Two words you should never use: Inflation & Stimulus

“Price” is not that great either, so we´re left with TARGET. Since it cannot be preceded by the word “inflation” or the less sinful “price”, we are left with NGDP. Yes, but the “person in the street” has no idea what that means, so maybe we should say “nominal income level target”. With that you risk encountering the “smart Alec” who´ll say: “Ah! But I care about my “real income”! In order to “neutralize” the “opposition” just say “spending level target” or “aggregate demand level target”. Explain it in this way:

“Jack, before the crisis erupted the total spending level in the US economy on goods and services was X trillion and it was rising at Y% per year. If we had continued on that path, the level of spending, which is the same as total or aggregate demand, would be $Z trillion today, but we are only spending $T trillion, a shortfall of $M trillion. So here is what we at the Fed propose: “Do whatever it takes to take the level of spending up to as close to (the time adjusted) $Z trillion as is convenient in the next N quarters or years. How can that benefit you Jack? For starters your chances of finding a decent job will increase significantly. Maybe even your former employer will give you a call since his sales prospects have risen, also significantly, and he´ll see that hiring people and producing more is the “way to go”. That´s exactly what the problem was Jack, there was a lack of demand, current and prospective. If your old firm thought it wouldn´t sell as much as it had thought they had to let you, and many others, go.

Jack gets excited but then asks: “Mr. Fed Man, how can you do that? And Mr. Fed Man answers. Jack, it´s money that “moves the world” and we at the Federal Reserve are the guys that can make it less scarce. So go on and tell the wife the good news. Jack runs home to tell his wife that money won´t be scarce anymore and that any day now his former employer will call. Then they decide to go out for a Champaign dinner!

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2 thoughts on “Two words you should never use: Inflation & Stimulus

  1. Pingback: Scott Sumner Bans Inflation « Uneasy Money

  2. Pingback: NGDP targeting is not a Keynesian business cycle policy « The Market Monetarist

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