Scott Sumner  

Can the left and the right agree on a monetary reform plan?

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In recent years, the political situation in the US has become highly polarized. But I'm not convinced that this necessarily prevents the two sides from coming together on monetary policy. Consider:

1. The idea of NGDP targeting has considerable (and growing) support on both the left and the right.

2. David Beckworth recently interviewed Matt Yglesias (who might be described as center-left), and at one point David read from a piece Yglesias wrote in 2011:

Most important, for all the flaws in the right's current critique of the Fed, they're correct to point to the need for accountability. The idea of a central bank that's "independent" of day-to-day politics is a good one, but too often that's come to mean a central bank that's immune from criticism or meaningful supervision. The Federal Reserve System's current vague mandate needs to be replaced with a specific target, defined in law. The public and the politicians we elected need to be prepared to hold the system accountable for achieving the target, and Congress needs to accept responsibility for picking a target that leads to good outcomes. Most of all, progressives need to start caring about the Fed and engaging in the debate over what it does.
3. Later in the interview (after the 40 minute mark), Yglesias expressed some views on Fed accountability that are quite similar to what I've been advocating. He referred to the need for the Fed to "look back" and evaluate past decisions, suggesting the Fed needed to ask these questions:
OK, in 2015, did that go the way we [the Fed] wanted it to? Heading into the year, what did we think we were going to achieve? Did we achieve it? And if we keep failing to achieve our goals, do we need to change our strategy? (Approximate quotation)
I've made similar proposals for more Fed accountability, and when I talk to conservative policy types in DC, I sense there is a lot of interest in moving in that direction.

Comments and Sharing

COMMENTS (3 to date)
Thaomas writes:

I do not think you would have gotten much opposition from "liberals" for the kinds of policies that would have been required to meet an NGDP target. The same is not true about "conservatives."

My thought experiment is that in Sept 2008 Ben Bernanke had announced that the Fed would "do what it takes" to maintain (or promptly return to) the NGDP growth trend of the, say, past 5 years.

Who would have screamed bloody murder? AEA members or "macro media?" Brookings or Heritage? Gov. Cuomo or Gov. Perry?

Scott Sumner writes:

Thaomas, That's not what I'm proposing. I don't favor NGDP targeting as a way out of recessions, I favor a consistent policy rule. Conservatives like policy rules, something the Fed does not have right now.

A writes:

Yglesias is a particularly good advocate because he also emphasizes housing supply. The public seems to underappreciate how wealth clustering interacts with housing supply constraints to increase housing costs. Instead, you hear a lot about "asset inflation" and "shadow inflation" attributed to aggressive monetary policy.

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