Tuesday, June 5, 2012

Targeting Inflation With Fiscal Policy

Scott Sumner, in Market monetarism: The only way out, says that
Today is a pivotal day, with market monetarism gaining enormous momentum.
While I don’t deny this claim (although I do deny the benefits are as claimed), Sumner makes the following troubling comment to support his view (my emphasis):
Don’t Keynesians also oppose deflation?  Yes, but when people call for a higher inflation target they are always referring to monetary policy, 100% of the time.  That’s right, even though Keynesians claim to believe fiscal stimulus can boost AD, and hence inflation, in their gut they really don’t believe it can be used to target inflation, and hence never even recommend it.  Here’s why this is market monetarist.  In 2009 there were three groups, conservatives that opposed stimulus, Keynesians that favored fiscal stimulus, and MMs who said monetary stimulus is the only solution.  Now the world is waking up to the fact that monetary stimulus is the only solution.
The problem with this statement is that it’s simply not true, unless one chooses to ignore all those individuals not falling within the groups mentioned. For the past couple years, as part of my reading list, I’ve been following numerous individuals in the MMT, MMR and Post-Keynesian camps. While I’m certainly not going to say all would disagree with Sumner’s claim, I’m fairly confident that many have and would refer to fiscal policy when calling for higher inflation.   

Just last month, Sumner asked Shall we target inflation with fiscal policy? Mike Sankowski, one of the founding members of MMR, offered the following comment
I am a fiscal proponent and I made a 4% inflation target as part of my fiscal spending rule.
So perhaps you mean well known fiscal proponents instead of “obscure but not for long” fiscal proponents. David Beckworth made a similar proposal at our site just last month.
This is just one example, but that’s all one needs to disprove a statement claiming support of100%.

I find Sumner’s blog to be thought provoking, in general, and admit to reconsidering my position on NGDP targeting many times. That being said, I wish Sumner wouldn’t resort to ignoring those people/positions he disagrees with (a tactic used by mainstream economists to discredit market monetarists for quite some time). Economics holds many competing theories and each may offer added value to the field. Mainstream economics has dominated the field for too long. If the ruling powers are to be overthrow, various sects of heterodox economists must work together to find common ground.

Related posts:
Finding Common Ground
NGDP Targeting: Keeping An Open Mind

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