I’d rather be compared to Dylan or the Stones…
. . . but if it’s a one hit wonder like the Arctic Monkeys—I’ll take it. Claire Jones of the Financial Times did an article about my role in the NGDP targeting movement:
In 2006, rock band the Arctic Monkeys smashed the record for the fastest-selling debut album in the UK without the help of any of the main record labels that dominate the music industry.
The band’s achievement can be compared to Bank of England governor designate Mark Carney floating the possibility of dropping inflation targeting – a cornerstone of economic policy making in many of the big economies – in favour of nominal GDP targeting.
Like the Arctic Monkeys, the growing popularity of this policy was down to the internet’s ability to turn a niche idea into a mainstream success. Monetary policy’s main record label equivalents are the Ivy League universities. Many of the ideas that develop into policy frameworks begin life here, and it is also the place where many of the top-ranking central bankers begin their careers.
However, the revival of interest in nominal GDP targeting owes more to an academic based at the relatively little-known institution of Bentley University in Waltham, a commuter suburb west of Boston.
In 2009, Scott Sumner, a professor at Bentley, set up a blog, the Money Illusion, in frustration at the state of the debate on how monetary policy could be used to cure the US economy’s ills.
“In late 2008, there was a dramatic plunge in demand, the textbook solution to which is monetary stimulus. But people forgot about unconventional techniques,” Mr Sumner told the Financial Times. “I’m not really that well known and so if I’d tried to use the conventional channels, I wouldn’t have had much luck.”
Seriously, I greatly appreciate Ms. Jones’s piece, which gives me more credit that than I deserve. Lots of other bloggers are also working tirelessly on this project.
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28. January 2013 at 05:44
I beg your pardon – the Arctic Monkeys are so much more than a “one-hit-wonder”
http://www.youtube.com/watch?v=Z5vZovv8cPk
28. January 2013 at 06:20
My mistake—I’m too old to keep up with pop music.
28. January 2013 at 07:40
The typo in your penultimate sentence changes its meaning drastically.
28. January 2013 at 07:40
I find myself agreeing a lot more with your arguments that there is no such thing as a liquidity trap than nominal GDP targeting. That is most of the reason why your policy regime would have worked better than the old one in 2008-2009. Arguments that monetary policy can do no more would be thrown out the window.
I mean a traditional Taylor rule or inflation targeting regime might have been adequate if the Fed had been willing to be much more aggressive because these rules called for much stronger monetary policy.
When it comes to NGDP targeting I keep saying things like: that wouldn’t be too bad, or I guess that is good enough, or there isn’t much of a reason to disagree with that, but I never quite get sold that it is somehow optimal.
If we had to rank the harmfulness of different ideas, I think the liquidity trap is at least an order of magnitude more harmful than inflation targeting and they may even be of the opposite sign.
In the popular reports, it seems weird to see NGDPLT treated as some kind of miracle, when the real miracle is the realization that monetary policy is never out of bullets.
28. January 2013 at 08:12
J, How do you do one of those red-faced smiley faces. (It’s correct now.)
Jason, You may well be right.
BTW, I don’t see NGDPLT as “optimal”, but rather a big improvement.
28. January 2013 at 12:47
Scott
The concept of “optimal” that pervades economics shouldn´t constrain it´s development. On the contrary, if you start from the view that the “optimal”, like “utopia” will never be reached, what it should do is “force you to keep walking”.
28. January 2013 at 15:07
Jason: Let me add some more insights from Sumner and the MM camp, that most people — even most economists, perhaps even most central bankers! — didn’t seem to understand in 2008. Yes, monetary policy could still be effective at the zero lower bound. (To be fair, though, many econ bloggers were writing that _conventional_ monetary policy was impotent, because rates were at zero, so the Fed would need to try “unconventional” policy, but that was “untested” and “risky”.)
But also: (1) The concrete steppes: monetary policy works mostly by expectations, less so by actually doing “stuff” in the market. (2) Level targeting vs. just growth rate targeting, to make up for past mistakes. (3) Future / forecast looking, vs. backward looking (similar to #1). (4) The dangers of deflation (or even just too low inflation) are even worse than too much inflation, vs. a central bank that viewed 2% inflation as only as maximum (like the ECB), and didn’t care if they were below that number.
If you had an inflation-targeting bank which was forward looking, level targeting, as concerned about being below 2% as above it, and unafraid of the zero lower bound … then sure, the change from there to NGDPLT is much less significant.
28. January 2013 at 17:54
Marcus, I strongly agree.
28. January 2013 at 21:02
The story of Sumner and the Internet, and reluctant (glacial) central bank migration if NGDP (if it yet happens fully) is one of the wonders of our time.
A lone guy typing and staring into his computer….starting a blog.
And yes, there were many others, Marcus Nunes, David Beckworth, Lars C. and many more.
But I think all agree that Sumner was the lodestone. Or the Arctic Monkey.
Someday I want to write a book on this topic of Sumner and the Internet, although the reading audience is sadly limited. But for policymakers, journalism junkies, academia watchers, this is one of the most fascinating tales in years and years.
Congrats all!
29. January 2013 at 06:04
Thanks Ben.
1. February 2013 at 12:11
lol arctic monkeys as a one hit wonder. how pedestrian.