In Fedspeak NGDP portfolio, Nick Rowe talks about the things we don't know.
He says we don't know "the relative strengths" of the trade-off between "(expected) inflation" and "(expected) real growth".
He says we don't know the timing of the effects of an "increase in expected inflation".
He says, "We do not have a good theory of how short run supply shocks shift the [Short Run Phillips Curve]. And we do not know what short run supply shocks there will be..."
"If we did know" all those things, Rowe says, "We would know how much inflation would be associated with a higher level of NGDP".
"But we don't know," he adds.
Nick Rowe seems less concerned about finding out those things than he does about pushing the NGDP Targeting agenda:
"A higher NGDP target is like a portfolio of inflation and real growth, and when you are uncertain a portfolio of two assets is usually better than a single asset. Eggs and baskets stuff."
"An inflation target to escape the Zero Lower Bound seems like putting all your eggs in one basket."
"An NGDP target is more like putting half your eggs in the inflation basket and half your eggs in the real growth basket. One basket should work, even if the other fails."
I guess he's pushing the NGDP Targeting agenda. Doesn't sound like it, really.
"Expected inflation goes up, expected real interest rates go down, Aggregate Demand goes up, actual inflation goes up, and validates the increase in expected inflation. And real income goes up, maybe by just the right amount, or maybe too little, or maybe too much. It could be far too little, or far too much..."
"That's the best I can do, for now."
Nick and his NGDP Targeting compadres are not even in the right ballpark.
The problem is not that prices are too low. The problem is that growth is too slow. There is only one correct focus, and it is to understand the reason growth is slow.
For the record, as long as economists continue to dismiss out of hand the possibility that excessive private sector debt is the reason growth is slow, economists will continue to fail to understand slow growth. They will be able to say only things like "But we don't know" and "That's the best I can do".