Even though today is just another day, I can follow along with the superficial milestone of time and say that I am not sorry to see 2012 be over and done with. It wasn’t the worst year in recent memory, 2011 was. But 2012 was not much better with the exception of the very end when I finally found a new job that I started the day after Christmas.
I had promised an attempt at an epic blog post since most of my new coworkers and my new boss were on vacation for the holidays, and I had nothing to do. But I was allowed to leave early on Monday, and I instead started my New Year celebration early. It was a good thing because the change in schedule required to accommodate work has worn me out and I actually missed the beginning of 2013 in my time zone by about an hour and half, falling asleep while watching movies with my son.
In historical news, the Emancipation Proclamation was signed by President Lincoln 150 years ago today, ending slavery by executive order in Southern territory that had been militarily defeated and Confederate territory that had yet to fall. That also meant that all slaves in US military custody were deemed freedmen by the Executive Branch, and their former masters would not receive compensation. Next to the Declaration of Independence, it is likely the next most important document in the history of the United States as viewed with 21st century eyes. At the time, however, it was controversial as many believed it was not an appropriate exercise of Executive power. This topic is worthy of a post of its own, so I won’t go into the detail here; but will save that for the very near future.
Market Monetarism had a good year last year. When 2012 opened, the average core PCE measure for the previous 48 months was ~1.2% and was starting to decline further. FOMC meetings between January and April left many disappointed with monetary inaction. In June, Kocherlakota was the first hardline inflation targeter to bend, presenting an idea similar to level targeting inflation. His outlined approach would include forecasts for a variety of commodity prices as a consideration for monetary policy. Cochran advocated level targeting the price level. There was a definite move toward a consensus that the previous policy was inadequate and toward level targeting of some kind.
In August, Michael Woodford dropped a bombshell on the central bankers by presenting a paper at the Jackson Hole gathering that advocated make up NGDP growth and open-ended QE as a way to achieve it. While he endorsed NGDP level targeting as a possible approach, he did not present it a preferred approach. I still wonder why he chose price level targeting instead. I don’t understand his reasoning. But it was a huge deal for MM, nonetheless.
In early September, the Fed adopted open-ended QE tied to inflation and the (un)employment rate, but did not set a clear goal. The Fed clarified that goal in December as 6.5% unemployment or 2.5% inflation maximum. To be sure, this is only a synthesis of some of the ideas from MM into mainstream monetary policy and is by no means an implementation of NGDPLT that is the thrust of MM monetary theory. The Fed is still doing it wrong – but this kind of wrong will provide more desirable results than the previous wrong of inflation targeting all inclusive of headline inflation. While I am far from satisfied, my main concern, household wellbeing is addressed with this policy, at least as far I can tell. If the Fed actually sticks to this rule, there will never again be inflation falling through the floor to the deep hot place without an appropriate response. The response will come late, but it is preferable to none at all with NGDP taking an 18-month free fall. It is not enough to just prevent full-blown deflation as was the intention behind QEs 1&2; and I hope that lesson has been learned and will stay learned – I don’t ever want my kids to have to deal with the kinds of trial and tribulation I have gone through the last few years.
Perhaps after some time has passed I will document the details of how difficult life has been when it isn’t so fresh and can be regarded as what happens in hard times. Even though my case was mild compared to some, I’d rather just enjoy no longer having worries about basic necessities of life and not think about it for now.
Good bye 2012. Hello much better days in 2013.