The Money Illusion: Understanding Market Monetarism, the Great Recession & Future Monetary Policy | Economics Book for Investors & Policy Makers

The ideas outlined in The Money Illusion provide a framework for understanding causes of changes in the macroeconomy.The author, Scott Sumner, rose to prominence during and on the heels of the "Great Recession" of 2007-09 with his unorthodox explanations of why the Federal Reserve was prolonging, rather than shortening, the recession. As time passed, Sumner's predictions continued to be accurate while more prominent economists were proven wrong. Sumner moved from the fringe to the mainstream in March 2020 when the Federal Reserve acted in massive, unprecedented fashion with asset purchases in line with Sumner's recommendations -- and turned what could well have turned into a global Great Depression into a somewhat "ordinary", and short, recession.The Money Illusion is the first book accessible to lay people to provide a systematic understanding of Sumner's views.Parts 1-3 discuss the history of models of macroeconomics like Keynesianism, strict Monetarism, New Keynesian, neo-Fisherian, Rational Expectations and New Classical models. The book goes on to explain Sumner's explanations for the shortcomings of each of these theories, with multiple and meticulous examples of those shortcomings. Later, the book lays out the underpinnings of Market Monetarism, the name ascribed to the school of thought of Sumner and like-thinking economists.The Money Illusion goes on to explain why Market Monetarism is the best approach to the uber-complex problem of "managing" -- a term Sumner would abhor -- the growth of the national, and world, economy. It further explains why the media and public obsession with interest rates as the measure of economic policy is misguided and counterproductive.The Money Illusion reads like a well-written mystery, as Sumner wanders through the history and shortcomings of conventional economic thought, leaving this reader anxious to turn the page to learn how the mystery unfolds. While probably not appropriate for most high schoolers, the book, with graphs instead of mathematics, is certainly accessible to anyone with some college with a sincere desire to understand the economy.It is impossible to run randomized controlled trials on the national and international economies. We may never know objective truth about these complex systems. So while we can't know The Money Illusion portrays objective truth, we can know that Market Monetarism explained the Great Recession in real time, although not many were listening. We can also know that Market Monetarism explained what the Federal Reserve should do in March 2020, in real time, and that the Fed's interventions worked, likely saving the global economy. Because of its accessibility to lay people, The Money Illusion may prove to be the most important book ever written on economic theory.Read this book.