Is NGDP Too Simple a Solution?

In a quest to understand how unemployment benefits could actually slow reentry into the workforce, Bonnie Carr detailed some of the experiences of a group she took part in, as they tried to support one another in their efforts to find work. Such emotional settings like this make one wonder, why are so many obvious solutions simply looked over? NGDP is one of those overlooked potentialities of the present, even if it is just a part of the total picture. Many Market Monetarists despair at the falling workforce participation rate, which lies behind those apparently improved unemployment numbers of the moment. Marcus Nunes mused, in a comment to Bonnie's recent post at dajeeps: is NGDP just too simple?

That question has been echoed any number of times in recent years, often at Scott Sumner's blog. It arises not only when we despair over economic conditions but also when we dare to become more hopeful for better conditions in the future. So this post on my part is mostly to look at some of the reasons why - what seems obvious to Market Monetarists - isn't quite so clear, to others. Of course, this statement on my part is personal advocacy, and being human, we all rationally advocate for our own position! We're all "playing to win", and Shane Parrish (Farnam Street) offers quotes from a book by that name, where the authors stress the importance of strategy. No one will hear our point of view, if we do not also hear and consider theirs. Certainly strategy has been upped recently between Market Monetarists and Keynesians, who both to a degree claim recent economic gains as their own.

Aaahhh.....psychology matters! Identity, ego, stubbornness - all are caught up in our identity with previous economic and social realities. Such economic conditions may not make us look very "smart" when we have "skin in the game" regarding their definition, only for that definition to shift out from under our feet. Plenty of historical, political and scholarly examples abound in our literature and prose. For some of us, there may not be as much at stake should we change our own position, especially if we are unemployed or somehow on the "periphery" to begin with. Long before I came back to the center balance that is Market Monetarism, I thought mostly like those on the left. A series of economic hard times and circumstances made my outlook somewhat austerian,  before my exposure to The Money Illusion blog and the learning experience it truly was.  Anyone who maintains relative success in the course of their life can be forgiven for the desire to maintain their own viewpoint, especially in good times. Mostly when times are less certain, does it become quite helpful to examine our priors.

For some, the problem is with expectations, as in "What makes you think just because more money gets printed, something productive is going to happen with it?" An inclusive and impartial framework of monetary policy through NGDPLT is misunderstood, because people don't have particularly inclusive frameworks for economic access in the present. At this point in time many institutions find themselves forced to be more exclusive - a problem reflected at state, national and local levels in both production and consumption terms. One person's idea of inclusive - to someone else - invariably tends to be problematic and seemingly coercive! Caught up with such limited definitions of access are continuing negative outlooks as to long term solutions in general. Issues of credit as central are especially a part of this framework, and are partly responsibility for an inability to see growth in incremental terms. Because money has been stretched to such a degree in contractual terms, some now even question its actual role in wealth creation, and assume it is just best to print what is needed to create jobs. But this is only part of the picture, as a better understanding of the transmission between wealth creation and skills use time is also needed.

One of the most important aspects of our question, "Is NGDP too simple?" is the actual role of complexity as defining institutional frameworks. Simplicity is also transparency, which some specialists and professionals may actually find counterproductive to their own goals and even ability to create profit. Some, though, have wondered: wouldn't the rule based measurement of NGDP mean that lots of economists just lose their jobs with the Federal Reserve? Not all complexity is a bad thing, for it is also part of many rational processes. The work which economists do for the Fed, particularly measurements of economic activity, has tremendous value and significance. It is all the more important now, in that the last time the U.S. economy hit the zero bound, systems of measurement were not as well developed as they are today. Any lack of transparency now is nothing, compared to what many citizens experienced in the Great Depression. Today we have little excuse when we hear the same old arguments which were also used then, yet don't look further to see if they really get to the heart of the matter.

Some argue, depending on the discipline, that often a focus on finer points leaves little for the average individual to understand or visualize as important for everyday life. Is this true? Part of the issue has to do with the actual exclusive structure of knowledge use in the present. Institutions sample portions of  knowledge for applied work within their walls, but they do not always have adequate reason to reach across to other disciplines to apply what they generate in a broader sense. This  is really important, because doing to could help to build stronger social and economic structures in general. If it were possible to utilize knowledge in more inclusive and interdisciplinary ways, complexity would still exist to be sure, but not as a mere means to obfuscation or distraction as so often happens now. We need to know whether complexity has real purpose beyond generating profit or simply "busy work", for that is the kind of complexity that needs to be eradicated wherever possible.

There is a spatial aspect to knowledge use which is very important for aggregate job creation potential. The simplicity - and beauty - of NGDP also point to the possibility of more dispersed interpretations of wealth creation. When aspects of income and consumption are internalized, it's as though the same set of economic factors can be utilized up close, or at a distance for similar effect. Yes many other macroeconomic and microeconomic elements would continue to compete for attention, but by no means do they really need to confuse us as much as they do now.