Sumner showed his level of faith in NGDP targeting as a panacea to solve all problems with his solution if a meteor destroyed half America: Do NGDP for the half that survives.
"Arnold is wrong in claiming that we think “any desired macroeconomic outcome can be achieved” via monetary policy (or fiscal policy.) Real shocks will continue to cause real problems. If an asteroid destroys 1/2 of the US, the Fed should keep NGDP (per capita) growth right on target for the other half."
There's a certain beautiful facility in that comment which kind inadvertently shows you how oversold NGDP targeting is a panacea. If an meteor destroyed half America it would make very little difference what the NGDP target was or even the real interest rate on Treaurys.
Sumner's parenthetical jibe at fiscal policy inderstcores how facile this is. If half the US was gone it would destroy the fabric of not only the US but the world economy. As we have argued in previous posts monetary policy pertains to the financial economy, fiscal policy to the real economy.
With half the country destroyed which sounds more the fundamental problem-monetary or fiscal? While the financial economy is very important-my point on monetary vs. fiscal policy is not monetary policy is less important just qualitatively different. In our modern advanced capitalist economies good monetary policy is vital as the financial economy. However if this asteroid took out half the country we would no longer be an advanced capitalist economy-neither would the rest of the world.
To read Sumner you would think that those of us in the half of the US not taken out could go on as before. In truth our lives would change forever and not for the better. We would never catch up to our previous level. It's amazing actually how fragile human civilization and progress truly are. As it has been suggested without the modern division of labor we are back in the stone age.