Monday, September 18, 2017

Is Larry Summers a Fan of Nominal GDP Level Targeting?

You are going to have listen to my podcast with him to find out the answer. Here is a hint: we spent a portion of the show talking about NGDP level targeting (NGDPLT) and what it would take to actually get it implemented it at the Federal Reserve. So listen to the show to find out Larry's thoughts on NGDPLT as well as his views on secular stagnation, Fed policy since the crisis, and macroeconomic policymaking in real time. It was a fun interview. 

P.S. You can also read the transcript of our interview.
P.P.S. For those interested in NGDPLT here is my latest policy brief on it and here is a longer research paper on it.


  1. Very nice interview.

    I am disappointed that Larry Summers subscribes to the "housing bubble" view, given that house prices are higher now, and house prices are soaring into the stratosphere in Australia, New Zealand, Great Britain, Canada, Hong Kong and parts of the US.

    Maybe the words "property zoning restricted supply" need to used.

    Also, all the above nations run trade deficits. There seems to be a strong correlation between trade deficits and exploding house prices, and I think it is a causal relation. Foreign money pours into real estate, the supply of which is limited by zoning.

    I wish you would have broached the topic of helicopter drops, or if QE combined with fiscal deficits (and no plans to reduce Fed balance sheets) is much the same thing as chopper drops.

    Given Summers views that demand creates supply, and that we have gluts of savings…helicopter drops make sense, no?

    Thanks for the interview. Great stuff.

  2. Could you post the transcript in another way in addition to using Google drive? Access to that particular storage platform is blocked by most US Government networks. Thanks in advance.

    1. Anonymous, I moved it to a dropbox file. Let me know if there are still problems.

    2. How much per hour are the taxpayers paying you to read this transcript?

  3. Hi David. I just wanted to say that I really love these podcasts. I have been driving a lot recently and your pods always make the journeys go quicker. Thank you!

  4. Are there transcripts for most of your podcasts? I admit I haven't kept up with them. And being able to read the transcripts would make it easier to catch up.

    1. Not yet, only a few have transcripts.

    2. David, I think you need to have George on again to talk "The 2% Solution"!

  5. Great interview. I love your podcasts too. A had a couple thoughts while listening:

    The original thinker on secular stagnation was in the 1930's. This makes me highly suspicious that the concept is a long term trend. It seems more likely that it matches the situation at certain points in time and then things change again (as they always do).

    We can always find individual examples (like the lawyers using less SF), but it's hard to know where economy has reallocated resources. For instance, Amazon's warehouses are amazing structures. And every farm worker today is using far more capital and land today than each farm worker from 50 years ago.

    Regarding QE, I think he's mistaken. The drop in long term rates after the taper indicates to me that it was effective. QE was raising expectations of future nominal GDP growth. When it ended, those expectations fell, taking long term interest rates down with them. Just like the first increase in IOR around the end of 2015. Then the 10 year Treasury rate fell like 75 bps or more (if I recall correctly).

    I'm glad he mentioned market inflation expectations being so low. Especially that looking at market expectations is a useful thing to do.

    I thought he had an interesting take on allowing procyclical inflation that will be inadvertently worked off when the next recession hits. I think we should be trying for counter-cyclical inflation, but I'm also concerned that it may be difficult to achieve.

    His comments on NGDP are intelligent, except the "sum of a good and a bad". I like the idea that an NGDP target is kind of a stealth way to raise the inflation target. And it obviates the need to have an opinion on secular stagnation. Just target NGDP at X%, say 4.5%. If RGDP growth is stuck at 1%, then we'll defacto have a 3.5% inflation target and if/when RGDP growth returns to a higher level, the inflation target drops. The trouble with his "sum of a good and a bad" is that for the most part the Fed doesn't control RGDP growth. RGDP will generally find its equilibrium. And if RGDP is falling, then inflation is not a bad.

    I've often wondered about this. If NGDPLT was ruled out, would we be better off with Price Level Targeting or with an NGDP growth target. I think Summers prefers price level targeting? I think either step would be an improvement. My preference would be to move to an NGDP target of some sort though.

    I thought his suggestion to loosen during a suspected bubble was interesting. Provocative even. I'm too EMH to change policy either way, but I like it as a counter-argument.