Romney adviser Glenn Hubbard on NGDP

The idea of having the Federal Reserve target nominal GDP has gotten a lot of play lately. So I thought I would ask Glenn Hubbard, a top economic adviser to Mitt Romney, his thoughts on the matter. He’s someone, after all, that I could see as the next Fed chairman if Romney gets elected. I included some of his answer yesterday in a Q&A, but here is Hubbard (speaking for himself and not the campaign) at more length on NGDP:

It’s certainly something that economists have talked about for years. … Economists routinely look it. Having said that, I’m not sure the Fed would be driven to do much more than it’s doing right now. It already has an amazingly accommodative monetary policy and it’s hard to see how they could make it ever more accommodative. … The Fed is almost pushing on a string right now because the usual housing channel for refinancing is blocked. And on the business side, people are sitting on mountains of cash, but it’s not whether the 10-year yield is 1.9 percent or 2.3 percent that’s going to ignite U.S. investment. … What makes me nervous is anything that looks like temporary increases in inflation because our experience is that’s a genie that’s very hard to put back in the bottle. I would much rather see us do the restructuring in the economy that we need for conventional monetary policy to work, which would mean clearing up the policy uncertainty that is limiting the willingness of business to invest, and help facilitate the deleveraging on the household side. Part of the problem is that the Fed is trying to do the job of the government, too, because the government’s has been sitting on its hands.

Are you concerned such a policy wouldn’t work or maybe it works but then we face higher inflation expectations for a long time and it is self defeating long term?

Actually, it’s a bit of both. In the near term, it’s hard for me to imagine that it would work much differently than what the Fed is currently doing, which isn’t exactly a booming success. And then in the longer term, I would worry about inflationary expectations becoming unhinged. And I think that’s something the Fed would find very difficult to reverse.


3 thoughts on “Romney adviser Glenn Hubbard on NGDP

  1. With all due respect to Dr. Hubbard and his public service, his inflation worries have been misplaced for a long time. He believed we were knocking on the door of high inflation in July 2008. This post does a good job summarizing

    Further, this statement is confusing “it’s hard for me to imagine that it would work much differently than what the Fed is currently doing.” Why can’t Dr. Hubbard imagine that NGDP targeting would entail different policies? Switching to an explicit NGDP target would mean more QE now, and a promise of more easing conditional on future performance. Conditional promises of future policies are a policy in themselves for a bank with at least some credibility. Markets would clearly react to the statement “We’re prepared to tolerate up to 5% inflation if real GDP doesn’t grow.” This statement is implicit in an NGDP target. Who believes such a statement would be “pushing on a string?”

    Currently, there are only vague promises about the federal funds rate, and they aren’t conditioned on anything. So, yeah, NGDP targeting would entail a huge difference in policy right now. Clearly, the assertions that NGDP targeting would be short-term impotent are actually a reflection of inflation worries.

  2. “”He believed we were knocking on the door of high inflation in July 2008.””

    We were. Go look at BLS data for 2008. Annual inflation by the summer of 2008 was close to 10%.

  3. “”“We’re prepared to tolerate up to 5% inflation if real GDP doesn’t grow.””‘

    Oh yippie, unemployment and accelerating inflation.

    NGDP is a fetish of the elites and intellectuals have a never ending fascination of their own intelligence and abilities to control people’s lives. Full of hubris and lacking any humility, they endlessly dream of justifying their existence and PhDs by rearranging the lives of the serfs. Of course, time and time again they fail miserably, but their answer is always “we didnt intervene enough”

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