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Up until a few days ago, I had very little interest in macroeconomics, primarily because I had the impression that there were not very many well established, useful truths in macroeconomics. Then I read some of Scott Sumner’s writings which convinced me I was wrong.
Sumner’s thesis is that macroeconomists have a useful and well established framework for understanding the aggregate economy, and that the current downturn has been so bad only because most economists, including those at the Fed, have misunderstood or forgotten how to apply the framework properly. Reading his writings over the last few days has been fascinating. Sumner argues so forcefully and without apparent ideological motivation that I am compelled to investigate this framework.
So, thanks Sumner! For opening up a whole new branch of economics to me.
One of Sumner’s novel (to me) suggestions is to target Nominal GDP (NGDP) instead of the price level or inflation. Since I don’t know much about macro-economics I don’t have much to say about the proposal. I do have one way to frame the choice between price level targeting and NGDP targeting that I haven’t heard Sumner use (perhaps for good reason): targeting a price level path makes money stable with respect to the absolute quantities of goods it can be traded for; targeting NGDP makes money stable with respect to the fraction of total output it can be traded for. The latter might be desirable because it more nearly holds constant everyone’s ability to fulfill their agreements.