Sumner is the author of The Money Illusion, an excellent blog that has relentlessly made the case since 2009 for an eccentric policy called "NGDP targeting." This is a complicated sounding plan with a simple idea at its heart. If the equation that solves the economic crisis is "GDP growth + inflation = 5%" then the solution to low GDP growth is inflation that brings us up to 5%. Therefore, the Federal Reserve should announce that it will do everything in its power to raise inflation expectations until we're back to where we want to be.
Three years ago, this idea didn't have a stable home outside the wilderness of The Money Illusion. But it slowly gained credence among bloggers, economists, and finally, the Federal Reserve itself. In May, Chicago Fed President Charles Evans became the first sitting member to endorse the idea.
Yesterday, the central bank announced the closest thing to NGDP targeting that anybody expected: stimulus without end for the economy. Fed Chairman Ben Bernanke didn't announce a target as specific as 5% growth, but he essentially admitted that the central bank's start-stop policies were insufficient to help the recovery and that the duration of more stimulus would be determined by its outcome -- whether or not it brought the economy back to where we want it to be -- rather than by a dollar number of debt purchases.
If this isn't NGDP targeting, it's Bernanke-GDP targeting. It's a huge shift in policy whose full effects we won't know for months or years.
Correlation is not causation, and we can't prove that Scott Sumner's relentless blogging unleashed this brave new wave of monetary stimulus. But the timing is awfully telling. Meanwhile, various banks are already raising their growth forecasts for the fourth quarter of this year, potentially putting the full value of this idea in the tens of billions of dollars, at least.
We'll stop short of saying that Sumner's blog is worth tens of billions of dollars, although the full value of smart monetary policy is probably in the trillions of dollars. Instead, let's close on a more humble note.
If nothing more, the Sumner case is a textbook lesson in the power of blogs. Twenty years ago, if an economist, especially one researching in a field as unsexy as central banking, had a policy idea, his main avenue to the public sphere was to wait for a journalist to call him. The public doesn't read monetary policy papers, and they certainly don't pay for monetary policy books. That leaves "working hard and waiting by the phone" the most efficient way to get monetary policy ideas out into the world. Now there's a much more efficient way: You write a blog. Having a blogging platform essentially puts economists' unfettered thoughts on the same level as paid journalists.
I cannot say for sure that Scott Sumner's ideas directly contributed to yesterday's announcement of unlimited QE. But it seems fairly obvious that his blog was instrumental to the popularization of his wonky, once-eccentric policy proposal, which is now probably the most important economic development of the last six months.