I think it’s clear that the Federal Reserve won’t adopt NGDP level targeting in time to save the American economy, but this nice endorsement from Bloomberg View shows that the idea is still gaining steam and I’m optimistic that some day we’ll come around to it.
One bonus arument for NGDP level targeting is that it would help solve some of our more tedious political arguments. Under NGDP level targeting, recall, the central bank tries to guarantee a steady growth path for overall nominal spending. One consequence of this is that if unemployment rises or growth slows, we’d be able to easily tell whether that’s a supply-side problem or a demand-side problem. If rising unemployment reflects bad supply-side policies (job-killing taxes and regulation, say) that would show up as NGDP shifting away from real output and toward higher prices. Conversely, if rising unemployment reflects bad demand-side policies that would show up as the NGDP growth as a whole falling below the target level.
So instead of endless tedious fact-checks about a car factory in Janesville, WI we could just look at the national income statistics. If NGDP is on trend but factories are closing, we blame the supply side. If NGDP is below trend, we blame the demand side. As things stand, I take the fact that NGDP is way below trend to be strong evidence for the demand-side view, but absent an explicit mandate it’s difficult to be sure.
