From National Affairs
By Arnold Kling
The current issue (fall 2011) looks quite interesting. Some of the pieces you can now access on line:
1. On means testing for entitlements, Andrew Biggs writes,
There is an alternative approach — one that achieves many of the ends of traditional means-testing, but without inviting many of its drawbacks. The plan’s essential and distinguishing feature would involve limiting benefits based not on individuals’ incomes in retirement, but rather on their lifetime earnings.
Means testing based on earnings or wealth at retirement would reward profligacy. Means testing based on lifetime earnings would, at the margin, reward thrift.
As the government pays off maturing debt, the holders of that debt receive a lot of money. Normally, that money would be used to buy new debt. But if investors start to fear inflation, which will erode the returns from government bonds, they won’t buy the new debt. Instead, they will try to buy stocks, real estate, commodities, or other assets that are less sensitive to inflation. But there are only so many real assets around, and someone has to hold the stock of money and government debt. So the prices of real assets will rise. Then, with “paper” wealth high and prospective returns on these investments declining, people will start spending more on goods and services. But there are only so many of those around, too, so the overall price level must rise. Thus, when short-term debt must be rolled over, fears of future inflation give us inflation today — and potentially quite a lot of inflation.
Even though he teaches at the University of Chicago, he is endorsing my view that hyperinflation is a fiscal phenomenon. I keep saying that the big inflation threat is not the Fed. Rather, it is the budget.
the Federal Reserve should begin by adopting an approach of “level targeting” of nominal GDP. This doesn’t mean keeping NGDP level, but rather targeting a specified trajectory, such as a 5% NGDP growth path, and committing to make up for any near-term shortfalls or excesses. Thus, if NGDP grew by 4% one year, the central bank would cut rates or engage in quantitative easing until its models yielded an expectation of 6% NGDP growth for the following year.
In terms of persuading leading Republicans, he has a way to go.
Not available on line is a piece by Chester Finn questioning the concept of a school district. You cannot tell from the teaser what alternative he proposes. Of course, just about anything would be better.