Even Woolsey’s too inflationary for the right

Bill Woolsey has long advocated a 3% NGDP growth target.  Recently he looked at a 1.9% target for per capita NGDP.  Both policies would tend to keep prices fairly stable over time, although you’d have small price level increases during adverse supply shocks, offset by mild deflation during booms caused by more AS (like 1999-2000.)  The US inflation rate would be closer to what we observe in Japan, than to the 2% inflation in the US during recent decades.

If you asked mainstream conservative economists to endorse this idea in late 2007, I think there would have been one of two reactions:

1.  Good idea; I prefer that to the recent 5% NGDP growth trend. Let’s do it now.

2.  Good idea, but the economy’s rather fragile right now (the subprime crash), so let’s gradually move toward lower NGDP growth over the next few years, with 3% as our long run target.

But Woolsey shows that actual monetary policy has been far more contractionary than the policy that would have produced a 3% NGDP growth path.  We are still far below a 3% trend line (or 1.9% for per capita NGDP) drawn from late 2007.  So why haven’t conservatives like John Taylor been clamoring for easier money over the past three years?  Why have they complained that money is too easy?



8 Responses to “Even Woolsey’s too inflationary for the right”

  1. Gravatar of Doc Merlin Doc Merlin
    6. July 2011 at 16:20

    He doesn’t say that money is too easy, he says that interest rates were too low.
    Even you have said that isn’t the same thing.

  2. Gravatar of Morgan Warstler Morgan Warstler
    6. July 2011 at 19:06

    Scott, I think you forget that conservatives WANT to see fire sales, they want to see hard assets change hands… the over-extended have to lose… until we see that happening, it is obvious money is too loose.

  3. Gravatar of Floccina Floccina
    7. July 2011 at 05:57

    I like Morgan Warstler’s comment. If you define conservative as one who lives and invests conservatively, that is one who lives well below his means and avoids risky investments he might be right. My business partner is one of those. He had been saying for 12 years that stocks were overvalued and for 6 years that real estate was overvalued and so he put all of his money in CDs. Now he is angry that Gov has tried to prop up real estate prices and the stock market. He wants and thinks he deserves a fire sale.

  4. Gravatar of Scott Sumner Scott Sumner
    7. July 2011 at 06:45

    Doc Merlin, But Taylor view monetary ease and tightness through the prism of interest rates. So he is claiming that money has not been too tight.

    Morgan and Floccina, I don’t doubt that there is some of that. But I’m still going to try to pin conservatives down as to what NGDP growth rate is ideal.

  5. Gravatar of Benjamin Cole Benjamin Cole
    7. July 2011 at 08:27

    Unfortunately, partisan shibboleths have come to replace economic analysis and prescription for both lefties and righties.

    John Taylor is a extremely partisan Republican, and a gentleman. That’s fine, and his right.

    As such, he waxes enthusiastic about all things military, and worships tight money (but mostly when Democrats are in the White House, and not so much when the R-Party rules).

    Taylor even rewrites history to have President Carter angling to get rid of Volcker (although Carter appointed Volcker, and it was the Reaganauts who publicly had disputes with Volcker) and that social spending caused inflation in the 1960s (during the Vietnam War).

    We can dismiss Taylor’s present stances.

  6. Gravatar of Scott Sumner Scott Sumner
    10. July 2011 at 07:00

    Benjamin, Agreed about the Reaganauts, but Reagan himself was fairly supportive of Volcker.

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