate or the money supply

Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing or the money supply, often as an attempt to reduce inflation or the interest rate, to ensure price stability and general trust of the value and stability of the nation's currency.

The Taylor rule is one kind of targeting monetary policy used by central banks. The Taylor rule was proposed by the American economist John B. Taylor, economic adviser in the presidential administrations of Gerald Ford and George H. W. Bush, in 1992 as a central bank technique to stabilize economic activity by setting an interest rate.

Criticism of the Federal Reserve

The Federal Reserve System has faced various criticisms since it was authorized in 1913. Nobel laureate economist Milton Friedman and his fellow monetarist Anna Schwartz criticized the Fed's response to the Wall Street Crash of 1929 arguing that it greatly exacerbated the Great Depression. More recent prominent critics include former Congressman Ron Paul.

Inflation targeting is a monetary policy where a central bank follows an explicit target for the inflation rate for the medium-term and announces this inflation target to the public. The assumption is that the best that monetary policy can do to support long-term growth of the economy is to maintain price stability, and price stability is achieved by controlling inflation. The central bank uses interest rates, its main short-term monetary instrument.

The Mercatus Center at George Mason University is a libertarian non-profit free-market-oriented research, education, and outreach think tank directed by Tyler Cowen. It works with policy experts, lobbyists, and government officials to connect academic learning and real-world practice. Taking its name from the Latin word for "market", the center advocates free-market approaches to public policy. During the George W. Bush administration's campaign to reduce government regulation, the Wall Street Journal reported, "14 of the 23 rules the White House chose for its 'hit list' to eliminate or modify were Mercatus entries".

George Selgin is a Senior Fellow and Director Emeritus of the Cato Institute's Center for Monetary and Financial Alternatives, where he is editor-in-chief of the center's blog, Alt-M, Professor Emeritus of economics at the Terry College of Business at the University of Georgia, and an associate editor of Econ Journal Watch. Selgin formerly taught at George Mason University, the University of Hong Kong, and West Virginia University.

Quantitative easing Monetary policy tool

Quantitative easing (QE) is a monetary policy whereby a central bank purchases predetermined amounts of government bonds or other financial assets in order to inject money into the economy to expand economic activity. Quantitative easing is considered to be an unconventional form of monetary policy, which is usually used when inflation is very low or negative, and when standard monetary policy instruments have become ineffective.

History of Federal Open Market Committee actions

This is a list of historical rate actions by the United States Federal Open Market Committee (FOMC). The FOMC controls the supply of credit to banks and the sale of treasury securities. The Federal Open Market Committee meets every two months during the fiscal year. At scheduled meetings, the FOMC meets and makes any changes it sees as necessary, notably to the federal funds rate and the discount rate. The committee may also take actions with a less firm target, such as an increasing liquidity by the sale of a set amount of Treasury bonds, or affecting the price of currencies both foreign and domestic by selling dollar reserves. Jerome Powell is the current chairperson of the Federal Reserve and the FOMC.

James B. Bullard Federal Reserve Bank president

James Brian Bullard is the chief executive officer and 12th president of the Federal Reserve Bank of St. Louis, positions he has held since 2008. He is currently serving a term that began on March 1, 2021. In 2014, he was named the 7th most influential economist in the world in terms of media influence.

Steven Horwitz American economist

Steven G. Horwitz was an American economist of the Austrian School. Horwitz was the Distinguished Professor of Free Enterprise in the Department of Economics in the Miller College of Business at Ball State University in Muncie, Indiana. In 2017, he retired as the Dana Professor of Economics Emeritus at St. Lawrence University.

Lost Decades Period of economic stagnation in Japan

The Lost Decades refers to a period of economic stagnation in Japan caused by the asset price bubble's collapse in late 1991. The term originally referred to the years from 1991 to 2001, but the decade from 2001 to 2011 and the decade from 2011 to 2021 have been included by commentators.

Market monetarism is a school of macroeconomic thought that advocates that central banks target the level of nominal income instead of inflation, unemployment, or other measures of economic activity, including in times of shocks such as the bursting of the real estate bubble in 2006, and in the financial crisis that followed. In contrast to traditional monetarists, market monetarists do not believe monetary aggregates or commodity prices such as gold are the optimal guide to intervention. Market monetarists also reject the New Keynesian focus on interest rates as the primary instrument of monetary policy. Market monetarists prefer a nominal income target due to their twin beliefs that rational expectations are crucial to policy, and that markets react instantly to changes in their expectations about future policy, without the "long and variable lags" postulated by Milton Friedman.

A nominal income target is a monetary policy target. Such targets are adopted by central banks to manage national economic activity. Nominal aggregates are not adjusted for inflation. Nominal income aggregates that can serve as targets include nominal gross domestic product (NGDP) and nominal gross domestic income (GDI). Central banks use a variety of techniques to hit their targets, including conventional tools such as interest rate targeting or open market operations, unconventional tools such as quantitative easing or interest rates on excess reserves and expectations management to hit its target. The concept of NGDP targeting was formally proposed by Neo-Keynesian economists James Meade in 1977 and James Tobin in 1980, although Austrian economist Friedrich Hayek argued in favor of the stabilization of nominal income as a monetary policy norm as early as 1931 and as late as 1975.

Thomas M. Humphrey

Thomas MacGillivray Humphrey is an American economist. Until 2005 he was a research advisor and senior economist in the research department of the Federal Reserve Bank of Richmond and editor of the Bank's flagship publication, the Economic Quarterly. His publications cover macroeconomics, monetary economics, and the history of economic thought. Mark Blaug called him the "undisputed master" of British classical monetary thought.

David I. Meiselman American economist

David I. Meiselman was an American economist. Among his contributions to the field of economics are his work on the term structure of interest rates, the foundation today of the implementation of monetary policy by major central banks, and his work with Milton Friedman on the impact of monetary policy on the performance of the economy and inflation.

Judy Shelton American economist

Judy Lynn Shelton is an American economic advisor to former President Donald Trump. She is known for her advocacy for a return to the gold standard and for her criticisms of the Federal Reserve. Trump announced on July 2, 2019, that he would nominate Shelton to the Fed. Her nomination stalled on November 17, 2020, with a 47–50 vote in the Senate, and her nomination was eventually withdrawn by President Joe Biden in February 2021.

References

  1. 1 2 Greeley, Brendan (1 November 2012). "The Blog That Got Bernanke to Go Big". Bloomberg Businessweek.
  2. O'Brien, Matthew (2 May 2012). "A Rebellion at the Federal Reserve?". The Atlantic .
  3. Thompson, Derek (14 September 2012). "The Blogger Who Saved the Economy". The Atlantic.
  4. "Scott B. Sumner". Bentley University . Retrieved 2011-01-18.
  5. Krugman, Paul (2 March 2009). "A Quick Response to Scott Sumner". New York Times. Retrieved 2011-01-18.
  6. Sumner, Scott (14 December 2010). "Money Rules". The National Review. Retrieved 2011-01-18.
  7. Evans-Pritchard, Ambrose (27 November 2011). "Should the Fed save Europe from disaster?". The Telegraph. Retrieved 2011-12-01.
  8. Berrett, Dan (8 January 2012). "'Dim Sum for the Mind': Economics Blogs Engage Policy Wonks and Students". Chronicle of Higher Education.
  9. Wittmeyer, Alicia P. Q. (November 26, 2012). "The FP Top 100 Global Thinkers". Foreign Policy . The Slate Group . Retrieved 2012-11-26.
  10. 1 2 Hamilton, Scott (2011-04-10). "Bank of England Should Replace Inflation Targeting, Sumner Says". Bloomberg. Retrieved 2011-04-13.
  11. "Reserve Bank rejects report on system flaws". NZPA. 13 April 2011. Retrieved 2011-04-15.
  12. Sumner, Scott. "Monetary regimes in your review mirror may be closer than they appear" . Retrieved 2011-12-01.
  13. Yglesias, Matthew (18 May 2012). "Don't Believe The "Taxmageddon" Hype". Slate. Retrieved 2012-05-29.
  14. "Fiscal cliffs, multipliers, and the myth of central bank independence". The Economist. 23 May 2012. Retrieved 2012-05-29.