Scott Sumner on Past Mistakes


Erik Kain

Erik writes about video games at Forbes and politics at Mother Jones. He's the contributor of The League though he hasn't written much here lately. He can be found occasionally composing 140 character cultural analysis on Twitter.

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13 Responses

  1. Back then, too, there were people who knew better and who were trying to raise hell over it. But those with power who defend the status quo never bend until the status quo has become broken or untenable, unfortunately. I don’t imagine this time will be any different, though I hope it will.Report

  2. Avatar kenB says:

    The problem is that people are raising the alarm about stuff all the time — it’s only in retrospect that we can see who was right.Report

  3. Avatar MFarmer says:

    The changes we need to make will most likely be forced on us from external realities we can no longer ignore. The rest of the world will start putting pressure on us to change and develope smart economics rather than smart power, even when they don’t practice smart economics — they will demand we do it, though — there’s too much to lose if America crashes.Report

  4. Avatar Jason Odegaard says:

    The lesson is more monetary stimulus will help, or giant fiscal stimulus.

    Maybe the best lesson would be to raise the price of gold. But since gold doesn’t exist as a standard, now we just need to have the Federal Reserve create inflation.

    That is the lesson. Don’t be timid.Report

    • Avatar Koz says:

      And associated with that is that inflation isn’t as effective for us given our fiscal profile. Ie, it’s not just a matter of how much we’ve borrowed but also how much we intend to borrow in the future. We can inflate our way out of past debts but not future ones.

      That’s a very important angle that libs don’t seem to get. In fact, a fair bit of the problem is libs’ misperception of the time frame angles inherent in this issue.Report

      • Avatar gschu says:

        I don’t think liberals misperceive the problem. They would argue that loosening monetary policy (and fiscal policy), and the increased inflation that would bring, would help jump start growth, raising revenues and making the long term debt problem easier to handle.Report

  5. Avatar Art Deco says:

    Between the summer of 1929 and the spring of 1933, prices in this country declined by 27%, or about 8.5% per annum; there has in the last 3 years been no deflation, but small year to year increases in prices. In the previous era, the Federal Reserve refrained from open market operations until March of 1932; in our own, the Federal Reserve has done two large sets of open market operations and may do a third. The economy ceased contracting two years ago; the economy contracted at a mean rate of 10% per year during the previous era.Report

    • Avatar Simon K says:

      I don’t think Scott (or anyone) is arguing that this mini-depression is as big at the great depression or that the Fed’s response has been as bad. He’s arguing that its similar in nature and so has been the Fed’s response.

      Scott is actually an advocate of a specific monetary policy innovation that would make monetary stimulus more effective and less inflationary, but that’s sort of beside the point here that what we have done is clearly neither effective nor inflationary and yet every single regional Fed governor is still voting against doing more. Why is that?Report

      • Avatar Art Deco says:

        It is not similar in nature and Sumner has hurled all sorts of accusations at Dr. Bernanke (that he ‘threw away the macroeconomics text book’, that Fed policy is dedicated only to increasing the profits of banks, &c). The guy is doing a jim dandy job of making himself look like an attention seeking policy entrepreneur.Report

        • Avatar Simon K says:

          Maybe. But he happens to be right. Bernanke’s academic work says he’s right.Report

          • Avatar Art Deco says:

            Do you realize how implausible is the thesis that Dr. Bernanke is unfamiliar with or disregards the implications of his own academic work?

            We had a 4% decline in domestic product over a the space of a year, not a 27% decline over 4 years; we have had a 4% increase in prices since 2008, with no period of deflation lasting longer than a quarter or two; we did not have a 25% decline in prices over 4 years. The Federal Reserve allowed in 1929-32 a slight decline in the size of the monetary base; Dr. Bernanke’s Federal Reserve has increased the size of its balance sheet 2.5 fold. There has been a 44% increase in the supply of M1 since May of 2008, not a decline in M1, as there was in the previous period. How are these ‘similar’ policy responses?Report

            • Avatar Murali says:

              Do you realize how implausible is the thesis that Dr. Bernanke is unfamiliar with or disregards the implications of his own academic work?

              This happens a lot of the time. Look at Paul krugman…Report