E Saving The Economy: NGDP Targeting For The People

Nominal GDP Targeting, or NGDPT, is the cornerstone economic doctrine of the school of economics called Market Monetarism. NGDPT is the solution for the Fed which was watching inflation in 2008 when the Great Recession crept up on them unannounced.

Those watching NGDP, like Scott Sumner and his friends, understood that the economy was in trouble. The Fed had no clue because it was tracking inflation which had not declined while nominal GDP was in steep decline.

So, after the crash, the Fed indeed began to buy assets, through QE, as a means of bringing up asset values. And yet, inflation has still trended below the 2 percent target. So, the Fed has inflated assets, while wages and inflation overall have stagnated.

While this asset purchasing is not in and of itself NGDPT, it is approved of by Market Monetarist Scott Sumner, who recommended extending QE. But prolonged QE has resulted in weakness on Main Street, and an asset inflation that may put markets like real estate and stocks into serious bubble territory.

NGDPT can be established by watching total spending and money supply rather than by watching inflation. Yet what has happened with asset purchasing is that wealth has shifted to the top, and demand on Main Street is weak deep into this business cycle. Without auto sales, and credit for autos, the consumer economy remains dismal:

https://tradingeconomics.com/united-states/retail-sales-ex-autos

So, the only way to fairly distribute the proceeds from NGDPT is to establish an NGDP Targeting for the people. This would be accomplished by a form of helicopter money. David Beckworth, also a market monetarist, has advocated that in times of economic weakness, the Treasury issues bonds to the Fed in exchange for base money that would be deposited directly into the accounts of Americans.

Now this is not the classic helicopter money advocated by Eric Lonergan. He would not use bonds, but actually use pure fiat money not backed by bonds. But in that case, it would have to be rare and unexpected, so that inflation expectations would be nipped in the bud. A one time gift of base money does not carry with it expectations of inflation unless it were abused.