Friday, February 05, 2010

My opinion on the state of things

Last year I wrote about trying to choose my economics "religion" or "denomination." One person who has been influential on my thinking in the last year is Scott Sumner at The Money Illusion. His post this week rebutting other economists I read and respect was a fantastic summary of his own points of view which have basically become my own as well.

Basically: The Fed allowed Nominal GDP to fall in half in 2008 and has been too contractionary in its policies since 2007 despite the illusion of a 0% federal funds rate. We've become Japan and Ben Bernanke has not done anything he said he would do (in papers and speeches years ago) should America become Japan.

Republicans and supply-siders are foolish to worry about inflation right now and to argue that the Fed should raise rates and pursue even more contractionary policy. As Sumner said earlier this week, it's 1931 all over again.

Dr. Sumner has been influential in slowly tilting the debate and blame for our current economic ills toward the Fed's poor monetary policy (not the Fed's bailouts which is all Congress complains about and maybe all the public thinks about). While he's a (neoliberal) conservative monetarist, both liberals and conservatives agree with his main points and ironically the more liberal Keynesian-leaning folks have been voicing his arguments more loudly. Lefty Matt Yglesias also cites the Sumner post here.

He claims to spend 6-7 hours a day working on his blog and it shows.

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