Bibi Netanyahu's Secret Weapon: NGDP Targeting

A blog about business and economics.
June 5 2012 5:20 PM

Bibi Netanyahu's Secret Weapon: NGDP Targeting

Under a regime of nominal gross domestic product targeting, a central bank tries to make sure that adverse economic circumstances manifest themselves as a temporary bout of inflation rather than as a period of mass unemployment. That's smart because the pain is spread widely and thinly rather than crushing the lives of a large minority of families, and also because it's much easier to bounce back from. You get much less in the way of hysteresis, crazy politics, panicked budget moves, and economic trauma.

Evan Soltas notes that Israel seems to be pulling it off:

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Obviously when the outside world thinks about Israel it's usually interested in issues related to the occupation, the Palestinians, or Iran. But one of the sources of Bibi Netanyahu's national security policy success is the domestic political strength granted him by the strong performance of the Bank of Israel.

The great thing about this, from an American perspective, is that Bank of Israel chief Stanely Fisher is barely Israeli at all. He was born in Zambia (or Northern Rhodesia as they called it at the time), did his PhD at MIT, taught at MIT from 1977 to 1988, then worked at the World Bank and the IMF, then at Citi. Only in 2005 did he obtain Israeli citizenship as a condition of running the Bank. But he has deep ties to the United States and obviously running the Federal Reserve System would be a huge promotion from his current gig. If we were smart, we'd be trying as hard as possible to poach him.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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