Selgin trashes Sumner's story:
... why hasn't the Fed achieved higher NGDP growth? To observe that it hasn't done so because it hasn't been directly targeting NGDP won't do. After all, a 2 percent inflation target implicitly calls for whatever NGDP growth rate it takes to achieve 2 percent inflation.
Thank you, George.
3 comments:
This is what the statutes state the Fed's job is:
"The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production,"
This description for what the Fed is supposed to be doing was policy formulated by Milton Friedman :
"The stock of money [should be] increased at a fixed rate year-in and year-out without any variation in the rate of increase to meet cyclical needs,..."
The idea was the Fed should not be meddling or trying to "foster economic conditions " but should simply be maintaining a stable growth of money in proportion to long-run productivity growth .
The full text of Friedman can be found here:
https://tinyurl.com/y969ebxu
The part in the statutes about "maximum employment, stable prices, and moderate long-term interest rates" is Friedman's and Congress' opinion of what will be achieved if the Fed does its job of maintaining the growth of the money supply in proportion to average GDP growth
It really amazes me that so many people are telling the story that the words in the statutes mean that the Fed should be doing the exact opposite of what those words were originally intended to mean.
Jim, Thanks for the link.
I've heard of Friedman's constant-money-growth-rate idea before and I can see some merit in it.
If the statute says the Fed "shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential", that also sounds a lot like a constant-money-growth-rate idea. I didn't know anybody but Friedman specified that.
Where I have trouble is WHICH MONEY???
Your Friedman quote refers to "the stock of money" and your link specifies something like M1 money: "namely, currency plus all commercial bank deposits". But in Capitalism and Freedom, Friedman called for "a legislated rule" designed to achieve "a specified rate of growth" of the money supply. Yet “the precise definition of money" established in this rule, he said, "makes far less difference" than just having the rule would make. For Friedman, any money was good enough.
That can't be right.
On the other hand your statutes quote refers to "growth of the monetary and credit aggregates". Friedman didn't mention credit at all. And people like David Glasner, smart people, try to say that the difference between money and credit -- the cost of interest -- is an insignificant difference. No way.
My focus (as you know) is that the growth rate of money and the growth rate of credit must be similar, so that credit does not expand too much, relative to money.
http://newarthurianeconomics.blogspot.com/2010/09/its-in-percentages.html
First. sorry I replied to the wrong post. I thought I was replying to today's post.
If the statute says the Fed "shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential", that also sounds a lot like a constant-money-growth-rate idea. I didn't know anybody but Friedman specified that.
Congress specified that. It was 1977 I believe. Friedman's idea was all the rage at the time.
"Where I have trouble is WHICH MONEY???"
Yes that is the million dollar question.
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