Two Scott Sumner Posts
By Arnold Kling
I am so used to NGDP targeting be attacked from the right that I forget that it has no supporters on the left. Recall that conservatives usually support inflation or price level targeting, and think that NGDP targeting is soft on inflation. So why no liberal support?
Scott, you might want to listen again to the Roberts-Belongia podcast. What I took away from the podcast is the importance of the Fed mystique. The mystique is that with the proper maestro at the Fed exercising judicious discretion, all sorts of targets can be hit at once. If you are a progressive, then you believe in the magic of wise government technocrats. You have to be completely disenchanted to want to get rid of discretion and focus on a single target.
Next, he points to a graph that he says shows that the recession is too broad and too sudden to constitute a recalculation. I’ll admit that I have not looked at the graph, because the page freezes my computer. But I imagine that it shows that for twelve months starting in August of 2008 unemployment rose sharply in many places.
If what the graph shows is actual layoffs, and they are broad-based and rose dramatically in this period, then I think this smells like a nominal GDP shock. It smells like a lot of firms discovering that wages are too high.
On the other hand, if what the graph shows is net job losses, then it could go either way. My picture of Recalculation is the master planner or foreman unable to figure out what to do with workers. The real-world manifestation of this might be very few new firms starting up and little or no expansion at existing firms. The layoffs could be relatively concentrated, but the net job losses would seem to be everywhere, because nobody is hiring.
So, I am not sure if seeing the graph would convince me that this was a nominal GDP shock. But I haven’t been able to look at the graph.