Some around these parts already know that I judge the market monetarist approach of NGDP level-targeting to be the ‘least-bad’ system of a fiat-money-based monetary regime. I am persuaded of this for purely ‘technical’ reasons. That is – by logical arguments related to reasonable theoretical models of the dynamics of our economic and financial systems and considering questions of what strategies might be ‘least ineffective’ / ‘least-inefficient’ in reducing volatility and instability while the economy continues to evolve to wherever it is going.
Someday soon, when time permits, I’ll try to lay out my version of what I refer to as this ‘technical case’. But we don’t live in a world of pure technocratic consideration where optimal policies overlap perfectly with the politically plausible, and so there are other reasons to favor this particular reform.
For starters, the ‘improvement to change’ ratio is probably the highest for this reform. Because it is neither radical nor revolutionary, and since it keeps some of the best, while eliminating some of the worse of the current system, it is likely to be perceived as a benign tweak (or even kludge) to the contemporary regime. It has some real (though currently small) likelihood, in other words, of being implemented by the current players without experiencing the turmoil of the equivalent of complete social and economic upheaval.
But there are also political considerations, and I would submit for your consideration a recent post by Scott Sumner, who at The Money Illusion has been the most vocal, persistent, and uncompromising advocate of NGDP level-targeting in the econoblogosphere for the past 4.5 years.
I don’t agree with Sumner on everything, particularly his absolutist-EMH thoughts on bubbles (i.e. – they don’t exist / there’s no good useful definition of when they do) and I’d recommend Arnold Kling’s and Interfluidity’s takes on his theories to you. But in general I think he’s right about NGDP level-targeting, and it’s a subject and argument with which you should acquaint yourself.
Whatever, you think about the wisdom, prudence, or benefits of hard money, I think he makes a convincing, if obvious, case that hard-money policies are political losers in democracies, since the left can always argue that the occasional down-turn is a result of those policies, and that if they are elected, the loose-money, deficit-spending policies they will enact will stimulate the economy, relieve debts, and hand out government goodies to all the distressed. It’s the familiar structural disadvantage of any uncomfortable discipline against temptation whatsoever associated with the short-time horizons of democratic politics.
So, until democracy is formally discarded, conservatives would be wise to institute policies that limit political discretion and build in an allowance for a little looseness in warranted circumstances, compensating with subsequent tightness when the storms pass.