Is There a Natural Revulsion to Unconventional Monetary Policy?
Scott Sumner, the agent provocatuer of the nominal gross domestic product (NGDP), targeting crowd, is trying to figure out why so many people are horrified by his ideas.
His conclusion is that people are just frightened by the abnormality of it all.
Seriously, here’s what I think is going on. If interest rates were 8% right now, TIPS spreads were 1.5%, unemployment was 9.1%, and this blog recommended cutting the fed funds target to 7.5%, then NO ONE WOULD OBJECT. Not Richard Fisher. Not Bob Murphy. Not Stephen Williamson. Not John Taylor. Not Allan Meltzer. Not Rick Perry. No one.
So why do people object to my proposal for monetary stimulus? Because it’s a proposal for unconventional monetary stimulus. For “printing money” at a time when most people (including most people who agree with me) think money is already incredibly easy. Rate cuts are acceptable, there’s no natural human revulsion against cutting rates from 8% to 7.5%.
But here's the thing: If Scott's right about this, a policy of targeting NGDP might backfire because people would find it so objectionable.
Keep in mind that communication is a huge part of the campaign for targeting NGDP. People are meant to believe that the Fed can raise nominal growth through asset purchases. If they do not believe this, and simply fear that commodity prices will soar in the wake of a dollar tidal wave, the whole thing falls apart.
Questions? Comments? Email us atNetNet@cnbc.com
Follow John on Twitter @ twitter.com/Carney
Follow NetNet on Twitter @ twitter.com/CNBCnetnet
Facebook us @ www.facebook.com/NetNetCNBC