Have just been pressing the links here on the Mystic’s Home Page and found some work by Gregor from 6 Oct 12. He seems to be excited about NGDP even though he sees the money going mostly into energy development.
Indeed, given the Fed’s recent announcement of open-ended quantitative easing (QE), one can already anticipate the incremental move towards Nominal Gross Domestic Product (NGDP) Targeting, which has as its central belief that an aggressive and open-ended promise to pursue growth at the expense of inflation is the booster required to push a structurally broken economy back to normal trend…
What’s ‘exciting’ about the emergence of NGDP Targeting into mainstream economic thinking is that, once implemented, it will provide a real-world test of reflationary policy’s final effort to combat the forces that have led to the end of strong, economic growth… endless amounts of cheap capital will be provided to restart economies, now that we are in energy transition, with the world having lost its cheap oil. The battle between credit and natural resources will be renewed…
What will be the effect on global natural resource extraction in an era of NGDP Targeting? Simple. All of the remaining fossil-fuel BTUs will be extracted on an accelerated basis, and governments will race to provide the capital to do so.
Then of course there are those who suggest we should just stimulate like crazy for one year only and then crank it back. Is that even possible ? I guess there are other approaches also suggested including increasing immigration ?
For some time now, I have been advocating a Reagan-Volcker nominal recovery, about 10% nominal GDP growth for a year, and then a shift to a 3% growth path. If the CBO is correct and productive capacity only grows at 2.5% for the foreseeable future, then I think the onus will be on “fiscal policy” (and regulatory policy) to improve the supply-side of the economy enough for productivity to begin growing appropriately. If the problem is slower population growth or retiring baby-boomers, the answer is to look to immigration policy. And only after those alternatives are exhausted, should a change in the nominal GDP growth rate be considered. And if it is implemented, it should start something like 5 years after the decision is announced.
Do they really believe that faster inflation now will generate a faster, sustainable, medium- and longer-term growth rate?
If we knew what the future sustainable long-run rate of growth would be, we could set a current nominal GDP growth target that would on average deliver that, plus 2% inflation. But we do not. Moreover, the view is steadily gaining ground that it is more likely, than not, that real growth in the future will be below the average of past decades; technological innovation may slow and demographic developments will be adverse. So, if we wanted to maintain price level stability, with inflation at 2%, we should be considering a nominal GDP growth target of slightly under 4%. That is not what the advocates of such a target propose.
Bottom line is that I see it as code word for the economy needs alittle more inflation than we would normally like to see !?