More from the FT

Here’s Joseph Cotterill:

Anyone for Fed targeting of nominal GDP futures?

Are  we gaining converts?



13 Responses to “More from the FT”

  1. Gravatar of TravisA TravisA
    15. August 2011 at 07:42

    Scott, with NGNP futures, how would you do settlement since revisions in NGNP occur for many, many years?

  2. Gravatar of John Thacker John Thacker
    15. August 2011 at 07:46

    You’ve got Arnold Kling, if not fully in your corner, at least in the “worth a try, in my opinion” camp.

    The general fault line right now seems to be that conservative and libertarian economists believe that monetary stimulus is possible, but not needed, whereas liberal economists believe that monetary stimulus is not possible, but would be welcome.

  3. Gravatar of Contemplationist Contemplationist
    15. August 2011 at 08:15

    John Thacker

    Quite an amusing division that is! Decoupling of those opinions could produce an equilibrium for trying monetary stimulus, but we have precisely the configuration that ensures nothing is tried.

  4. Gravatar of Scott Sumner Scott Sumner
    15. August 2011 at 08:15

    TravisA, I’d probably settle on the basis of the first or second announcement. Assuming the initial errors are unforecastable (and I’d hope so!) then that wouldn’t cause a problem even if there were later revisions.

    John, Yes, I’ve been saying the same thing. My views seem weird, and yet almost ever other economist agrees with one of the two components of my argument. But very few believe both.

  5. Gravatar of Benjamin Cole Benjamin Cole
    15. August 2011 at 08:54

    I believe Scott Sumner and the NGDP concept gaining converts, and there is certainly a lot more talk about accepting moderate inflation than just a few months ago.

    I advise all NGDP bloggers and adherents to keep blogging, commenting on other blogs, even write letters to the editor etc. Write op-eds. Remember to dismiss the “dithering and feeble Bank of Japan,” and raise the spectre of 20-year slumps in real estate and equities markets if we do not embrace the new monetary bulls.

    Somehow the “right-wing” has been captured by loonies with an obsession for minute rates of inflation or an unhealthy fetish for gold or the perceived value of currency. These braying idiots have obscured the the insights of a Milton Friedman or George Gilder.

    What matters are policies to encourage growth–not preserving in economic formaldehyde the value of a Ben Franklin.

    Congratulations to Scott Sumner and others. I think you have moved the dial.

  6. Gravatar of cassander cassander
    15. August 2011 at 11:20

    Scott> Well, you’ve converted me, and if there’s a one thing you have a shortage of, I’m sure it’s underemployed 20 somethings.

    I have been wanting to ask you though. You have definitely convinced me about importance of NGDP today and during the 30s, but what about the 70s? IIRC we had skyrocketing NGDP, but still had high unemployment. I believe you would say that we had too much NGDP growth, but I don’t think you’ve ever explained what happens when we get to the other side of the hill.

  7. Gravatar of Contemplationist Contemplationist
    15. August 2011 at 11:32


    I don’t want to speak for Scott, but my guess is that he would say the 70s data shows it was a supply-side problem. If NGDP is on target, there’s nothing more the Fed can or should do, and supply side reforms should be done.

  8. Gravatar of W. Peden W. Peden
    15. August 2011 at 14:22


    Disagree. The 1970s inflation was a clear case of NGDP growth being too fast, driven by shamefully incontinent monetary policy from the Fed. Since trend output cannot be driven above its potential rate by monetary stimulus (Friedman’s natural rate of unemployment) an increase of NGDP up to <10% results in rapid and hard-to-control inflation. For example, in 1975, UK NGDP growth was 26.4% and price inflation was around 25%. There was a fall in output that year, but what was really driving the inflation was the rapid growth of the money supply in 1972-1974.

    Targeting NGDP under circumstances would require contractionary monetary policy to bring down the rate of money supply growth until NGDP is back at 5%.

  9. Gravatar of Scott Sumner Scott Sumner
    15. August 2011 at 16:02

    Benjamin. Yes, I think we are gaining converts. A number of people have advocated targeting NGDP, but only a few of us have advocated NGDP futures targeting. He’s read the quasi-monetarists.

    Cassander. Yes, NGDP growth was too high in the late 1960s and the 1970s. It didn’t do much good because wages adjusted upward in the 1970s (in the 1960s it did lead to a temporary boom, before wages had fully adjusted.)

    In the 1970s you also had supply-side problems (price controls, oil shocks, higher taxes, more regulation, etc. Some of the pollution regulation did help the environment, but it also slowed (measured) growth.

  10. Gravatar of Contemplationist Contemplationist
    15. August 2011 at 22:14

    W. Peden

    Thanks for that. I’m not too knowledgeable on the 70s, so yeah I suppose if NGDP growth was actually too high, it was the Fed screwing up, but I guess I was explaining what happens if inflation is high but NGDP is on the stable path. But i suppose that wasn’t the 70s!

  11. Gravatar of W. Peden W. Peden
    16. August 2011 at 05:07


    An example of inflation being (relatively) high and NGDP being moderate would be 1958 in the UK, when NGDP was a low 4.3% and the GDP deflator was 4.2% because of a contraction of RGDP due to a supply-side recession. But that inflation was self-adjusting, as producers responded to increased prices, and the next two years saw the GDP deflator grow at just 1.1%.

  12. Gravatar of Britmouse Britmouse
    18. August 2011 at 11:46

    More converts in the UK:

    Left-winger: [by the last para, skip the rest]


  13. Gravatar of ssumner ssumner
    19. August 2011 at 17:35

    Thanks Britmouse, I did a post.

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