Selgin was responding in turn to Mark Sadoswki at The Money Illusion. Mark was inspired by a comment from Bonnie Carr several days earlier, to a post by Marcus Nunes. Here I also have the chance to put in my two cents about Plosser: someone who is nervy enough to say in all seriousness"a period of mild deflation could at least in theory be positive". Charles Plosser, grrr, stick it where the sun doesn't shine, for you indeed know this isn't one of those times (given extremely low innovation where it is needed most). Yet he's reasonably confident that the public doesn't know the score, for major media hasn't really stepped in to help. Now, for the dajeeps (Bonnie Carr) comment, which was a nice slap at Plosser:
Depends in the source of the deflation on whether good or bad. The good deflation doesn't come from monetary policy, and so the central bank doesn't really have a reason to target it.I mulled over her comment for a couple of days, and wasn't quite able to categorize it in my mind. Fortunately, Selgin's response to Sadowski (who had approached an earlier argument from Bonnie's point of view) took care of that:
A non-sequitur, Mark. Of course the CB cannot target productivity itself; but it can have an NGDP target such as would allow for good deflation. It's just a question of setting the NGDP growth-rate target at the trend rate of growth of weighted factor input. I made this recommendation and offer reasons in its favor in my 1997 pamphlet. The point of a "productivity norm", and indeed of any NGDP targeting scheme to some extent, is precisely that CB's should_refrain_from attempting to maintain a stable inflation rate in the face of productivity growth-rate innovation.Perhaps not quite the non-sequitur Selgin imagined, for politics has a way of piling on layers of silt in seemingly easy points of navigation. Speaking of rough and muddy slogs, there is a swamp of economese in his quote which may present a few problems for some of my readers - indeed I had a little trouble as well. Still, swamps are fascinating places as anyone who has explored them (hopefully with groups) knows, alligators and all. So let's grab some poles, and take a brief excursion - just look to where the sun is shining through the trees...
When I returned to Scott's post (with Selgin and Sadowski comments) to link for this one, I was struck at the degree to which some of Thomas Sargent's (a Nobel winner) quotes are reminiscent of Plosser. Egad! Anyway, as Scott noted afterward in the comment thread, it wasn't really clear whether Sadowski and Selgin had any disagreement. But inquiring minds such as my own want to know: what about that "simple" question of setting the NGDP growth-rate target at the trend rate of growth of weighted factor input? I think sometimes that when economists are talking amongst one another, they don't always recognize the moments when the rest of the audience goes "Wait! Hold on! Can you really explain that to me in English?"
What it basically boils down to for us laypeople is this: are the indices in place completely adequate for the task at hand? And - if not - how can we help to provide indices which are more useful? In other words, are current measurements capable of showing whether good deflation can be measured, so that the impediments for its growth can be loosed? Especially in the face of bad deflation which would knock down the most productive and innovative processes, given the chance.
For we need this capacity, if in fact incomes are to be optimized for even those who rely on the least income of all. Whether or not such indices would realistically be taken into account, was of course duly noted by Bonnie Carr - and that's no small matter. After all it's difficult enough to get the most important elements of measurement right - let alone deal with the willing obfuscation of those who would just as soon it not happen.
Thank you for including this, Becky. It doesn't seem like a non sequitur, at least from my point of view. Many people say the Fed should target inflation, and what had been accepted as a target was core inflation, excluding food and energy because those prices are volatile and changes generally originate from the supply side. The comment I made on Marcus' post means that supply side deflation is what we want; but the Fed works via nominal factors and could only target nominal deflation, which would have rather undesirable effects. I am not sure that George understood that what I said, that was changed just a little bit by Mark, was really the same thing George advocates!
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