Sumner on the Mystery of Bernanke
Ultimately, it appears, one can check to see if an economy has a stable
monetary background only by looking at macroeconomic indicators such
as nominal GDP growth and inflation.
That’s “only by looking” folks. That means there is no other way. Money supply won’t work. Interest rates won’t work. Only NGDP or inflation can tell you the stance of monetary policy.
So what actually happened to NGDP?
Now all that remains is to ascertain the rate of NGDP growth since the second quarter of 2008: 6.1%.
That is not a 6.1% annual growth rate, that’s the total growth in NGDP since 2008:2.
And when was the last time NGDP grew that slowly over a 3 1/2 half year
period? Hint: Herbert Hoover was President at the time.
How about inflation?
[T]otal inflation between July 2008 and January 2012: 3.8%
That’s not 3.8% CPI inflation at an annual rate over the past 3 and
1/2 years (which would still be lower that the rate Volcker produced in
the mid-1980s) it’s a total increase of the CPI of 3.8% over 3 and 1/2
years, barely 1% per annum!
What does this mean for the mystery of Bernanke?
Interestingly, Bernanke is no longer a market monetarist, at least in
public. He now likes to emphasize at press conferences how extraordinarily accommodative Fed policy has been since 2008. But that’s not what he really believes. That’s what a man in his position is forced to say.
When a thinker as charitable as Sumner says such things, I believe him.