Just because Scott Sumner's read a bit of Hayek, does not mean that those who read his work carefully will cross over to the dark side of monetarism... Indeed he is exactly the sort of thinker Austrian's should embrace - he is knowledgable about other schools of thought (or at least is honest about his own ignorance and writes with humility); he blogs prolifically (allowing interjections and direct dialogue); is policy relevent, but most importantly clearly and consistently espouses a position Austrians have a tendency to gloss over.
Partly this is a limitation on my own part - I learnt most macro from Romer's "Advanced Macroeconomics" and "The Red Book", and whilst such surveys are excellent ways to develop a broad perspective I am perhaps a little guity of over simplifying certain aspects. Prelims were all about convincing yourself that you *understood* macro (or at least convincing yourself that you weren't a fraud), but I'm not ashamed to realise that when things start to "slot into place" this could well be a *bad* sign.
Therefore, if I have had a tendency to oversimplify others for the sake of convincing myself that I understand them, someone like Scott Sumner has a unique ability to (i) make me realise that other schools of thought are rich and diverse; (ii) force me to confront and reassess prior knowledge.
Scott's main theme is that present monetary policy is *tight*, not loose (i.e. Milton Friedman's "fallacy of identifying tight money with high interest rates and easy money with low interest rates”). Consider his policy proposal here. This immediately prompts incredulity from some Austrians, but since he takes the time to read Hayek an be informed by him, it is worth taking him seriously. In particular consider this article:
To summarize, a really, really tight money policy would probably lead to:
1. Near zero interest rates
2. A large increase in the monetary base.
Unfortunately, most economists and central bankers regard those two indicators as showing a really, really easy monetary policy. Which is why we are where we are.
The question that I've been asking myself recently, and that I hope to be able to answer within the next couple of months, is the following: What are the key differences seperating Sumner from contemporary Austrians? It strikes me that the following are largely absent from his work:
- Attention to the time structure of production, and the heterogeneous nature of capital
- The role of prices as a signal for resource mobilisation under conditions of uncertainty and disequilibrium
- The public choice concerns of credible monetary policy
If you augmented Sumner with the above how far off an Austrian position would you be? Alternatively, what would you need to take away from Sumner's approach to make it compatible? This debate with Kevin Dowd is worth watching.