“How Should Long-Term Monetary Policy be Determined?”

by on July 25, 2013 at 12:50 am in Current Affairs, Economics | Permalink

Here is the jstor link, from the Journal of Money, Credit, and Banking, and the author is Lawrence H. Summers.  I very much liked the piece when it came out in 1991 and I think it has held up especially well with time (please do note that Summers’s views very likely have evolved since then and you should not take this short article as any kind of definitive touchstone for what he would be like as Fed chairman.)

Given the sudden sensitivity of this topic, I am reluctant to summarize it in my own possibly misleading or overgeneralizing words, so if need be I hope you can get through the gate.

Summers did see, circa 1991, the time consistency problem with limiting inflation as more important than most monetary economists would believe today, but that was a common view at the time and given the historical experience up until then it was hardly a mistake.

I’ve read a lot of recent commentary on Summers, often by those who write on monetary economics, yet none of those writers seems to be aware of this piece nor do they discuss his other writings on monetary economics, virtually all of which are insightful.

Update: This link probably works better for you, plus it gives you a download option for $44.00.

1 Frederic Mari July 25, 2013 at 2:21 am

I can’t remember which blogger said it best (Yglesias? Drum?). The problem with Summers over Yellen is that, not only is he an asshole on a personal level but he fully believes in deregulation and letting the banks run amok.

So, even if there were to be little substantial difference difference between him and Yellen in terms of actual monetary policy (though she has way more hands-on experience), Yellen would still be the better choice due to Summers’ stance on banking de/regulation.

Also, I don’t like assholes…. 🙂

2 Frederic Mari July 25, 2013 at 2:23 am
3 Barry August 6, 2013 at 10:58 am

Don’t worry, though; he did an interview a couple of years ago where he said that he’d do the same thing all over again.

Just in case you were worried that he might learn something.

4 Jared July 25, 2013 at 2:41 am

Summers last big policy effort was designing a stimulus package that disappointed everyone. Whether you thought it too small, or too wasteful, few think it was built with prescience.

He has a rightfully earned reputation for being frivolous about the intellectual capabilities of women.

I’m young, so maybe I missed the point when it got swept under the rug, but Summers has never answered for the Shleifer affair it seems to me.

To Republicans, he’s been attached to two hated Dem administrations for 15 years and has the stink of the recovery act all over him. How is he supposed to have more cred?

Assuming that among potential realistic candidates (Yellen and Summers with Mankiw and Romer as dark horses) their knowledge of monetary economics is fairly level, Summers carries the most baggage politically and in terms of failed policy. It would be a huge blunder for Obama to pick Summers.

5 jf July 25, 2013 at 5:35 am

Mankiw? Are you high? The president is mildly conservative, of course, but he’d pick Mankiw to run the Fed about as soon as he’d pick Lew Rockwell.

6 Cliff July 25, 2013 at 11:52 pm

How was he frivolous about the intellectual capabilities of women? You’re not referring to that one presentation, I hope?

7 dearieme July 25, 2013 at 9:19 am

“How Should Long-Term Monetary Policy be Determined?” Blood and iron.

8 Joseph Ward July 25, 2013 at 10:15 am

I would take Yellen over Summers, but I don’t understand why these are the only two options. Here’s a short list of monetary economists that I would also prefer over Lawrence Summers:

Robert Barro
Frederic Mishkin
Michael Woodford
Mark Gertler

9 R Richard Schweitzer July 25, 2013 at 11:37 am

Everyone seems to be getting off into the issue of “by whom” rather than “how” should long-term monetary policy be determined.

The more important question is neither “who” nor “how,” but:


Other than as a substitute for politically determined fiscal policy, why is there a *need* for “Long-Term Monetary Policy?”

Is such a policy needed to *influence* (direct, constrain, control) or to *accommodate* the courses of human interactions?

Whatever may be the answer to that, further questions arise, which take us back to the “how” and “by whom.”

Answer the latter question first, and the answer to the first may become more apparent.

10 8y8 July 25, 2013 at 12:51 pm

Here’s an ungated copy.

11 Mark July 25, 2013 at 12:54 pm

I think this is TC trying to make good the critique Felix Salmon threw his way:

“Then, look at the pro-Summers pieces, such as they are. You’ll find much less in the way of arguments on the merits from the likes of Ed Luce and Tyler Cowen; instead, you’ll find talk about style and politics ”

But bringing out a paper from over 20 years ago doesn’t cut it imo.

12 Itay July 25, 2013 at 3:54 pm

How come no one is talking about the infamous Summers memo?

13 Barry August 6, 2013 at 11:01 am

What I find disgusting about economists supporting Summers is that he was a policy and intellectual point man in the misguided movement which crashed the world economy, for the greater glory of Wall St.

It’s one more data point on the corruption of the economics profession.

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