It seems the question of NGDP targeting made it to the Fed's recent FOMC discussion which is already a major victory. As Scott Sumner says the first step is getting NGDP on the agenda and we can give this a check. In reviewing what was said, Sumner says, "The first step getting the Fed to talk about this option. Marcelo sent me the minutes of the recent Fed meeting, which shows that market monetarists (with help from high profile endorsements) have achieved as much as could be realistically expected–a serious discussion of NGDP targeting:"
Although I have been following the debate between Sumner and Kimel that developed recently on the question of what was decisive in the Depression-Sumner believes the most important factor by far was FDR getting us off the gold standard-where Kimel, who made his point much clearer in today's post, argues that nonmilitary government spending was 90 percent responsible for the recovery of 1933-37-Sumner tends to focus more on the recovery during the 1933-34 period which saw the huge recovery in prices and production-I should emphasize that I think that whole discussion is not the main event right now. I guess you can see Sumner and Kimel as two outliers on the question-Kimel sees it as mostly fiscal policy, Sumner mostly monetary, while to my mind Eggertsson sounds most right in giving both their due.
For Simel's latest see http://www.angrybearblog.com/
To my mind Simel's piece today is sort of like Sumner's argument but for the opposite proposition. They both argue for correlation essentially. Sumner infers the large weight he gives to the currency devaluation by the correlation between the period the policy was effected and that which saw the sharp price recovery, Kimel basically argued based on the correlation in percentage terms between GDP growth and nonmilitary government spending. Both arguments are correlative and as Sumner has argued correlation is highly suggestive doesn't by itself prove causation.
For my part then I'm willing to for the time being anyway declare it a wash. The important thing is for there to be an adequate policy response. A big criticism that liberals have often had for President Obama is that he doesn't act like his hair is on fire, there is not an appropriate level of urgency. Lately most admit it's improved though of course there are those who will chalk it up to his campaign.
On the part of the Fed as well, it has seen to those who follow monetary policy that there has not been an appropriate sense of urgency. Sumner today quoted from what Bernanke wrote back in 1999:
"Franklin D. Roosevelt was elected President of the United States in 1932 with the mandate to get the country out of the Depression. In the end, the most effective actions he took were the same that Japan needs to take—-namely, rehabilitation of the banking system and devaluation of the currency to promote monetary easing. But Roosevelt’s specific policy actions were, I think, less important than his willingness to be aggressive and to experiment—-in short, to do whatever was necessary to get the country moving again. Many of his policies did not work as intended, but in the end FDR deserves great credit for having the courage to abandon failed paradigms and to do what needed to be done."
This talk of Rooseveltian resolve is what is of the essence-a willingness to do something. We really need policymakers who are determined to if they must err not err on the side of caution. Simel did have a great line about the mood in the FDR White House at the time: "the mood in the White House at the time was best summarized by a quote decades later from the immortal John Candy, "There's a time to think, and a time to act. And this, gentlemen, is no time to think."
Sumner in reviewing the discussion about NGDP said this: "I used to think it unwise to do such a major policy change without further study. But after seeing this I see no reason not to go forward and immediately implement NGDP targeting. Where are the significant risks that do not exist under current policy? I don’t see the FOMC as having even laid a glove on the proposal. As the Fed staff indicated, it gives you a faster recovery without leaving long term inflation unmoored. And all they can do is nitpick? All they do is make complaints that could equally apply to any flexible inflation target? Is that showing “Rooseveltian resolve?” Is that doing “whatever was necessary to get the country moving again?” Either Bernanke doesn’t think our 9% unemployment is as critical an emergency as Japan’s 5% unemployment, or he no longer believes in showing Rooseveltian resolve. Or maybe he does favor more action, but doesn’t have the votes. Let’s hope the Fed wakes up to the fact that (even w/o Europe) all the risks are on the downside, that wage inflation will be low for many years, almost regardless of what the Fed does. It’s no longer the 1970s–stop trying to fight that battle.
Yes stop fighting the war of the 1970s, let the Taylor rule be our present day Maginot Line. What's needed is Rooseveltian resolve. There is a time to think and a time to act. And this, gentleman, is no time to think.