“When push comes to shove”

To all MM´s (or M&M´s): hold your shields high. The stones will soon be thrown our way. The era where we were the stones is OVER. We´ve become the “conventional window”!

October 2011 will be remembered as the month that NGDPT “crashed the party”. A great helping hand was given by Goldman Sachs who, in the space of a few days wrote two pieces promoting NGDPT! That certainly helped bring onboard some VIE (Very Important Economists) like Krugman and DeLong. No matter that for the past few years all those arguments and much more had been written, discussed and illustrated by a handful of people, with Scott Sumner spearheading the pack. But no complaints or feelings of frustration. We are “politically correct”. We don´t discriminate.

In the second NGDPT piece GS takes on the experience of Sweden, which left the gold standard and adopted a price level target (PLT):

The record suggests that Sweden’s experience with price level targeting was successful: consumer prices stabilized, real interest rates declined sharply and real GDP stopped contracting shortly after the adoption of the price level target (see exhibit above). Compared to most other countries, Sweden fared relatively well in the 1930s.

Their graph follows.

From the figure below, one sees clearly that the same pattern was repeated in the US two years later when FDR delinked from gold and adopted a PLT (OK, there was NIRA and other distortions that took some “icing off the cake”), but the “contour” is the same.

Yes. All in all, hope has risen!

Update: Things move fast. There are “newcomers” already trying to figure “how to” do it!

8 thoughts on ““When push comes to shove”

  1. The only thing still lacking from the MM approach is distributional analysis. We agree that monetary policy/expectations can move NGDP, but whenever I think about it I am unsatisfied by the reliance on markets as the best way to redistribute the gains. Why assume that markets are the best way to distribute the gains made from monetary policy, as opposed to proposing, say, seigniorage-stimulus as the vehicle for the central bank to expand the money supply? Or is this simply an issue on which MM is choosing to remain silent/neutral?

    My fear is that the propagation of the MM school without addressing, or at least identifying, these potential areas of disagreement could lead it to be manipulated into a coarse “monetary neoliberalism” when that’s really not what it’s about at all. Instead I think it offers us the opportunity to address this issue in the formative stage, rather than allowing institutional forces to capture it first.

    • BD I´m not sure I understand your point. What NGDPT does is to get the economy back on “track” and then keep it there. That´s what happened in the Great Moderation (implicitly and unwittingly that´s what Greenspan ended doing). The “distribution of gains” is outside this scope.

      • NGDPT distributes gains differently depending on the mechanism by which it is implemented; no policy is neutral on distributional ground. The great failure of neoliberalism was its focus on growth, growth, growth as a separable element of economic performance, and while it achieved that end for some time, its oversight of equity meant that it was unsatisfactory in theory and in practice.

        NDGP targeting is not distribution-neutral either, and I should hate for it to inherit the fatal flaw of neoliberalism simply because so many economists are still stuck in that mindset. “Maximize growth” was an insufficient maxim; so too is “return growth to trend”. You need a measure of the quality and equality of that growth, otherwise this is no better.

        When you choose growth, you also must choose where and how that growth occurs. Let’s not overlook that again; instead I am arguing that these concerns should be ‘baked in’ to market monetarism from the very first.

      • BD You would agree with me that if the economy is pulled out of the deep hole it´s in everybody gains. As with any change there will be gain differentials, but I don´t think that´s the province of MP, which is geared to stabilize the economy. The distribution of the gains from stabilization may be the responsibility of FP and laws and regulations.

      • “I don’t think that’s the province of MP, which is geared to stabilize the economy.”

        Even though the primary purpose is to stabilize the economy, you still have to deal with the distributional effect which are a direct effect of your chosen mechanism. If you want to put the burden of distribution onto fiscal policy, that’s a legitimate position, and it’s actually similar to the one I support. I think that that’s one possible thread, but it runs counter to what I call the ‘strong version’ of MM, which I see embodied in Scott Sumner’s vigorous opposition to any and all fiscal stimulus.

        I much prefer your position (as i understand it), which I think of as the ‘weak version’. In my mind this position is that the Fed is setting the possible growth range but that the exact level, distribution, and timing are by necessity left to the fiscal authority, and that therefore fiscal policy is essential to both NGDP recovery and gains distribution.

  2. BTW, congrats also to Marcus Nunes for his fine contributions to M&Ms. Or “M Squared.” Or, the “Market Monetarist Movement,” M Cubed.

    Every voice added to the weight, added to gathering influence in the blogs.

    But rally your strength! The next assault is on the Citadel of monetary policy itself, the Federal Reserve Board. Winning in the blogospere means little if we don;t get Bernanke on board.

    To all: Keep blogging and commenting, but also start corresponding with Fed economists, officials and their friends.

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