Update:  Here’s my EconTalk with Russ Roberts, where I describe my views on macro.

A few weeks back someone suggested that I describe how my views differ from the mainstream.  A few days ago I did a post describing what I thought was wrong with the standard models of monetary economics.  I ended up with a call for a new paradigm and left the impression that I’m about to provide it.  One commenter said my last paragraph was “remarkably ambitious,” which is a polite way I suggesting it’s crazy for a Bentley professor to be talking about new paradigms.  And he’s right.  So I’ll just list some of the areas where my views differ from others, provide lots of links, and then let others decide whether there is anything coherent in my approach.
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This is a follow up to my somewhat misunderstood previous post.  In the comment section Bill Woolsey made the following point:

Krugman is explicitly saying that real interest rates must be very negative to motivate an increase in real and nominal expenditure.

If the Fed promised 3% inflation, people would still not spend much, and any increase in the quantity of money (aimed at generating that inflation) would be hoarded.

The Fed’s promise of 3% inflation would have little effect, and inflation wouldn’t be 3%.

I agree with Bill that this is what Krugman has in mind.  It’s hard to be sure, but he has said that “high” inflation expectations were needed, and at the same time linked to Fed studies showing the Taylor Rule implied a negative 6% interest rate was needed for a robust recovery.  This of course implies that expected inflation needs to be at least 6%, as nominal rates on loans can’t be negative.  But Krugman also says the SRAS curve is fairly flat right now.  He frequently uses the Keynesian “slack” model of inflation, which suggests that when unemployment rates are very high a large increase in AD would initially lead to much higher output, with at best a small rise in inflation.  I have some problems with the slack model of inflation, but in this case I think Krugman’s about right.  If we had a 10% rise in AD or NGDP over the next 12 months, then we’d probably get around 7% or 8% RGDP growth, and around 2% or 3% inflation. 
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It’s always a good day when Paul Krugman throws a nice easy pitch over the fat part of the plate.  In this post commenting on Beckworth he combines all of the worst features of his blog, in one nice package with a bow on top.

Here’s my problem. Underlying the focus on nominal demand or GDP is some notion that there’s a quantity equation:

MV = PY

where M is the money supply, V the velocity of money, P the price level, Y real GDP. And of course this always holds true, by definition. But the temptation is to take it as a causal relationship “” to say that real GDP fell because nominal GDP fell, and that this in turn was caused by either a fall in M or a fall in V; and furthermore that any such decline is a failure of monetary policy, because the central bank should have either prevented the fall in M or increased M enough to offset the fall in V.

The second sentence has to be one of the weirdest things I have ever read by a famous economist.  I have no idea the point he is trying to make.  It is essentially saying that underlying the statement that A*B is important is the implication that A*B = M*(A*B/M).  Okay  . . .
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Everywhere I look I see patterns.  Because of the off year elections I started thinking last night about the odds of Obama being re-elected.  I was familiar with the data showing that when presidents run for re-election, more often than not they succeed.  But then I started noticing another pattern; the more interesting correlation was between success in being re-elected and the number of years a given party has held the presidency.

I have finally memorized all the Presidents since 1900, and noticed that only in 1980 was a party rejected after 4 years in the presidency (out of 11 chances.)  So I thought “wow, it looks like Obama’s got a 91% chance of being re-elected.” 
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I’ve been giving some thought to how my views of macro are different from those of other economists.  Until this crisis hit, I assumed that I was doing “normal economics,” to use Thomas Kuhn’s terminology.  NGDP targets are different from the Taylor Rule, but they aren’t all that different.  Even Ben Bernanke has talked about targeting the forecast.  You’ve seen me endlessly recite Mishkin’s 4 key concepts from his monetary textbook.  They are a virtual blueprint for my current critique of monetary policy.  So I’ve never thought of my views as being particularly heterodox.

And yet . . . .  You could count on one hand the number of economists who think money was tight last fall.  And you could count on one hand the number of right-wing economists who think that the economy currently needs much more stimulus.  So although my views are not completely unique, there is apparently something rather unusual about my approach to macro.
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