An Economist's 'Slightly Off Center' Ideas Hit Home
Economist Scott Sumner doesn’t look like a maverick. At first glance, the tall, bookish professor hardly seems the type to take on the Washington establishment. But lately Sumner has been doing just that: poking his finger in the eye of the Federal Reserve and advancing his contrarian ideas on macroeconomics to a growing audience.
“The Fed made a big mistake last fall,” says the Wisconsin native, who joined the Bentley economics faculty in 1982. “The initial problem in 2007 was diagnosed correctly — that was the subprime lending fiasco. But this was actually only a modest problem.”
He attributes the more severe downturn of the past 12 months to a failure of monetary policy. When officials did not act aggressively enough to pump up spending, the banking crisis mor- phed into a global fall in total spending.
“Most economists thought it was the same problem getting worse,” says Sumner, who earned his PhD at the University of Chicago. “I saw it as a cold turning into pneumonia — a totally different disease.”
Research-wise, Sumner found himself at the center of a perfect storm. His three specialties — the Great Depression, liquidity traps (the com- plexities of what happens when interest rates hit zero), and forward-looking monetary policy — offered a unique view of the unfolding recession.
Many macroeconomists, including those in charge of national monetary policy, make decisions and recommendations based on past data. Sumner, on the other hand, advocates looking ahead at where you want to go — in macro terms, “targeting the forecast.”
“It’s like trying to drive down the highway by looking backward to see if you’ve gone off the road,” he says of the current thinking in Washington. “It’s easier to steer the economy if you’re looking forward.”
In February, Sumner took his observations online, in a blog he named The Money Illusion. The resulting attention — he jokes of his trip from “obscurity to semi-obscurity” — has turned a spotlight on Bentley and on Sumner’s work. His manuscript on the Great Depression is making the rounds at publishers, and he is fielding requests for articles and speaking engage- ments from national journals and think tanks.
A Fresh Voice
Sumner has drawn praise and ever-important links from many online icons, including Andrew Sullivan at The Atlantic. In March, economics über blogger Tyler Cowen announced, “Right now the world should be beating a path to Scott Sumner’s door.”
Then there was the professor’s open letter to influential New York Times financial columnist Paul Krugman. The missive started something of a cyber-feud between the two, though things have calmed down since.
“I didn’t think the blog would be so well-read; it’s hard to get your voice heard,” he says. “Obviously, positive feedback is rewarding. The blog makes me participate in the conversation at a higher level than I would if I were just in my little niche.”
Still, Sumner has no illusions that his new popularity will translate into overnight change in U.S. monetary policy. “My hope is to change the way economists think about the issues,” he says, “because policy reflects their consensus.”