Eli Dourado thinks so. He replied to his critics but Ryan Avent at Free Exchange did´t buy it. Ryan´s comment is very much worth reading because it clearly brings out the oft forgotten distinction between growth rates and levels:
The Fed’s role can be viewed not as turning on the NGDP machine and creating more NGDP to distribute to private firms and households but as coordinating expectations across the private sector in order to arrive at a better equilibrium. If the Fed fails to play this coordinating role, the market may not be able to clear on its own. Firms are now building more and selling more, but we need them to build and sell a lotmore if the stock of unemployed workers is to return to normal levels. But right now, firms are doing the equivalent of standing around saying to each other, “Well, I’ll build a lot more if you buy a lot more”, “Well, I’ll buy a lot more, if you hire a lot more”, and around and around. The Fed can and should put out word that now is the time for everyone to take the leap.
And this time around the distinction is crucial because the level drop was (almost) unheard of, at least by those still in their prime age.
Tyler Cowen sides with Eli:
To say “ngdp is low,” or “ngdp is on a low growth path,” or “ngdp is below trend,” and so on — be very careful! Those claims do not necessarily have causal force. Arguably they are simply repeating, in a new and somewhat different language, the point that the private sector has not seen fit to engage in more trade, credit creation, velocity acceleration, and so on. Formally speaking, the claims are not wrong, but I don’t find them useful as an explanation for why economic growth or recovery, at some point in time, is slow. It is one way of repeating or re-expressing the slowness of economic growth, albeit with some transforms applied to the vocabulary of variables.
Update: David Beckworth has a reply to Tyler Cowen:
I fear an alien life force has taken over our dear friend Tyler Cowen. Or, maybe it is just his evil twin Tyrone pretending to be Tyler on his blog. Either way, the real Tyler Cowen would never have written this post. For it contains some really head-scratching statements on nominal GDP targeting. Probably the most puzzling one is this:
I get nervous at how ngdp lumps together real and nominal in one variable, and I get nervous at how the passive voice is applied to ngdp.
What? I about fell out of my chair when reading this. Mark Sadowski did too and had this to say:
No, NGDP is *all* nominal. That’s why it has the “nominal” in front. RGDP is an artificial concept requiring that we estimate an index of the aggregate price level.