NGDP targeting and libertarianism
Since 2009, I’ve spoken to many libertarian audiences. One point that I keep coming back to is that NGDP targeting minimizes severe recessions, and severe recessions lead to non-libertarian policies. A new study by Paola Giuliano and Antonio Spilimbergoin The Review of Economic Studies confirms the second part of that claim. Here’s the abstract:
Does the historical macroeconomic environment affect preferences for redistribution? We find that individuals who experienced a recession when young believe that success in life depends more on luck than effort, support more government redistribution, and tend to vote for left-wing parties. The effect of recessions on beliefs is long-lasting. We support our findings with evidence from three different datasets. First, we identify the effect of recessions on beliefs exploiting time and regional variation in macroeconomic conditions using data from the 1972 to 2010 General Social Survey. Our specifications control for nonlinear time-period, life-cycle, and cohort effects, as well as a host of background variables. Second, we rely on data from the National Longitudinal Survey of the High School Class of 1972 to corroborate the age–period–cohort specification and look at heterogeneous effects of experiencing a recession during early adulthood. Third, using data from the World Value Survey, we confirm our findings with a sample of 37 countries whose citizens experienced macroeconomic disasters at different points in history.
The problem is simple. While severe recessions are actually caused by governments (i.e., by unstable monetary policy), to the average person (and even the average economist) it looks like they are caused by the inherent instability of unregulated capitalism. Hence the call for more socialism every time there is a severe recession.
What makes me believe in the first part of my claim, that NGDP targeting minimizes severe recessions?