From my 8 o'clock:
Krugman ... does not make clear the reasons that our economy grew like gangbusters after World War II despite (or, because of) all that government debt. Nor does he make clear the reasons that our economy failed to grow like gangbusters for the last 30 years because of (or despite) all that government debt.
For the first 30 years after World War II -- the Keynesian era -- the economy grew. For the next 30 years -- the era of Reaganomics -- the economy struggled to grow, and has since lost that struggle.
NGDP targeting is the idea that the Fed should not separate inflation from real growth when it sets policy, but consider them together. The idea is not to worry whether the economy is really growing or whether it's just inflation pushing the numbers up.
But we've struggled for the last 30 years, trying to get good economic growth. There is no reason to think that NGDP targeting will give us better growth than we have been getting. There's nothing to stop NGDP targeting from expressing itself entirely as inflation.
There is nothing to stop it from expressing itself as worse inflation, accompanied by declining output.
NGDP targeting does not solve the problem that hinders growth.
Noah has a couple posts on this that I could find easily.
ReplyDelete1
2
But it's actually worse than that, Proponents of NGDP targeting - Sumner and Beckworth in particular - think an NGDP futures market will drag the economy along a growth path.
It seems to all be based on expectations. This strikes me as Wishing can make it so, which is no more than magical thinking.
Then again, so is the invisible hand of the free market.
Cheers!
JzB