Brad DeLong in his latest blog post is aghast at Ben Bernanke’s recent remarks on why the Fed isn’t doing more. Don’t worry about what Bernanke said; the interesting part is when DeLong, in exasperation after quoting Bernanke’s can’t-do attitude, says this:
Target the path of nominal GDP, people!
You know, I thought that this would work out very differently. I thought 3 1/2 years ago that the Federal Reserve would announce:
* that this was an emergency situation.
* that its task was to stabilize the growth rate of nominal GDP.
*that as long as nominal GDP was below its pre-2008 trend, the Federal Reserve was going to buy bonds for cash–and keep buying bonds for cash until forecasts of nominal GDP were back on track.
Now when I first read that, it struck me as complete BS. When I first encountered Scott Sumner’s writings around (I think) late 2008, I had to think through what nominal GDP was. Just about nobody thought in terms of NGDP at the time. I’m not saying Brad DeLong didn’t know what NGDP was, but what I’m saying is, he most certainly wasn’t expecting the Fed to announce that it was going to implement what we now recognize as the Scott Sumner Plan for
Incidentally, the reason I was pretty sure of my recollection is that I can remember starting to pay more attention to Scott as DeLong and Krugman came around to his views. In other words, I didn’t think there was much need to deal with the Crazy Guy from Bentley when he was just getting the bi-weekly link from Tyler Cowen, but when more and more people starting saying, “You know, level targeting of NGDP might make a lot of sense,” that’s when I realized, “Scott Sumner must be stopped. No matter the cost.”
Anyway, for those of you who would like some more evidence besides my sincere assurances, here is a Brad DeLong post from January 2009. This is right at the time that he says in the quote above, that he was expecting the Fed to matter-of-factly announce that it was targeting NGDP growth. Look at what DeLong from 3 and 1/2 years ago actually was saying. He first quotes Gary Becker, who had been questioning the need for a big Obama stimulus package when people weren’t expecting the recession to be worse than the 1982 one, and then DeLong explains in his patented patronizing pattern:
The difference between now and 1982 was that back in 1982 the interest rate on Treasury bills was 13.68%–there was a lotof room for the Federal Reserve to cut interest rates and so reduce unemployment via monetary policy. Today the interest rate on Treasury bills is 0.03%–there is no room for the Federal Reserve to cut interest rates, and so monetary policy is reduced to untried “quantitative easing” experiments.
The fact that monetary policy has shot its bolt and has no more room for action is what has driven a lot of people like me who think that monetary policy is a much better stabilization policy tool to endorse the Obama fiscal boost plan.
The fact that Gary Becker does not know that monetary policy has shot its bolt makes me think that the state of economics at the University of Chicago is worse than I expected–but I already knew that, or rather I had thought I already knew that.
I knew Brad DeLong from 3 and 1/2 years ago. He was a blogger of mine. And Brad DeLong, you were no advocate of level NGDP targeting, nor did you think the Fed was.