Silas responds

The best way I can think of to address your position is: the premise behind Sumner’s argument (and that of the macroeconomic consensus he references) is that total spending should be kept at some arbitrary level and growth rate.

But why? Why is more spending necessarily good? When people spend money, they are getting what they need via specialization and through a cash economy from (mostly) strangers.

Certainly, that has *usually* been a good metric of economic health: only a real undeveloped economy has people bartering or producing everything for themselves in their households. But this still runs into the Goodhard problem I complained about: you cannot take that general historical correlation and infer that, on the margin, decisions to spend less are “hurting the economy” — not unless you’re going to redefine the economy as “passing around pieces of paper”, which is about on the level of defining morality as “jumping off cliffs” and accusing people of being immoral because they’re cliff-jump-refrainers.

If I stop hiring my maid to clean my place, and do it myself, does that really indicate a loss of efficiency? There are any number of reasons I could be doing so. When you contort my incentives to the point that I reverse that decision, aren’t you just throwing the inefficiency right back in?

Spending is not, in and of itself, good. Rather, good spending is good. (Less, tautologically, the spending that people would do without manipulation, and because of an honest assessment of their situation, is good.)
Spending that exists only because incentives were jimmied until it looks like people’s best option … is not good.

Let me first say that I don’t have a strong opinion on whether a nominal income stabilization would respond correctly to a sudden change in the market vs. non-market economic activity. The case for  nominal income targeting rests in large part on the claim that changes in nominal income due to monetary disequilibrium are larger and more frequent than those due to other causes. Second, if is not good to force people into spending more than the ‘natural’ amount, it is also not good to force people into spending less than the ‘natural’ amount. The Sumner camp contends that the ‘natural’ amount is most likely when nominal income is stabilized; the price level camp contends that the ‘natural’ amount is most likely when the price level is stabilized. However, right now, even the price level is significantly below trend, so even if you favor a a price level target you should still desire higher spending (though not as high as those who want stabilized nominal spending).

Reading the Selgin paper and talking with Silas made me realize I understood the relationship between monetary policy and demand shocks much better than than I understood the relationship between monetary policy and supply shocks. This implies I should be less of an advocate.

By the way, Selgin’s argument for stabilizing nominal income with respect to supply shocks is that allowing prices to rise in response to negative productivity shocks and decline in response to positive productivity shocks will minimize the burden of price adjustments since the prices to adjust will be the ones that experienced a productivity shock.