Bears repeating

I'm tedious-ing  my way through the 65 comments on Scott Sumner's 2012 post "Debt surges don’t cause recessions". Here's a good one.

Ryan quoted Sumner:

“Forget about debt and focus on NGDP. It’s NGDP instability that creates problems, not debt surges.”

and remarked:

This is the closest I have ever seen of an economist saying “It’s not the fall that kills you, it’s the sudden stop at the end.”

I laughed my ass off and visited Ryan's Stationary Waves blog. The blog is still active, seven years later. (At this writing, the most recent post is only two days old.) Not all econ, but some interesting stuff.

Sumnr responded to Ryan:

Rayn, I think you misread me. I am saying it’s the fall (in NGDP) that kills you. When you have a debt bubble but no fall in NGDP, you don’t get hurt. Or maybe I misread your comment . . .

Ryan responded in turn:

Prof. Sumner,

It’s like this: If rising debt causes a decrease in NGDP, then rising debt kills you. If NGDP falls for some other reason, then it is that other reason that kills you.

YES! Ryan continues:

Changes in outstanding debt may cause a change in NGDP. Changes in employment may cause a change in NGDP. Changes in the money supply may cause a change in NGDP.

But in all cases, a change in NGDP is the result of some other factor. NGDP does not simply rise and fall in a vacuum, for no discernable reason.

Yeah, I say the same: GDP is a result (of all the things we do to boost GDP). GDP is the consequence of other things. Ryan finishes his thought:

So basically, what I am suggesting is that when you invite us not to “reason from” anything other than NGDP, you are correctly pointing out that it is the sudden stop at the end (NGDP) that kills us. On the other hand, you are moving us away from any analysis of why on Earth we might be plummeting toward the ground. It’s like trying to prevent suicides by analysing splatter marks on the sidewalk.

It's an evaluation of Sumner's thinking that definitely bears repeating.

Sumner replied:

Ryan, You said;

“But in all cases, a change in NGDP is the result of some other factor. NGDP does not simply rise and fall in a vacuum, for no discernable reason.”

The Fed determines NGDP.

Wow.

A comment by Vivian Darkbloom, not in the Ryan/SSumner thread but entirely relevant:

I sometimes think that you have so much invested in [NGDP targeting] (which by your own admission does not constitute *all* of macro) that you reject out of hand any other explanation for economic phenomena.