I thought I’d offer a brief note on Scott Sumner’s latest offering to the field of economics – the ‘Sumner Critique.’ Sumner offers an apt example of why macroeconomists who ignore TGT are basically wasting their time – virtually every macroeconomic insight is already in The General Theory. Sumner says he has ‘never been able to take the book seriously.’ Maybe he just needs to read it properly.
The ‘Sumner Critique’ states that if the path of NGDP is stable, all macroeconomic effects become classical in nature. Sumner and others appear to think this is new and original, but, unfortunately for them, it was stated 76 years ago by Keynes:
Our criticism of the accepted classical theory of economics has consisted not so much in finding logical flaws in its analysis as in pointing out that its tacit assumptions are seldom or never satisfied, with the result that it cannot solve the economic problems of the actual world. But if our central controls succeed in establishing an aggregate volume of output corresponding to full employment as nearly as is practicable, the classical theory comes into its own again from this point onwards. If we suppose the volume of output to be given, i.e. to be determined by forces outside the classical scheme of thought, then there is no objection to be raised against the classical analysis of the manner in which private self-interest will determine what in particular is produced, in what proportions the factors of production will be combined to produce it, and how the value of the final product will be distributed between them. Again, if we have dealt otherwise with the problem of thrift, there is no objection to be raised against the modern classical theory as to the degree of consilience between private and public advantage in conditions of perfect and imperfect competition respectively. Thus, apart from the necessity of central controls to bring about an adjustment between the propensity to consume and the inducement to invest, there is no more reason to socialise economic life than there was before.
There you go. Replace ‘NGDP’ with full employment, and Keynes said it a long time ago. Keynes’ primary policy prescription of long term interest rates also has the benefit of being tried, and of working, after WW2. Conversely, NGDP targeting relies on expectations fairies and continually pumping up the value of asset prices. In other words: Keynes said it, but better.
Addendum: The riposte the NGDP and full employment are sufficiently different to make my criticism void does not hold. As Jonathan Catalan points out, for Keynes, ‘full employment’ was synonymous with ‘maximum effective demand, given potential output constraints.’ It’s hard to deny that Sumner uses something very similar.