YouSaid · the spoken record

Scott Sumner

lines on the record: 76
first: 2025-01-08
most recent: 2025-01-08
sittings or episodes: 1
sources: podcast

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“More than a year later, when the depression was already quite deep, so the causation clearly ran from falling nominal spending to financial distress, and that shouldn't be surprising at all because nominal GDP is the key variable determining the health of the financial system given that almost all of our financial contracts are nominal contracts. So think of the total nominal income the economy as the resources that people, companies, and even governments have to repay their debts. If that falls sharply, you will have a lot of financial distress. On the other hand, if there's a financial crisis and that lowers the equilibrium interest rate and policymakers don't respond appropriately, nominal GDP will fall, the crisis will get worse, and it'll look to the average person like the Crisis is sort of just building on itself.”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“Seemed to spread on their own, what they're missing is the role of the effect on the macroeconomy. So when there is a banking crisis that starts in one place and spreads, the initial crisis might have been due to mistakes made by that individual bank, but the spread across the financial system is usually because the policymakers allowed nominal GDP to fall sharply. And any sort of decline in nominal GDP that occurs for any reason will tend to make financial crises worse. We saw this in Argentina in the early 2000s, and even in the Great Depression in the United States, when we look back on it, we think of it as like a financial crisis causing a great depression. But that's not actually what happened. The Great Depression in the U.S. began in late 1929. The banking system didn't get into any kind of serious trouble until”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“So, here, if I told you what I'll tell you in a moment what it should do, some people would interpret my answer as a bailout, but I don't think it is a bailout. So let me explain. Let's say there's a large institution that fails and it potentially has ripple effects on other parts of the financial system. That's essentially going to lower the equilibrium interest rate in the economy. So the Fed in order to stabilize nominal GDP growth might have to cut interest rates sharply and might have to do some QE or whatever, merely to stabilize the path of nominal GDP growth given that shock. If they do that, then the ripple effects from the original crisis become far smaller. But I think what happens when people look back at”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“But I don't think those kind of sectoral shocks are crucial in driving the business cycle. As long as the monetary policy keeps the total path of spending along a stable growth path, we can let other policymakers address those issues. Congress can decide if they want to bail out General Motors, for instance”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“I disagree with that pretty much with all similar statements. I would even go further. I don't even think bailing out the financial system was The essential problem we faced in 2008. I believe the financial crisis was mostly a symptom of rapidly falling nominal GDP expectations. So in other words, if you stabilize the path of nominal GDP, that takes care of most of the other structural problems in the economy. At that point, you have individual companies failing here or there, individual banks that perhaps were poorly managed. We had Silicon Valley Bank fail recently during an otherwise healthy period in the economy. Those things happen.”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“And President Johnson as well, where pressure was put on the Fed. That seems to be to me to be less of a factor in recent decades. Even under Trump, I don't think the Fed was pressured that much to change its macroeconomic approach.”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“So instead of trying to sort of second guess what does Congress want us to do here or there, the feds actually better off in just achieving good outcomes for the macroeconomy and hoping that that results in their reputation being high among the public and among Congress. But when you get to more specific areas like bank regulation where there's special interest groups that differ in terms of their political interests, yes, politics does play a role in what the Fed does. And, you know, perhaps under the new administration, the Fed will back off a little bit on some of the tightening of bank regulation that's been in the works recently. So there I think politics does play a role. But I think it plays less of a role in macro policymaking than people might think with the exception that if you go back in history, yes, you can find examples, Burns and Nixon and so on.”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“If things go bad for the economy in either direction, too much inflation or too much recession, the Fed will be criticized and face opposition in Congress. But if things are going well, like think about the long greenspan period where things were going relatively well in terms of the macroeconomy, the Fed's reputation was pretty high.”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“I don't think the Always does what it thinks, what it thinks is best on all issues. So I think the Fed is somewhat political or aware of political constraints in many areas of policymaking that would include areas like bank regulation, where they have to think about what Congress wants. And even some of the bailout, which I would separate unconventional monetary policy bailouts asset purchases and so on from more traditional monetary policy that's just aimed at stabilizing inflation or nominal GDP growth or things like that. So it's the sort of traditional monetary policy making where I think the Fed is actually trying to achieve an optimal path for spending and inflation over time. And they believe if they do that, that will also be politically good for them.”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“Again, I think the Fed felt that the crisis was very severe and that they needed to do a lot. I think to some extent they did the wrong things. But in terms of their mindset, they worried, and particularly Ben Bernanke, who was a scholar of the Great Depression, right? So he was, in a sense, the perfect person to be in that role. And he didn't want to repeat what he saw as the key mistakes during the early 1930s, allowing the banking system to partially collapse and bring the economy down with it. So, I don't think, again, they were thinking that much about what Congress might do instead of their actions, but just the crisis right in front of their face that they had to address.”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“Ended up being too aggressive. But I think that Actually, the view of Powell and the others at the Fed that they needed to be more aggressive, they needed to try for what are called makeup policies to explicitly promote above-target inflation for a while, to get a quicker recovery. And I don't think it was pressure from Congress that pushed them to be as aggressive as they were. Congress was going to do a lot of fiscal stimulus, whether they set interest rates at zero or at 1% during that period. Congress was determined to push a lot of money out in the economy for a variety of reasons, partly for relief, partly for stimulus reasons. And I don't think the Fed was foremost on the minds of policymakers in Congress when they made those fiscal decisions.”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“Probably a useful way in some countries, but I think less so in the United States than you might imagine. Think that what happened in the case of COVID and other monetary policy mistakes, it's more a question of the Fed just getting things wrong, misjudging the situation. So, I mean, you can imagine countries where central banks are kind of forced to inflate for political reasons to accommodate deficit spending, to monetize the debt. But I don't think that was foremost on the Fed's mind in terms of the decisions that were made in 2020 and 2021. There had been a shift in sort of the zeitgeist in terms of the way policymakers think about monetary policy after a decade of below target inflation and a perception that the Fed had been too not expansionary enough during the previous decade. So they were determined to not repeat the mistakes of the recovery from the 2008-2009 recession by being more aggressive the next time around.”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“Maybe not, but I don't think that's really the right way to think about monetary rules. So to me, rather than think of either or rule versus discretion. Think about it in terms of how rule like is the policy regime. So we can see, for instance, over the last 30 years or so in the United States, inflation's averaged about 2%. And that's probably mostly because the Fed has decided that's the appropriate rate of inflation. That is more rule-like behavior than the previous three decades where inflation ranged from almost zero in some years to double digit for a considerable period of time. And so I would say monetary policy has become somewhat more rule like over the last 30 years compared to the previous 30 years. And it has the potential to become even more rule-like.”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“Someone watching that film might get the idea that things are a little bit more free-spirited or crazy in America today than they actually are.”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“But I think it was only radical relative to what came before, not radical relative to today. Yeah, I'm not really an expert on the culture of that period, but my sense is that there was still much more rigid rules about sexual behavior and so on in that period than in the period I grew up in in the 60s and 70s. But the movies are presenting a certain image that is different from reality. I think you recently saw the film Enora, right?”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, a lot of the Hollywood movies from that period are fairly glamorous because people wanted to escape from the hard times. So you'd see these elegant Art Deco New York City apartments and obviously conditions were very, very bleak during that period. I just watched a TV series called Babylon Berlin, which was in Germany about that time around 1930. And it really portrayed the poverty of that era in a way that you don't see in Hollywood movies, certainly and the sort of desperation a lot of people felt at that time. I guess there's probably cultural differences as well. Maybe the culture was more conservative in some sense than the image you get from the movies, which is, again, sort of a glamorous, free-spirited, you know, cultural scene. But Hollywood is sort of pushing the envelope to entertain people. But the actual views on many cultural issues were probably...”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“Probably not that far back because of my interest in economic history. I think the period of the 19th and 20th centuries the most interesting for me. I don't know exactly. I mean, the 1890s might be interesting for me because I don't know as much about it as the Great Depression, which I studied intensively. But I think the 1890s probably saw some similar dynamics play out as we saw in the Great Depression, you know, hoarding of gold, deflationary period, uncertainty about the stability of the monetary system. So going back and seeing that in real time, what were the political issues involved? How did people think about those? That would have been interesting. William Jennings Bryan, famous speech about the cross of gold was during that period.”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I guess it's. Properties. I think Milton Friedman thought it was slightly better. There's also a variant called SIM metalism, which is not sort of either or gold silver. It's like the medium of account is a weighted average of the two. So much gold plus so much silver becomes defined as a dollar. And that also has some advantages. And you could think of like inflation targeting as symmetalism going from two commodities to all the commodities in the economy, right? So under a gold standard, you only stabilize one price, the price of gold. Under symmetalism, you stabilize essentially the average of gold and silver prices. And under consumer price index targeting, you stabilize the entire average of all prices in the economy. So there's sort of a continuum from gold all the way up to inflation targeting and everything in between, including”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“So sometimes there's a lot of just inertia in how people think about policy possibilities. And until these new options are tried, they're simply not viewed as plausible, realistic policy proposals.”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“See, I'm not sure it wasn't even workable in the late 19th century. I don't, it's very possible that the U.S. political system was responsible enough in the late 19th century to run a fiat money regime with relatively low unstable inflation. But people just didn't conceive of that as a realistic possibility or a responsible possibility. Until it was tried and it was discovered here's another modern example. Remember when Milton Friedman was proposing floating exchange rates? So that's sort of like an aspect of fiat currency regimes, right? If each country has its own fiat currency regimes, you're likely to end up with floating exchange rates. When he proposed that, it was viewed as kind of irresponsible, almost extreme or fringe view of foreign exchange regimes. And a couple decades later was the norm.”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“In the recent past. And remember, the post World War I hyperinflation in Europe was a recent event for them. And I think that colored the views of policymakers in the early 1930s, made them reluctant to move away from fiat until the pain was so intense that politics forced them. Off of Gold Standard to fiat money.”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“And because of those negative experiences, it took a tremendous amount of pain before countries were willing to abandon gold and switch over to fiat money. A modern analogy to that might be the situation in Argentina at the end of the 1990s and early 2000s. So Argentina went through four very painful years of deflation with the currency board regime. And if you wonder, well, why didn't they abandon that sooner, devalued to try to get the economy out of depression? Argentina had previously had decades of painful history with high inflation. So the public was strongly opposed to inflationary fiat money regimes, and they were willing to tough out the currency board for longer than most other modern political systems would have stuck with it. So I think you have to look at the painful experience with fiat currency.”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“So one way of answering that question is to think about why didn't countries move sooner. And I think one of the problems is that previous experiences with fiat currency tended to be highly negative So highly inflationary episodes, most notably the period right after World War I, where a number of European countries, especially Germany, suffered hyperinflation. So at that time, fiat currency was associated with hyperinflation. Highly irresponsible monetary policies. Even John Maynard Keynes had very negative things to say about pure fiat currency regimes. He's today viewed as an opponent of the gold standard, but he didn't really favor fiat currency. He favored something more like a Bretton Woods system with some sort of gold peg that could be adjusted in an emergency.”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think there were different responses depending on if you were a conservative finance type in New York. You probably would regard that as an outrageous abuse of power. But Roosevelt was pretty popular at the time. So he was doing a lot of things. And I think overall his actions were widely popular in the United States, partly just because of the difference from what had happened right before. We'd had four very bleak years under Herbert Hoover. The public was ready for, I think it was called bold and persistent experimentation. And so even though some of the actions would have been perhaps regarded as abuse of power in previous period of American history, the public was ready for those kind of decisive actions. And so overall, I think his decisions were relatively popular”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“I think in the case of the rise of the Nazi Party, there was no awareness of how transformative in a negative way the events would be, you'd see things in the New York Times like experts expect Hitler to moderate his views as he gets closer to power. Obviously that did not occur. And also, you know, in the field of economics, just seeing how policy shocks were interpreted at the time as compared to how we think of them today. monetary policy decisions, decisions by Franklin Roosevelt and the New Deal and so on. And I found that very enlightening.”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source
“Oh, it's kind of hard to say. I think the thing that felt interesting about it was to see how people saw things as the events played out in real time. So, you know, before I read the New York Times, it was always sort of looking back on history. Knowing what we know now about how things played out, and seeing how people interpreted events like the rise of the Nazi Party in Germany in real time, I found kind of enlightening. And it's kind of hard to put into words exactly why it's enlightening, but it gives you a different perspective, I think, even on current events.”
2025-01-08 · Conversations with Tyler · Scott Sumner on Monetary Rules, Blooming Late, and the Death of Cinema · IDENTIFIED FROM THE TRANSCRIPT · source