Sentences I Might Have Written

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Instead, they were written by Richard E. Wagner and Vipin P. Veetil.

Our analysis suggests that the decline in the velocity of money is a consequence–not a cause–of real problems. To turn Leland Yeager’s (1997) dictum on its head: when output shutters, the veil flutters. Injecting money into the economy–however it may be done–cannot help economic actors coordinate their plans. Money is not a substitute for information. We differ from both those who assume velocity of money is stable and those who don’t, for both the stability and instability in the velocity of money is a reflection of human action at the micro-level. All problems and solutions must be sought and found at the micro-level. A macroeconomics that begins with the velocity of money, irrespective of whether it treats velocity as stable or unstable, assumes away all that is of economic significance.

Actually, the paper is filled with sentences I might have written. Another excerpt:

Aggregate variables like GDP are not account entries that belong to action-taking entities. Instead, they are aggregations over interactions among the plans of many entities. The data of accounting do not account for the actions of economic entities. Counting is not creating.

The interesting question is what will happen if the Fed tries to stabilize nominal gross domestic product. As the authors point out, at the ground level, all the Fed is doing is swapping money for securities. Those swaps will benefit some people and hurt others. From a PSST perspective, this will create different patterns of specialization and trade from what would emerge otherwise. Presumably these new plans will be less sustainable than the plans that would have occurred without Fed intervention. In that sense, even if NGDP is stabilized, the economy is made worse off.

5 thoughts on “Sentences I Might Have Written”

  1. I am really disgusted with the NGDP-targeting hype. In the final defense, it is said this is the least bad option for FED tinkering, given FED tinkering. Not only is that a terrible reason to *advocate for* a policy, it doesn’t even seem like it is true. For instance, a case could be made that all / a lot of NGDP growth is purely due to increased money and credit, but conventional analysis says NGDP grows as a function of inflation + real growth. If the former is true, then NGDP-targeting will end up being even more distortionary than plain old inflation-targeting.

  2. Microlevel tyranny seems misguided since micro assumes macro equilibrium. No explanations necessary when problems are assumed away. Nor does a neutral stance exist and controlling interest rates and inflation would also induce winners and losers. In this, it is not what the bank does but what people expect it to do and how it differs from that, that would be significant, so this would just be a change in expectations. Nor is there any reason to presume this would be less sustainable than what just occurred. In fact there is reason to believe what was sustainable before was mistaken due to the presence of what was actually unsustainable. These is really no basis to assume the economy would be made worse off, and some reason to assume it would make it better.

  3. Arnold,

    For a paper criticising a monetary policy, this does not compare with any other policy. As the prev commentor said, inflation targeting would also have winners and losers. Does the paper assume an ancap world?

    NGDP level targeting does not solve all social problems. It purports to solve one major problem in macro-economics. The micro juggling and shuffling will still have to be done. The question is – Do entrepreneurs do better in a stabilized world or a non-stabilized one?

  4. One problem is they want to replace “a fall in aggregate demand is caused by a fall in aggregate demand and must be fixed by reversing the fall in aggregate demand” with basivally the same statement about NGDP expected growth.

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