On The Money Illusion, Scott Sumner’s blog, Sumner posted a link to an article in the Wall Street Journal co-authored by Mishkin and Woodford. It describes that the only real way out of the monetary abyss is for the Fed to start speaking in terms of NGDP makeup as its goal for QE3, together with inflation, for purposes of clarity. If you’d like to read it, the link to Sumner’s blog is in my blog roll. I’m not going to post the link here for the same reason I can’t read the entire article, just the quote contained in the blog post. The WSJ is a rag; and I believe it has played an important role in prolonging the arrival of a solution to the current global monetary vexation as it skewed its message toward the inflation Chicken Littles at great expense to humanity. I have therefore boycotted the publication until further notice – I can find much cheaper birdcage-liner elsewhere.
It is refreshing to hear, however, that two well respected economists are saying the same thing I’ve been saying – that the mishmash compromise of communication between employment and inflation isn’t going to work. I feel vindicated, although I am reserved as to what Mishkin’s motives may be as he was instrumental in creating the problem. I have brushed the surface of documenting it here in one of my “Dajeeps on the warpath” moments; so I don’t need to rehash it. But in addition to what I have in the rant, Bernanke and Mishkin were joined at the hip in advocating explicit inflation targeting just prior to the beginning of their tenure at the Fed where they implemented the policy. Mishkin left the Fed shortly after the damage from their preferred policy started to work its way through the economy as if a fire were lit in his breeches and has been very quiet about the problem ever since.
I’ve heard it said that it is acceptable to criticize people when they are in the wrong, but that they are worthy of praise when they do something right. That might be true, but it is difficult for me to bring myself to choke out anything other than, it’s better late than never; and it takes courage to be able to contradict himself. Of course he doesn’t contradict himself entirely as the article appears to sell the idea that emphasis on NGDP would only be temporary. I don’t agree.
I don’t believe the old way of managing monetary policy is workable; hence, the current situation. There is no justification for continuing a policy after a recovery has begun that fails when we need it most to work. Inflation targeting Bernanke/Mishkin style is finished unless we wish to find ourselves with more crisis at a later date in the not so distant future. One can tell how long interest rates are going to be low, too low to be relied upon, just by looking at the 20-year bond yields. They say the economy is going to suck for at least that long; and I highly doubt the Fed as currently constituted is going to change enough to change that outcome enough to matter.
I suppose 1 out of 3 is better than going 0 for 3, but given the situation on the ground, how this crisis has impacted average people, we need much better than that. If they really want to solve the problem for longer than a year or two, the only real way to do that is to adopt NGDPLT full throttle and never look back.