Of course the “Sumner critique” is not really my idea, the standard NK model circa 2007 implied a fiscal multiplier of zero. At best I expressed the idea a bit more colorfully (fiscal “multipliers” are nothing more than estimates of central bank incompetence), and did so in 2009 when almost everyone seemed to have forgotten NK economics, circa 2007.
Here’s The Telegraph:
“I think there will be quite a few changes,” said Michael Saunders, an economist at Citi, such as a more flexible inflation target, setting clear signals on how long interest rates may remain low, more bond-buying and, possibly, a rate cut.
That kind of approach has raised eyebrows at the Bank of England. Several top officials have said it is not needed for Britain, in part because of concerns it could stoke the country’s persistently above-target inflation.
Mr Carney also stirred controversy in December by saying that, in times of crisis, central banks might consider targeting a mix of inflation and growth rates instead of just inflation.
While Mr Carney speaks in Westminster, Sir Mervyn will be chairing one of the final Monetary Policy Committee meetings of his term. The MPC is not expected to expand its bond-buying programme.
But, the day before the Bank of England’s monetary policy committee announces the outcome of its monthly meeting, the Chancellor put the pressure on the bank to take action, the Financial Times reported.
Mr Osborne said decisive moves by the government on the deficit “means that…monetary policy action by the BoE can and should continue to support the economy”.
He was speaking at the launch of the Organisation for Economic Co-operation and Development’s report on the UK economy, which said the Bank of England may need to carry out more money-printing to stimulate the economy.
The Chancellor hopes that Mr Carney will persuade the Bank to take a more active stance in supporting the recovery.
All the Very Serious People in Britain are reacting with shock and horror at the idea of NGDP targeting. Here’s a tip as to whether you are reading someone who is absolutely clueless on the subject—they’ll say; “An NGDP targeting regime would force the central bank to estimate the trend rate of RGDP growth.”
So Carney is backing off a bit, and talking about flexible inflation targeting, which is a slightly less effective form of NGDP targeting, without the ugly four letter acronym.
Osborne is hoping that the BoE will offset fiscal austerity. So does the Labour Party. So do the Liberal Democrats. So do most of the British people. But NGDPLT is one of those ideas that policymakers dare not speak its name. Thus we have the bizarre situation where Osborne:
1. Has the duty of telling the BoE exactly what they are supposed to do.
2. Wants them to do NGDPLT.
3. Dare’s not tell them he wants them to do NGDPLT.
4. Hopes that Carney will see the winks and the nods and do it anyway.
After all, when you pay a central banker a million dollars a year you’d expect, at a minimum, that he can recognize when the Chancellor of the Exchequer is winking at him. The real question is whether Carney can convince his colleagues, who can pretend not to see the winks.