YOU SURE CAN'T EASE ENOUGH TO CAUSE ANY INFLATION THESE DAYS:

NGDP targeting: the very latest econo-fad (Terence Corcoran  Oct 31, 2011, Financial Post)

Perhaps more influential in catapulting NGDP targeting into the mainstream was Goldman Sachs. On Oct. 15, one of Goldman's economists, Jan Hatzius, concluded that U.S. growth and job creation could be given a shot in the arm if the Fed targeted nominal GDP. The idea, apparently, would allow the Bernanke Fed to unleash a new round of monetary easing. As Ms. Romer sees it, NGDP targeting would allow the Fed to take additional steps, including "further quantitative easing, more forceful promises about short-term interest rates, and perhaps moves to lower the exchange rate. Such actions wouldn't just affect expectations; they would also be directly helpful. For example, a weaker dollar would stimulate exports."

As for inflation, Ms. Romer joins the already-large crowd of economists who believe a little inflation is good for us. "A small increase in expected inflation could be helpful." It would stimulate spending and encourage borrowing and buying of big-ticket items.

We will hear more of NGDP targeting in weeks and months to come. The debate also takes us all deep into the economic swamp, where creepy jargon and grotesque floating arguments and logical traps abound. One observation, though.

The idea of targeting nominal GDP has its origins, in part, in the work of some radical free-market economic theories. Prof. Sumner, for example, cites as inspiration economist George Selgin, at the University of Georgia, who wrote a book titled Less Than Zero: The Case for a Falling Price Level in a Growing Economy. The idea is that inflation could be close to zero over the long term, and that the only way to get to zero would be to allow inflation to rise and fall according to productivity changes in the economy.

Posted by oj at November 3, 2011 5:25 AM
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