Nothing in my notes here about austerity and balanced budgets. And nothing about any improvement in our balance of trade. But what the heck.
Vickrey writes:
In the absence of change in the flow of net foreign investment, a government recycling of income through current deficits of somewhat more than the desired growth in nominal GDP will be needed to keep the economy in balance. Curtailing deficits will correspondingly stifle growth. A balanced budget, indeed, would tend to stop growth in nominal GDP altogether, and in the presence of inflation would lead to a downturn in real GDP and a corresponding increase in unemployment.
At The Money Illusion, Scott Sumner writes
It is not about being smart, it’s about setting specific goals and promising to do whatever one can to meet those goals.
I’d like to see the Fed set an explicit target path for nominal GDP. But at this point even a price level or inflation target would be better than nothing.
Do “level targeting,” which means you commit to a specified path for NGDP or prices, and commit to make up for any deviations from the target path. Thus if you target NGDP to grow at 5% a year, and it grows 4% one year, you shoot for 6% the next.
I’d like to see the Fed set an explicit target path for nominal GDP. But at this point even a price level or inflation target would be better than nothing.
Do “level targeting,” which means you commit to a specified path for NGDP or prices, and commit to make up for any deviations from the target path. Thus if you target NGDP to grow at 5% a year, and it grows 4% one year, you shoot for 6% the next.
Some differences there, that look unresolved to me.
3 comments:
Yes, unresolved differences. One is a Chicago School libertarian, one is not. Although to be fair, Vickrey did receive an honorary degree from Chicago. I'm leaning towards Sumner's argument that monetary policy by itself, can solve the current situation. The problem is the Fed doesn't have the balls.
Notice that Sumner, as I, calls for penalties on excess reserve deposits. His concern is that if not, the debt will be monetized. I say do both. Or maybe, I've misread his position?
Ha... I was finishing supper, thinking about adding a few thoughts to the above post, along these lines:
Assume we are moving toward Vickrey's conditions -- balanced budgets and no change in net foreign investment.
Then the growth of nominal GDP will stop. And inflation will lead to a downturn in real GDP and an increase in unemployment. According to Vickrey.
But what is Sumner's plan? To inflate nominal GDP on an explicit path. To create the inflation.
I think Sumner's plan is brilliant *except* it does not seem to offer a way to favor real growth over inflation.
Vickrey is saying, not only would Sumner's plan *not* favor real growth, it would undermine it! At least that's what crossed my mind when I put these two excerpts together.
I've not read Sumner lately.
"I'm leaning towards Sumner's argument that monetary policy by itself, can solve the current situation."
I would not want to limit policy in that way.
Art,
I wouldn't want to limit myself to policy options either. The problem lies with the inaction, or dare I say counteraction by congress. All I'm saying is that I think monetary policy by itself could work.
I'm going to go out on a limb here.(I hope I don't break the Abraham Lincoln rule.) I don't think Vickrey is saying what you've stated. He's saying that a higher than desired level of nominal GDP growth will be needed to keep the economy in balance under the conditions noted. Furthermore, Vickrey is arguing that a balanced budget approach under said conditions is what will stop nominal GDP growth all together. And in the presence of inflation would lead to a downturn in real GDP and an increase in unemployment. I think this relates to my earlier comment regarding Five F's #4.
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