Thursday, February 26, 2015

Scott Sumner Takes On Tyler Cowen on Money Supply and the Boom Phase of the Business Cycle

Now that Scott Sumner has become a member of Team Mercatus, he appears to be paying more attention to the writing of  Tyler Cowen, who is  chairman and general director of the Mercatus Center.

This might be fun.

In a post on Wednesday that Sumner titles, The Dog That Didn't Bark, he takes Cowen to task for stating that monetary policy doesn't have much to do with the recovery phase following a downturn in the economy:
I take issue with this claim [of Cowen's]:
4. During the upward phase of the recovery, monetary policy just doesn’t matter that much.
I  can’t even imagine what a model would look like where that claim was true.  To see why it is not true, compare the post mid-2009 recoveries in the US and Europe. If monetary policy in the US and Europe did not matter very much during the recovery, then the tightening of monetary policy in mid-2011 in the eurozone ought to have had little effect.  What does it look like to you?

Ouch. Of course, one piece of empirical evidence doesn't make a theory, but Sumner is on to something.  Austrian School Business Cycle Theory  explains quite clearly that a boom, where a central bank is active manipulating the economy, is all about  monetary policy, specifically accelerating money printing.

Sumner isn't an Austrian school economist, so he may not even recognize the up phase a part of a new business cycle, but he does look at the data and knows the new up move appears to be driven by money supply, and so he can have some fun with Cowen, who has apparently wandered far, far from his Austrian roots.

Robert Wenzel is Editor & Publisher at and at Target Liberty. He is also author of The Fed Flunks: My Speech at the New York Federal Reserve Bank. Follow him on twitter:@wenzeleconomics


  1. I really would like to learn more about RW take on Mercatus and its newly formed Monetary Policy team. Although I am an Austrian, I have had several meetings with individuals on the Mercatus team in regards to applying. I am curious if our ilk would be welcome there.

  2. "Major Freedom" has meticulously explained Sumner's errors to him for years on Sumner's blog. Sumner totally ignores MF while responding individually to virtually every other commenter. Sumner refuses to engage even basic Austrian concepts such as economic calculation/miscalculation and/or Cantillon Effects (which is what ALL statists refuse to do). I've never seen Sumner identify that ephemeral moment of pure market failure that requires a funny money cure. Actually, I've never known any statist to identify that mysterious ephemeral moment. Ever.

  3. The always professional Scott Sumner on "Major Freedom":

    MF works hard each day to prove that he’s the most tasteless, classless, moronic and petty human being every to walk on the face of the Earth. It’s just my luck that he chose to make a fool of himself on my blog.

  4. Jose Romeu RobazziMarch 2, 2015 at 1:45 PM

    Hello all, nobody who has roots in monetarism or new keynesian models will ever embrace austrian views. Despite all discussion over technical details, the source of this disagreement is two fold: 1. everything that is not conveyed in a formula is not serious economics, 2. These people don't recognize the role of the entrepreneur and acumulated savings as the motor of productivity growth, for them, productivity growth is reduced to "random shocks". Therefore, any serious discussion with these people is doomed. Having said that, I think that to dismiss Sumner ideas too fast is a mistake. His NGDP peg idea is actually not so bad, in termos of practical inclusion in the mainstream policy tools. I say that because, despite its obvious shortcomings, it has the virtue of allowing the discussion to move on from the level of stimuli (since this will be deemed fixed) to the discussion of the structural stuff, what should matter to austrians, because then we would focus the discussion on the various government interventions in markets in order to expose and eliminate them. Peggiin NGDP will remove one source of variability in the data, and allow the macroeconomic discussion to move on to fiscal deficits, incentives to entrepreneurship and innovation, market freedom, etc, etc.