Giving thanks to commenters

Today’s a good day to thank my commenters.   (For overseas readers, today is Thanksgiving in America.)

Comments like this recent one by Integral make it all worthwhile:

I continue to be amazed that you find the time to read and respond to every comment. Not many bloggers do that and I commend you for your dedication to the comment section.

With regards to your point, I think you’re right. Most economists look at Debt/Price level but Debt/NGDP would be a more appropriate variable.

I think it was Lucas who said “once you start thinking about economic growth, it’s difficult to think about anything else.” I’d add an addendum: when you start thinking about monetary policy in terms of NGDP, it’s difficult to think about it any other way. The key breakthrough for me was identifying NGDP with AD. Once I accepted that, literally everything else fell into place.

The same thing happened to me.  Monetary policy is supposed to address AD.  Which best measures AD; NGDP or the price level?  And remember the criticism of old monetarism; the argument that “velocity might change?”  OK, if that’s the problem then shouldn’t we offset velocity shocks, keeping M*V on target? And how about the “dual mandate?”  The advantage of a dual mandate is that we care about both prices and output.  The complaint is that we can only target one aggregate at a time.  So does NGDP or P better fulfill the dual mandate?  Everywhere you look NGDP just makes more sense.

I’m increasingly inclined to believe that most average economists/forecasters/pundits/business reporters/bankers/etc, simple don’t “get” macroeconomics, and never have.  I blame the old Keynesian model, which taught many mediocre economists to think in terms of sectors.  How people could not see that tight money and sharply falling eurozone NGDP growth expectations are absolutely central to the euro crisis is beyond my comprehension.  Yet JPIrving just sent me the following comment, which supports my recent post on the NABE poll:

Baffling. I sat through a two hour meeting on the European outlook today and was the only one who mentioned money might be tight and inflation expectations in the toilet. Everyone else is hung up on the side effects of tight money trying to come up with just so stories to implicitly explain falling V.

Right after Integral, Lorenzo made an excellent observation about Australia:

Down here in Australia, we already ran the experiment of monetary policy operating “surreptitiously”. It worked very badly and we now have 18 years (since 1993) of experience in why explicit targets are good. You would think being the country where the “Great Moderation” never ended would get some attention. (Indeed, not only never ended but operated better than elsewhere when everyone was experiencing it even though our terms of trade were still on their long term downhill slide and mining is about 9% of GDP and extremely volatile.) Apparently not.

I sometimes point to Australia as an example of the virtues of maintaining positive NGDP growth.  One push-back I get is that they benefited from the recent commodities boom.  But that cuts both ways.  Commodity industries are much more volatile than other industries, yet Australia missed both the 2001 and 2008 recessions; their last recession was in 1991.  And note that there have been huge swings in commodity markets over those two decades.  They’ve had to “reallocate” labor into mining industries but somehow avoided high unemployment, perhaps by keeping NGDP growth positive.

Today Rob left an interesting remark that referred to my recent Dr. Strangelove post:

Jim, it’s my favourite movie too. I actually used the “keeping it a secret” line in a recent comment on the Bank of England’s alleged secret NGDP targeting.

He’s referring to the fact that the Soviet doomsday device in Dr. Strangelove was useless unless they US knew about it, which we didn’t.  A very apt comparison.

The “rational” thing for me to do would be to stop answering comments and focus my extra time on twitter.  How do I know that?  Adam Ozimek told me so yesterday . . . in my comment section.

PS.  People!  I’m not seeing many comments today.  Stop spending time with your families and get busy.



30 Responses to “Giving thanks to commenters”

  1. Gravatar of Benjamin Cole Benjamin Cole
    24. November 2011 at 09:09

    I heartily agree with this post and the comments of Integral. I had the same conversion to Market Monetarism.

    What is the point of “fighting inflation” if doing so asphyxiates the economy?

    Reminds me of doctors applying leeches.

    It seems painfully obvious that the USA, Europe and Japan all need to generate growth and inflation, to help people, help businesses and help deleverage.

    Fiscal austerity is in order, but that is a far different universe than an aggressive and confident, growth-enhacing Fed policy–targeted NGDP. The right-wing continually conflates fiscal and monetary policy, erroneously. The left-wing is out to sea anyway.

    All hail Sumner, and to my fellow commenters, I make this earnest request: Once a day, each of you, send an e-mail or letter to a publication, or Fed official, expressing your support for Market Monetarism. I try to do this. If you generate a form letter, it is easy to do. E-mail is a marvel.

    Thanks to Sumner, and the A-team of Market Monetarist bloggers, we have won the argument in the blogosphere, and turned the tide in print.

    All for naught, if we do not win over Bernanake-san.

    Next stop: The Fed.

    Go Market Monetarists!!! Charge!!!

  2. Gravatar of Dan S Dan S
    24. November 2011 at 09:13

    Have a great Thanksgiving, Scott! Thanksgiving won’t stop me from getting my (mostly) daily dose of monetary economics.

  3. Gravatar of Becky Hargrove Becky Hargrove
    24. November 2011 at 10:35

    David Glasner did a good job recently of helping me put together some missing links. A couple of years back the idea of economic momentum helped me get the grade I wanted in an English essay class, when I had the incredible luck of being able to defend capitalism for the final. I knew that the momentum relied on continual growth but had not made the connections to income and the already existing debt that needed to be honored.

  4. Gravatar of Dtoh Dtoh
    24. November 2011 at 10:37

    Thanks for the great blog! Thanks for answering all the comments and thanks for helping us understand when we are slow on the uptake. Have a grand Thanksgiving.

  5. Gravatar of Integral Integral
    24. November 2011 at 10:53


    Thank you for the kind words. I hope you have a great Thanksgiving.

  6. Gravatar of Mattias Mattias
    24. November 2011 at 11:15

    It’s amazing you get so many good comments when you don’t even instruct your readers how to comment. How about this “comment instruction” I found at ?

    “Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.”

  7. Gravatar of Cameron Cameron
    24. November 2011 at 11:38

    I don’t know to what extent you’ve discussed this, but I suspect Australia’s success is party related to the fact that commodity booms don’t reduce its living standards. In the United States, a commodity boom reduces overall real income, while in Australia it raises it. If both central banks were targeting inflation, a commodity boom would reduce NGDP in the US but not in Australia.

    I know you’ve mentioned that the Australian central bank is more appropriately pro-active and less inflation obsessed, but how important do you think its different reaction to commodity booms is?

  8. Gravatar of Martin Martin
    24. November 2011 at 14:08

    “when you start thinking about monetary policy in terms of NGDP, it’s difficult to think about it any other way.”

    Not only monetary policy, also areas related to it. If you’re going to investigate whether (lack of) regulation and/or corporate governance of banks was partly to blame, you’d better first correct for NGDP. Does a bank have liquidity or solvency problems? Correct for NGDP and you will know.

    “He’s referring to the fact that the Soviet doomsday device in Dr. Strangelove was useless unless they US knew about it, which we didn’t. A very apt comparison.”

    Actually, I read somewhere – I believe it was MR – it’s purpose could actually be seen as deterring the Soviet military from attacking first. The reason would be that it would dramatically decrease the payoff from a first strike attack: if even one missile would get through as retaliation the Soviet Military would still lose. /pointless trivia

  9. Gravatar of StatsGuy StatsGuy
    24. November 2011 at 14:33

    Scott, thank you again for the blog. It’s therapeutic, in so far as it’s one of the few things that has convinced me that I am not in fact insane (or, at least, that I have company).

    Yes, twitter would probably be better than answering blog comments, but then Twitter might be following an adoption/novelty cycle (by by ashton kutcher). Too early to tell.

    Increasingly, this whole series of events seems so surreal. Often I conclude policy makers cannot POSSIBLY be as dense as they seem, which means they have hidden agendas. But then they do things that make them seem, in fact, just as dumb as they appear. Which of course could be staged.

    But increasingly I’m leaning to the hidden agendas argument – I know you’re still leaning toward the macroeconomic ideology argument. It seems more and more clear that Central Bankers have other goals in mind – in the ECB, it’s keeping the screws on long enough to force peripheral states to adjust fiscal policies and/or sign on to giving up significant control over their fiscal sovereignty. In the US, it’s maintaining dollar supremacy and countering “speculative” maneuvers in the price of oil (and to some degree gold).

    The relative inelasticity of oil demand, combined with it’s 400 billion annual direct import price tag (not even including the indirect price tag in terms of costs of war and higher producer input prices) seems to be more predictive of 6 month forward Fed policy than anything else I know about. Even at the elevated summer crude prices, current crude stores are 8% under year ago levels.

    That doesn’t change the fact that in the US policy makers just have it wrong. They seem to desperately want to preserve “policy flexibility”. Notably, there seems to be an undercurrent of thought that they need this flexibility to respond to speculative attacks from financial markets. In other words, monetary policy has become a poker game, and they seem to think they are better off keeping their hand secret than committing to a visible NGDP target. Excessive speculation, for example, gives them the ability to play a short squeeze against dollar carry traders, whereas if they hold their target transparently, they lose this ability.

  10. Gravatar of Lorenzo from Oz Lorenzo from Oz
    24. November 2011 at 14:44

    Thanks! You and Lars have both picked up comments of mine in the last few days, I must be getting the hang of this 🙂

    This blog, more than any other, has expanded my intellectual horizons. I had only the fuzziest understanding of monetary economics before I started reading your blog. Your willingness to interact with commenters turns this blog into an online graduate economics “seminar”. It helps people to make sense of the world. Thank you very much for all your efforts.

    The blog “Institutional Economics” once joked that “Scott Sumner writes blog posts faster than you can read them“. But you do responses to comments as well!

  11. Gravatar of Lorenzo from Oz Lorenzo from Oz
    24. November 2011 at 14:47

    Cameron: commodity volatility works both ways. That is, if booms increase Australian living standards, then busts reduce them. You cannot explain a continuing pattern by looking at only one side of volatility.

  12. Gravatar of Liberal Roman Liberal Roman
    24. November 2011 at 14:55

    Hard to stay very positive Scott. Seems like we are approaching the moment of markets realizing “Wow, these morons really don’t care if we have a massive deflationary financial armageddon. They will not do ANYTHING that they consider “unorthodox”.”

    Once that moment is fully baked in and priced in..well..I fear what will come next. I think it’s going to be late 2008 all over again.

  13. Gravatar of Steve Steve
    24. November 2011 at 14:59

    Agree with Cameron. Commodity price shocks translate to higher AUD and CAD which reduce inflation pressures from commodities. Therefore inflation is more driven by AD than by AS, and inflation targeting is much more similar to NGDP targeting in AUS and CAN than it is in the US or EU.

    The sectoral issues are huge of course. Commodity sectors boom while manufacturing sectors lose competitiveness due to the strong currency. It probably helps that AUS and CAN have fiscal union between WA and NSW, and between AB and ON, respectively. The fact that their economies are wrecked neither by these “structural” imbalances nor by banking crisis makes me think those aren’t the leading issues anywhere. Rather, I point to the inherent similarity between inflation targeting and NGDP targeting in commodity countries as a source of stability.

  14. Gravatar of Norman Norman
    24. November 2011 at 15:26

    If you’re so desperate for comments, how about a request for a future post?

  15. Gravatar of Norman Norman
    24. November 2011 at 15:36

    …and that would be a commenting failure on my part.

    I’m curious how you would teach this approach to macroeconomics to undergraduates? I recall a while back you had good things to say about Cowen and Tabarrok’s principles book, which uses the equation of exchange to form their AD curve, essentially saying AD equals nominal spending growth.

    But how would you extend that to intermediate macro, in particular at mid- and lower-level institutions? Intermediate macro spends a lot of time on whose behavior is changing and how this feeds into AD and AS. But with students who have not had intermediate micro, and thus have no game theory or indifference curve analysis background, how do you do that without focusing on sectors? Would you go more empirical and focus on how to read financial markets?

    I think an important part of the market monetarist program should be figuring out how to communicate these ideas to undergraduates, both because that’s key to influencing future policy (there’s a Samuelson quote about this I can’t quite recall) and because if we can explain it to an uninitiated eighteen-year-old, we have a much better chance of explaining it to political leaders.

  16. Gravatar of Cameron Cameron
    24. November 2011 at 16:04


    Good point. In theory you should be right, but I doubt that the Australian central bank reacts to a decline in commodity prices the same way the Fed reacts to a commodity boom. Biases (like claims that higher commodity prices are a sign of higher expected inflation) that push central banks towards excessively tight policy during commodity booms are more offset in Australia than in the US.

  17. Gravatar of Becky Hargrove Becky Hargrove
    24. November 2011 at 16:10

    Thanks for including me in dialogues that sometimes I get, and sometimes are simply over my head. It’s going to take a while to get my bearings! I’m always so anxious to move ahead of my abilities (I had plenty of piano students like that), but then that is part of the incentive of learning, isn’t it.

    Plus, it’s easier to see now why a lot of women specialize in areas other than macro. I think our brains are just hardwired a bit differently, certainly our use of language is. But there’s no other part of economics that fascinates me in the same way, so I’m going to try to take that and run with it. I’ve had a bad habit most of my life of wanting to do things differently and as I get older, that does not get any easier. You mentioned in an early post that macroeconomists really do not speak the same language as one another. So progress for me means eventually coming up with a simple way of expressing myself that most folks can understand. It’s in part the fact that no common language for the layperson currently exists, that lets central banks get away with whatever they want, whenever they want. Perhaps that can be changed.

  18. Gravatar of Lorenzo from Oz Lorenzo from Oz
    24. November 2011 at 18:31

    Cameron: even during the “Great Moderation”, the RBA ran a mildly higher inflation rate than the Fed: the volatility of mining may well be a good reason to do so. Surging commodity prices does push up the $A, which makes imports cheaper while the positive income effects of rising commodity prices loom large in Australian policy making. Conversely, falls in commodity prices pushes the $A downwards, making imports more expensive but making it easier to sell exports (such as tourism).

    To put it another way, the floating $A is seen as a stabilising element. Only the US$, the euro, the yen and the UK pound are more highly traded currencies. So it is a market with a lot of depth!

    Steve: Therefore inflation is more driven by AD than by AS Decades of reform have gone into making AS highly responsive.

    inflation targeting is much more similar to NGDP targeting in AUS and CAN than it is in the US or EU. Particularly as the RBA targets an average rise in Pover the business cycle. So, less rises in y mean more scope for rises in P, more rises in y mean less rise in P.

    Rather, I point to the inherent similarity between inflation targeting and NGDP targeting in commodity countries as a source of stability. Noting that floating exchange rates make a difference to the overall stability of the system (if not between states/provinces). But I would be careful in making too much of the WA/NSW AB/ON examples. There is considerable labour mobility and welfare transfers. (Also, NSW has iron ore and coal!)

  19. Gravatar of mbk mbk
    24. November 2011 at 20:14

    “I’m increasingly inclined to believe that most average economists/forecasters/pundits/business reporters/bankers/etc, simple don’t “get” macroeconomics, and never have. ”

    This is the crux of the matter. I have thought this for quite a while now. Ever since your blog made me think differently. I don’t believe I have a complete grasp of macroeconomics quite yet, but your blog has really expanded my horizon on it.

  20. Gravatar of Rob Rob
    25. November 2011 at 04:29


    Thanks for the great blog, Scott.

  21. Gravatar of Tom Tom
    25. November 2011 at 05:16

    Scott, I hope you and your family are enjoying a great weekend, and remembering how private property farming created the feast surplus in the third year of the pilgrims’ lives in America.

    How can normal folk “get” macro when so many “experts” disagree on such clear policy prescriptions?
    a) Should there be more, less, the same federal gov’t spending?
    b) Should the Fed decrease, increase, continue the interest rate?

    Two clear questions, at most 9 pairs of answers — and there is not a clear consensus on what the US gov’t policy should be.
    Nor is there agreement on
    c) What other policy options should be recommended.

    Of course, this is when “economics” is being used politically to influence policy — which is where the status, much of the interest, and most of the media concerns are at.

    (My answers:)
    a-2) There should be less gov’t spending.
    b-1) The Fed should decrease the interest rate to 0 AND stop paying interest on bank capital deposits.
    c) Increase legal immigration of English speaking, university graduates from all OECD countries.
    c.2) States and cities whose gov’ts have spent too much, including European states like Greece, should issue 0% 1-year bearer bonds to all employees instead of money, with the promise to accept both money and bonds at par value for tax and fee payments.

  22. Gravatar of johnleemk johnleemk
    25. November 2011 at 05:31

    I second everyone else. What a great way to learn macro (and I don’t mean this as a knock against my old macro prof, Feyrer!) — once you start thinking about nominal income it really is impossible to take almost any other demand-side explanation of macro seriously. Even in school I’d never taken the obsession with interest rates seriously, just because it seemed intuitive to me that the zero bound could never prevent a monetary authority from acting. This blog really takes that explanation to the next level.

    Thanks for blogging Scott!

  23. Gravatar of ssumner ssumner
    25. November 2011 at 06:42

    Ben, Dan, Dtoh, Integral, Thanks.

    Becky, Yes, Glasner is excellent.

    Mattias, I feel his pain.

    Cameron. I don’t know, but it seems like the Australian central bank has a tougher job than the Fed, because commodity cycles would tend to make Australia’s economy less stable. So I presume they must react to commodity shocks in the “right way.”

    Martin, Interesting observation.

    Statsguy, I think that’s a good point about them wanting to maintain a free hand. But I’m not sure about this:

    “But increasingly I’m leaning to the hidden agendas argument – I know you’re still leaning toward the macroeconomic ideology argument. It seems more and more clear that Central Bankers have other goals in mind – in the ECB, it’s keeping the screws on long enough to force peripheral states to adjust fiscal policies and/or sign on to giving up significant control over their fiscal sovereignty.”

    If this is the agenda of the conservatives who run things, why set up the euro? The euro allowed countries like Greece to borrow huge amounts and live beyond their means, then leave the northerners with the tab. If fiscal discipline was the goal, single currencies would have been better.

    Lorenzo, You said;

    “The blog “Institutional Economics” once joked that “Scott Sumner writes blog posts faster than you can read them”. But you do responses to comments as well!”

    Reminds me of a remark Truman Capote once made about a writer he didn’t like: “That’s not writing, that’s typing.”

    Liberal Roman, I still find it hard to believe we’d do the same thing twice, but we’ll find out soon.

    Steve, It’s possible, but it’s also true that manufacturing and commodities often follow the same cycle, weakening during world recessions.

    Norman, I was just kidding about wanting more comments–I have trouble handling those I already have.

    Norman, I don’t have strong views on the question of how to teach this, other than to spend much more time on history. A macro course would be primarily a course in macro history. You don’t need much modeling, just some basic tools like money supply and demand, AS/AD, and the term structure of interest rates. Then focus on how they explain macro history, with special emphasis on how markets respond to monetary shocks (event studies.)

    Becky, You said;

    “It’s in part the fact that no common language for the layperson currently exists, that lets central banks get away with whatever they want, whenever they want. Perhaps that can be changed.”

    That’s a very good point.

    Thanks mbk and Rob.

    Tom, You said;

    “How can normal folk “get” macro when so many “experts” disagree on such clear policy prescriptions?”

    I don’t expect average people to get macro, I was complaining most experts don’t get it.

    I agree with some of those suggested, but would need to study the bearer bonds question before offering an informed comment.

    Thanks Johnleemk.

  24. Gravatar of Becky Hargrove Becky Hargrove
    25. November 2011 at 07:53

    Re: better public dialogues
    Interesting quote from a Vox article titled Europe: After the Crisis
    “…this sorry tale has been a symptom of the failure of the elite to engage the mass public in the European project.”

  25. Gravatar of flow5 flow5
    25. November 2011 at 09:09

    You’ve put a lot of effort into this topic. It is greatly appreciated.
    In my way of thinking, anyone that examines the R-O-C (rate-of-exchange) in nominal gDp during 2007, 2008, & 2009 would see that the FED failed to act. It failed to increase both the stock of money & its rate-of-turnover in response to the decline in economic activity (gDp). That period would have been a good opportunity to test targeting nominal gDp.

    However the FED’s research staff felt otherwise: “These broader series grew more steadily both before and during the crisis. Although the evidence is mixed, the MSI overall suggest that monetary policy was accommodative before the financial crisis when judged in terms of liquidity. “”Richard G. Anderson and Barry Jones.# The actual reality is that monetary flows (MVt or our means-of-payment money X’s its transactions rate-of-turnover) fell for 29 consecutive months before the crash in the 4th qtr of 2008.

    How would I conduct monetary policy? A switch from a tight money policy to an extremely expansive money policy would involve open market purchases of securities from the non-bank public for just 3 quarters. Then the easy money policy would be stopped and a tighter money policy would be substituted for just 5 quarters (the level depending upon the desired rate-of-change in nominal gDp).

    This would compress the initial price increases that took place when trying to boost gDp in the first 3 qtrs. By the end of the next 5 quarters the actual price level would end up conforming to the long-term trend rate-of-change in monetary flows (MVt). That is the proper time-line to use. It would provide the biggest boost to real-gdp, and would at the same time raise nominal gDp (while keeping inflation at bay).

  26. Gravatar of Mike Sax Mike Sax
    25. November 2011 at 11:02

    Scott only one thing wrong with your list you mispelled my name. LOL No it’s fine that I didn’t make the cut, perhaps your not a fan of mine but that you spent so many paragraphs correcting what you claimed were my “absurdities” yesterday is thanks enough.

    As the Libmaugh cultists say, Ditto Scott! Translation: Please dont’ ever leave, keep doing what your doing.

  27. Gravatar of Marcelo Marcelo
    25. November 2011 at 13:05


    Just wanted to join everyone and thank you for running such a great blog. You are making an impact on the world for the better, and its incredible you take to answer the comments!

    Best wishes to you and your family!

  28. Gravatar of Mike Rulle Mike Rulle
    25. November 2011 at 13:35

    Hi Scott.

    I have followed your blog for about 2 years and in particular your comments on targeting NGDP. I tend to consider bad fiscal policies as the primary cause of short term (and potentially long term) economic problems. Because of this, I have found your blog quite engaging and interesting, as your focus is primarily monetary, an area I must admit to finding a bit mysterious.

    For the first time recently I have seen “NGDP” spoken by public officials, which is rather interesting. I have assumed your passionate support of this policy has made the topic more broadly discussed.I have recommended many to your sight primarily because of the clarity of your expression.

    But I have one nagging thought when you discuss NGDP. That nagging thought is “tautology”. I say this cautiously, of course, and is really a question more than a statement. I am not aware of any particular theory that enables us to predict M*V. My reading of your critique of the Fed’s policy has been that it has defacto been too tight, despite zero rates and money printing. Your evidence that it has been (or is) too tight appears to be that NGDP has not grown at an appropriate level. But if they targeted NGDP, as I understand your point, this would result in a higher probability of our economy achieving that NGDP number than if we target “inflation” and “employment”.

    But at the end of the day doesn’t the Fed have to cause an increase of some combo of money supply and velocity in order to get a desired NGDP result? My nagging “tautology thought” is that it appears that your definition of a successful Fed “input”/policy is if we get the desired NGDP output. But what is the theory of what that input should be? Seeking an output is one thing. An obvious set of inputs to create cause and effect leading to a targeted NGDP is quite another. I know you have written of this too—-but my impression is your policy prescriptions, besides to target NGDP outcome, are less clear than your desired objective of targeted NGDP. (I am not even addressing whether NGDP should be the target.) You have been reasonably persuasive it should be—its just that it is far less clear there is any known ex-ante input by a central bank that can lead to that result. If we want a policy that leads to a result, don’t we need a very clear of what that policy is? Do we have such a theory? If, for example, the answer is “more” easing, it begins to sound like the Krugman Keynesian argument on stimulus—we just need to do more.

    In other words, it seems your proof the Fed has successfully targeted NGDP is if it achieves its stated goals. I am not persuaded there is not something outside the Monetary sphere that is causing low NGDP.

    This really is a question, despite my declarative statements. I am just trying to be clear on what I am asking.

    I hope my question is clear.

  29. Gravatar of ssumner ssumner
    26. November 2011 at 07:10

    Becky, Good quotation.

    Thanks flow5, Keep in mind that expectations of future monetary policy also agffects the economy (V) right now.

    Mike Sax, Sorry about the spelling, I hope I didn’t spell is “Sex.”

    Thanks Marcelo.

    Mike Rulle, I want them to target NGDP expectations, i.e. adjust money supply (and perhaps demand) until the expected growth in NGDP is equal to the target growth rate. I’ve also suggested creating NGDP future contracts to assist that policy.

  30. Gravatar of Ricardo Urdaneta Ricardo Urdaneta
    28. November 2011 at 16:23

    At the risk of making a fool of myself (not an economist):

    The main issue with accepting an NGDP goal for the ECB is that the needs of northern (German, Scandinavian) economies differ from those of Mediterranean ones. One size doesn’t fit all: what would keep Spain limping along would overheat Germany.

    NGDP makes impeccable sense at the aggregate level, but I don’t suppose anyone would require the Fed to take responsibility for generating growth in Georgia or Florida at the expense of generating inflation in NY or Mass. (I have no idea if the numbers support my example, maybe it’s the other way around).

    Events seem to point in a different direction: the ECB issuing debt (taking money out of the system) to shore up government accounts… Ironically this may end up strengthening the EU (after much pain) just as issuing federal debt made the federal government relevant under Washington and Alexander Hamilton. This “intrusion” into States’ sovereignty foreshadowed the conflicts that would eventually lead to the civil war, though.

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