As we look at the sharp rise in the US stock market following today’s important monetary easing announcement, I think we should all tip the cap in the direction of Scott Sumner whose influence is an amazing blogosphere success story.
Professors at Bentley University who’ve never published a famous book don’t normally shift the public debate. But Sumner’s vigorous and relentless blogging throughout the crisis on the potential of expectations-focused monetary policy really broke through. It all began with some links from Tyler Cowen and perhaps a tiff with Paul Krugman. I became a regular reader and his ideas have done a lot to influence me, and you can clearly see the influence on Ryan Avent at the Economist, Matt O’Brien at the Atlantic, Ramesh Ponnuru at National Review, Josh Barro at Bloomberg, and a few of the Wonkblog contributors. Outside the exciting world of online economics punditry, NGDP targeting hasn’t (yet!) caught fire as rapidly but it gained explicit allegiance from Christina Romer, Krugman, the economics team at Goldman Sachs, and eventually Chicago Federal Reserve President Charles Evans who started out with a different but similar-in-spirit program.
Then it all came together with the NGDP targeting paper Columbia University’s Michael Woodford presented at Jackson Hole. Woodford’s not a household name, even among people who follow the news very closely because he chooses not to play the public intellectual role. But he’s the author of the main graduate textbook on monetary policy, so he brings a level of authority to the table.
The Fed didn’t choose to adopt an NGDP target—neither a growth target nor a level target—today, nor even an Evans-style conditional rule. But the spirit of today’s approach clearly shows the influence of the same set of underlying ideas, most of all the rejection of the narrow focus on “credit easing” that had previously dominated the Fed’s approach to monetary policy at the zero bound. The ideas here aren’t really new per se—Krugman was saying something similar about Japan and the baby-sitting coop back in 1998, and Milton Friedman was known to remark that NGDP expectations are the right gauge of monetary policy—but Sumner was really the guy keeping this torch alive during 2009 and 2010 and forcing it, rather than an endless partisan debate about fiscal policy, back onto the intellectual agenda.