This is all very exciting and you'll have to excuse me. This is a big deal. In the economics world it's like
Snookie or Angelina saying hello-Angelina was my favorite. The rest of the cast were wrong for their treatment of her. They just have no place for such a smart, powerful woman in that house. I like the show and the guys, but they really are pigs.
Ok, back to Mr. Rowe. He is another one of the major monetarists out there right now. He's from the Sumner circle. That he actually read my post much less took time to reply is as I mentioned kind of exciting.
He is also someone who Krugman knows-for those of you who can't quite place the significance of who he is.
If you are at all plugged in to economics of course you know. Here is a link to his blog The Worthwhile Canadian Initiative http://worthwhile.typepad.com/worthwhile_canadian_initi/about-nick-rowe.html
OK, having said this, let's look at the substance of his comments. Here they are in full:
It all depends what growth rate of NGDP you choose, how much inflation there will be.
Most of us suggest a 5% target growth rate. If we hit that target, and real GDP continues to follow (or gets back to, in the case of the US) a 3% growth rate, then, by simple math, that means you will have trend inflation of 2%.
If instead you chose a 3% target for NGDP, you would get 0% trend inflation.
The argument about what long term inflation rate you want is really separate from whether we should target NGDP.
So what you can take from this is while it's interesting getting into things like Sumner's background, Geroge Selgin, and Free Banking, the fact is that you don't have to go out on all these limbs to support NGDP. Good thing, as I don't know about some of them...
The one thing I wonder though is if Rowe would agree we could use a little higher inflation right now as many currently believe.
Wow! But first off, I'm a no-name economist. I had read Paul Krugman before he started blogging (obviously). It is very unlikely he had ever heard of me before I started blogging.
ReplyDeleteI reckon the US could use a bit more inflation than it has right now, and is likely to get in the near future, unless something is done.
Looking around the world, at central banks that had an inflation target, usually 2% or 2.5%, it seems to me that 2% is just enough. I would be scared to go lower (because of the zero lower bound problem). NGDP level path targeting should, in theory, help keep the economy a bit less vulnerable to the zero lower bound problem. So I reckon 2% should be OK, and it doesn't need to be higher (on average).
Paul Krugman wants it a bit higher. I think he's probably wrong. But it's no big deal.
There's politics in this, but less than meets the eye. In countries like Canada, there's broad consensus across the political spectrum that something like 2% inflation targeting is roughly right. Only the extremes, on right and left, want something very different. The slightly left of centre Liberal party seems more interested in NGDP targeting here. They want me and Scott Sumner, both right of centre, to speak to Parliament about it.
The only real policy difference between say Paul Krugman and Brad DeLong, compared to people like me and Scott Sumner, is in how optimistic we are that monetary policy alone can do the job, without fiscal back-up.
The free banking stuff has always fascinated me, but I'm a bit sceptical that it could work. Ironically, most countries in fact allow some versions of totally free monetary systems, like LETS, which actually exist, haven't been busted, but don't seem to be able to take off into wide acceptance. What's doubly ironic is that systems like LETS are usually run by lefty/hippie types. I find it downright funny. There's the lefties doing what the righties want to happen, but neither side seems to realise it. (And most of the LETS people seem to think they are doing barter, but they actually have a monetary system, just one without paper notes.)
Well Krugman has read you so that's good enough for me. LOL
ReplyDeleteNow when you say that most countries do soemthing like LETS you mean most countries in the world? IF that's so it might be that nevertheless countries like ours with such a big, complex system coudln't.
I will say this about the Free Banking: I was reading something which featured the guy Sumner mentioned among many other proponents and it was really interesting as they considered a whole bunch of countries that alledgedly tried something like Free Banking at one time.
I don't know that I would ever buy into their punch line about Free Banking but it's fascinating to read about the French banking system of 1796-1803 for example. A lot of it is pretty good just for a great source of monetary history as is of course Friedman and Schwarz's "Monetary History of the United States."
I appreciate your clarity on the difference between the New Keynsians and Market Monetarists. The two camps really have had something of a meeting of the minds.
I would place myself on the Keynsian side of the divide-I think that I'd like to see stimulus right now, fiscal or monetary. If as seems likely with the current gridlock in the U.S. Congress, makes any real fiscal bang for the buck out of reach, then let's do monetary. I don't see it as either or-in a perfect world I'd do both if it were up to me-alas it isn't. LOL
I guess the one thing I'll say about inflation is that in any case the concern about it right now is misplaced. No matter what you think of for example, the New Deal, it is a fact it did not give us inflation.
I like the idea that some Fed guy suggested-I'm thinking it was Evans-that Beranke could basically say that until we get unemployment beneath 7 percent inflation will take a back seat, in other words we could tolerate it a little higher than 2 percent even if this were a long time target.
Overall, this discussion seems very encouraging to me. I am hoping that with so many people of influecne now discussing NGDP, etc, that maybe some real policy adjustment might happen.
Bernanke was asked about it recently and while Krugman took it as a rejection, interestingly Sumners took it more optimistically.
What Bernanke did say that was actually virtually ver batim with what Evans was saying, is when he was questioned about the Republican threats from Perry as well as the Congressional leadership that at this point fears of rising inflation have not had validity, and that 'obviously it is the employment side of the mandate that we have really been failing on'
And I find this post because Brad Delong linked to it via his Twitterstorm. I enjoyed Nick's comments above, thanks.
ReplyDeleteWow this was on Delong's Twitterstorm! Wow that's worth another post! LOL
ReplyDeleteAs long as we're on the subject of Krugman I'll mention that your link to his blog is broken.
ReplyDelete