Josh Barro endorses NGDP targeting

I heard through the grapevine that Barro’s views were influenced by David Beckworth:

I would prefer to see the Federal Reserve adopt a rule, such as NGDP level targeting, that would lay out an orderly path for monetary easing in recessions and tightening upon recovery. But I don’t think we need to worry about the Federal Reserve losing its grip on any ad-hoc decisions to allow some moderate inflation. It’s just not in this Fed’s nature””and the markets know it.

Market monetarism marches on.

HT:  Lars Christensen



10 Responses to “Josh Barro endorses NGDP targeting”

  1. Gravatar of dwb dwb
    16. March 2012 at 18:37


  2. Gravatar of marcus nunes marcus nunes
    16. March 2012 at 19:47

    Just maybe his father will “fall for it”. But than, Krugman would have a heart attack!

  3. Gravatar of John Thacker John Thacker
    16. March 2012 at 21:18

    Ah, the only problem, Scott, is that after you’ve convinced enough of the center-right of the rightness of your position, Romney will win and only then appoint NGDP targeting Fed Governors, unfortunately adding credence to the conspiracy theory that Republicans knew the right Fed policy all along and wanted Obama to lose.

    While that would not only be bad for the polity, it would also mean that you and your fellows would not get credit for having convinced the world of the rightness of the market monetarist position.

  4. Gravatar of Lars Christensen Lars Christensen
    16. March 2012 at 21:24

    Scott, surely good news. It seems like more and more conservative and libertarian economists after all are beginning to realize to tight and not too loose monetary policy is to blame for the Great Recession. To me the NGDP level targeting is the only true free market position unless of course one want to advocate free banking. I hope more libertarians and conservatives would realize this.

  5. Gravatar of DonG DonG
    16. March 2012 at 21:25

    It is good to see more folks turning on to NGDP, but people like Amity Shlaes continue to spread misinformation. (see

  6. Gravatar of Lorenzo from Oz Lorenzo from Oz
    17. March 2012 at 00:09

    DonG: Not a good effort by Ms Shlaes, but your bracket has contaminated your url. It is usually wise to leave a space before closing a bracket.

  7. Gravatar of ssumner ssumner
    17. March 2012 at 04:54

    Marcus, I doubt it, but that would be ironic.

    John, Those would be good problems to have.

    Lars, I hope you are right.

    Don and Lorenzo, That’s really bad. But at least we already know that she will pay a price (to her reputation) for those ridiculous predictions.

  8. Gravatar of Bill Woolsey Bill Woolsey
    17. March 2012 at 05:00

    Many of us know Shlaes from her discussion of Roosevelt’s cartelization policies. Of course, for libertarian monetary economists, this was mostly old news–Rothbard emphased those points decades ago.

    Shlaes now works for the Council on Foreign Relations. It is a bit unclear as to what her foreign policy views might be exactly.

    However, she has argued that increased military spending is the answer to increasing employment at home. She has also claimed that having U.S. troops stationed overseas is the answer to development problems in the third world.

    It reminds me of neoconservative Max Boot’s unabashed celebration of imperialism.

    Shlaes husband, Seth Lipsky, was publisher of the New York Sun. He has a published more on foreign policy than his wife! He is a great admirer of Ariel Sharon. He also relates how he contacted his friends at the Wall Street Journal to ask them to laud the Israeli attack on the Iraqi nuclear program. (As opposed to the criticism by the NYT.) He explains that Reagan wasn’t _really_ upset about it. And he ties that into a prospective attack on Iran. A bit of a Likudnik hawk–pretty typical neoconservative view.

    For monetary theorists, another interesting factor is the Lipsky is fanatically in favor of fixed exchange rates.

    Again, who knows if this view influences Shlaes much.

    Still, my view is that a stable growth path of nominal GDP is the only appropriate goal of monetary poicy. If the exchange rate changes, then so be it. If nominal GDP is below target, a lower exchange rate would be a pathway by which nominal expendiutre might rise.

    If the price of imported oil rises, then a lower exchange rate is a means by which other imports might be reduced and exports expanded to fund the oil imports. (As opposed to falling nonominal incomes in the U.S. reducing demand.)

    I don’t pretend to entirely understand neo-conservitive macro, but “supply-side” tax cuts, were always a part of it. (I like those too.) Then there has been the “deficits don’t matter,” claims. (I really don’t like that.) There has always been great support for middle class entitlements (I don’t like that.) Of course, if you assume, plausibly enough, that U.S. deficits are small relative to world capital markets, then the U.S. just borrows internationally to fund them. On the other hand, that approach is less risky if we can borrow in dollars and that means protecting U.S. creditors is a priority. No dollar depreciation and preventing inflation would be important.

    To tie this back to the military spending that Shlaes celebrates–protecting the state’s ability to borrow to fund wars is the key goal of macroeconomic policy, right?

    By the way, Martin Feldstein called for increased military spending to solve the crisis early on (2008 or 2009.) So, Shlaes is not unique, and there are leading macroeconomists who share her views.

    Of course, as from Ron Paul, all the Republicans running for President are calling for more defense spending and are ready to go to war with Iran today.

  9. Gravatar of dwb dwb
    17. March 2012 at 09:14

    has anyone tried lobbying the CME to actually create nominal gdp futures?

  10. Gravatar of ssumner ssumner
    22. March 2012 at 16:53

    Bill, Good points.

    dwb. It wouldn’t do much good, as there is no interest in such a market. Trading would be light. You’d need to subsidize trading.

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