MM Heresy: Is IT Band Targeting Better Then NGDPLT? Unmeasurable Means Unmentionable?

A Benjamin Cole post

Could it be that a looser IT band is a better policy target than NGDPLT?

What if a nation can measure prices and thus relative slack reasonably well, but real-time estimates of even nominal GDP are worsening guesses?

Moreover, what if much of what makes urban life agreeable—better parks, clean air, pleasing sidewalks, good schools, low crime, leisure time—is not even captured by GDP? And the world is going urban.

And then add to the mix the perhaps exploding role of the off-the-books grey markets in the United States, unrecorded?


The amount of cash in circulation in the U.S. has exploded to $4,200 per resident, doubling in the last 10 years. The response of U.S. economists, who obviously never worked in a small business in Los Angeles, is that, “Well, the Benjamin Franklins are all offshore doing drug deals.”

Anyway, Edgar Feige, University of Wisconsin cash-scholar, says 75% of cash is onshore and in grey markets. That $3k for every man, woman, child and transgender in America. And growing rapidly.

As Feige says, “the growth of unreported income has the insidious effect of corrupting the reliability of primary data used for most macroeconomic analysis.”

Unmeasurables And Thus Unmentionables

Measuring GDP? Consider the Los Angeles of 1975 vs. that of 2015. One was a poison gas chamber, a permanent scrim that occluded close neighbors, and the latter has winter air in which one can sight Mt. Baldy 75 miles distant.

Crime rates at record lows, too.

No show on GDP, however.


Surely, a looser NGDPLT target is better than the Fed’s sub-2% monetary IT noose.

But, if the public is un-teachable on NGDPLT (or more likely, the profession), then perhaps taking a page from the Reserve Bank of Australia and its 2% to 3% IT band is a good idea.

Just goose the IT up a bit to 2.5% to 3.5%. There is no sense in permanently losing real growth for some  chump reductions in inflation.

One thought on “MM Heresy: Is IT Band Targeting Better Then NGDPLT? Unmeasurable Means Unmentionable?

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