Seems like the more interference, the worse the economic problems get. How about taking Dr Ron Paul’s advice and end the fed? Let the free market decide how to allocate resources. What a novel idea!
[The Depression era Fed] reacted to rising inflation rates while failing to recognize that the price level remained far below pre-crisis norms.
Their error was thinking that inflation above what was appropriate for the long run was bad in the short run. That is they were NOT being Flexible. No one indicator was enough but the fact that unemployment was still was an indicator that the relative price adjustments that needed to happen after the (totally unnecessary crash in '29) had not yet been worked out and continuing inflation was still needed.
The problem with level targeting (price level or NGDP) is that it is not "Flexible" level targeting. It seem incapable of dealing with shocks that require above temporary target inflation/NGDP growth.
My preference has been to use NGDPLT, but to constrain the rate of return to the level trend. So if the policy is 4% NGDPLT, we would target a growth rate of 4% to 5% when we’re below trend (and 5% if we’re well below trend), and if we’re above trend, the growth target would be 3% to 4% (and 3% if we’re well above). This provides time for the data to be confirmed if the miss on the level is just data related. It’s a believable target - 3% to 5%, as opposed to say a 0% target if we’ve well overshot the trend. And less likely to be disruptive as say a growth rate of 0% or 8% might be if we had veered a lot off trend.
Seems like the more interference, the worse the economic problems get. How about taking Dr Ron Paul’s advice and end the fed? Let the free market decide how to allocate resources. What a novel idea!
[The Depression era Fed] reacted to rising inflation rates while failing to recognize that the price level remained far below pre-crisis norms.
Their error was thinking that inflation above what was appropriate for the long run was bad in the short run. That is they were NOT being Flexible. No one indicator was enough but the fact that unemployment was still was an indicator that the relative price adjustments that needed to happen after the (totally unnecessary crash in '29) had not yet been worked out and continuing inflation was still needed.
The problem with level targeting (price level or NGDP) is that it is not "Flexible" level targeting. It seem incapable of dealing with shocks that require above temporary target inflation/NGDP growth.
https://convex-strategies.com/2025/03/17/risk-update-february-2025-rational-accounting-man/
My preference has been to use NGDPLT, but to constrain the rate of return to the level trend. So if the policy is 4% NGDPLT, we would target a growth rate of 4% to 5% when we’re below trend (and 5% if we’re well below trend), and if we’re above trend, the growth target would be 3% to 4% (and 3% if we’re well above). This provides time for the data to be confirmed if the miss on the level is just data related. It’s a believable target - 3% to 5%, as opposed to say a 0% target if we’ve well overshot the trend. And less likely to be disruptive as say a growth rate of 0% or 8% might be if we had veered a lot off trend.
If that's the concern, target the price of the contract of the Trillionth that the Treasury ought to issue.
Personally, I think the price of the trillionth woud be useful for execution of FAIT.
https://thomaslhutcheson.substack.com/p/ngdp-vs-fait-targeting