In the light of previous discussions here I found this remark from Scott Sumner very interesting. After observing that in a recent post he and John B. Taylor agreed almost completely about Fed monetary policy if you replace the word accommodative (used by Taylor) with contractionary, i.e. they believe things that are completely opposed. Here’s the remark:
How can this be? How can two economists disagree on something so fundamental? It would be like two physicists disagreeing on whether a rising bar of mercury in a thin glass tube indicates rising or falling temperatures. No, it’s even worse. It would be like one scientist saying it indicates rising temps, and arguing that’s why ice is melting, and the other arguing that it indicates falling temps and arguing that’s why ice is melting. I.e. that H2O has the property of melting when things get really cold.
So the next question is; who is the crackpot who thinks a rising bar is colder temperatures, and who also thinks water melts when it gets really cold.
Obviously I don’t think either of us is a crackpot.
He goes on to explain why he thinks what he thinks. Isn’t it possible that, at least under some circumstances, nominal GDP can’t be influenced by monetary policy the way he assumes it can?