The NGDP targeting boom
By Scott Sumner
Irving Fisher proposed a price level target in the early 1900s, and numerous other reformers had already been advocating the policy over the previous 100 years. Sweden dabbled with the idea in the 1930s, but it wasn’t until the 1980s that inflation targeting caught on with central bankers.
Nominal GDP targeting is another idea that’s been discussed over a long period of time, going back at least to the interwar period. It wasn’t until 2010, however, that the idea achieved broad mainstream recognition. David Beckworth put together an interesting graph showing the number of times that nominal GDP targeting is mentioned in the popular press (blue line) and also in scholarly articles (black line):
Notice that the uptick in the number of popular article mentions began about 2010, and a surge in scholarly articles began two years later. (Note that different scales are used, so there are actually more mentions in the popular press.)
Policymakers have not yet accepted NGDP targeting, which partly reflects the conservative nature of central banking. Nonetheless, NGDP targeting has achieved an important milestone. Support for this policy has risen to the point where if this regime were already in place, central bankers would not be recommending that it be replaced with inflation targeting. And if we were starting from square one, with no regime in place, NGDP targeting would be at least as plausible a candidate as inflation targeting. The persistence of inflation targeting reflects the perceived costs of shifting to a new monetary regime.
PS. This Ross Douthat column caught my eye:
At the same time, though, he has relied on personnel who are associated with 2010-era G.O.P. orthodoxy, rather than elevating the kind of conservatives who have actively theorized for a more populist right. Trump’s choice of Steve Moore to the Federal Reserve is a recent case study: Instead of elevating a principled inflation dove (National Review editor and Bloomberg columnist Ramesh Ponnuru would have been my outside-the-box choice), Trump picked a hack who was obsessed with imaginary inflation under Obama, and only flipped to back a looser monetary policy because, well, it was the Trumpy thing to do.
This has to be a first, a NYT essay that advocates putting a market monetarist on the Fed. (I hope Ramesh doesn’t mind me calling him that—his views are so close to David Beckworth’s and mine that I believe the label fits. Indeed he’s coauthored with David on several occasions.)
PPS. Otherwise, I have a lot of reservations with Douthat’s piece, which has a sort of “let Trump be Trump” feel. Douthat has decided that among all the contradictory things Trump promised during the campaign, including paying off the national debt, the populist conservative stuff was the real Trump. Maybe so, but in office he’s deregulated big banks and cut corporate tax rates. Although Douthat is right that Trump has refrained from cutting popular entitlements, he has not built infrastructure, cut illegal immigration, reduced the trade deficit, or any of the other populist items on his agenda. Indeed he hasn’t even taken any meaningful steps to do any of those things. I’m not sure whether looking for the “real Trump” is a useful endeavor. Is he a hawk (Iran) or a dove (North Korea)?