Scott Sumner on Money and the Fed

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🗓️ 2 January 2012

⏱️ 67 minutes

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Summary

Scott Sumner of Bentley University and the blog The Money Illusion talks with EconTalk host Russ Roberts about the state of monetary policy, the actions of the Federal Reserve over the past two years and the state of the economy. Sumner argues that monetary policy has been too tight and helped create the crisis. He disputes the relevance of the so-called liquidity trap and argues that aggressive monetary policy is both possible and desirable. The conversation closes with a discussion of what we have learned and failed to learn during the crisis.

Transcript

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0:00.0	Welcome to Econ Talk, part of the Library of Economics and Liberty. I'm your host Russ Roberts
0:13.9	of George Mason University and Stanford University's Hoover Institution. Our website is econtalk.org
0:21.2	where you can subscribe, find other episodes, comment on this podcast, and find links to
0:26.5	another information related to today's conversation. Our email address is mail at econtalk.org. We'd
0:33.6	love to hear from you.
0:36.7	Today is December 21st, 2011, and my guest is Scott Sumner of Bentley University. He blogs
0:45.8	at the Money Illusion. Scott, welcome back to Econ Talk. Thanks for inviting me Russ. Scott,
0:51.6	our topic for today is a very broad topic. It's my ignorance. I have trouble figuring out what's
0:57.8	going on, especially in the area of money and monetary policy. You seem to understand it, so I'm
1:03.4	coming back to you to ask some of the same questions I've been asking for a while. See if I can get a
1:07.6	little bit smarter. So let's start with a little bit of a review and your perspective, from your
1:14.0	perspective, what does monetary policy have to do with the mess that we're in right now?
1:18.0	Basically, I see monetary policy as driving nominal spending in the economy or nominal income.
1:26.8	Fynomenal, you mean just the dollar value rather than corrected for inflation.
1:31.1	If your listeners were to imagine their own income and then add up everyone else's income in
1:36.4	the entire United States, that would be total nominal income. That's the variable that I think
1:42.2	is sort of the key to the business cycle. Now, I don't think it's a key to long-term economic growth.
1:48.4	In fact, I don't think it really even matters much in that area. But in terms of the business cycle,
1:53.6	I think fluctuations in nominal income or spending are really the key.
1:59.0	I'm going to stop you there again. So when you said it doesn't matter, the long run, you've
2:04.4	been, for example, if we doubled nominal income, our wages doubling, but we didn't produce anything
2:11.2	more. We'd have twice as much measured income, but we wouldn't be any richer.
	...

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