George Selgin made this reply to a post by Scott Sumner regarding the lack of ability of Keynesian models to explain current economic phenomena in Britain. His reply is almost unrelated to the blog post; but it is, in a nutshell, what I’ve tried to explain here in plain English – and fail to make clear time and time again.
Kimball’s technology argument is precisely the argument for zero (or constant) inflation in the face of changes in the growth rate of TFP that I have sought to refute in _Less Than Zero_. There is, in fact, nothing to it, save the belief–itself nothing more than an article of faith–that changes in the rate of inflation are “bad,” even if they reflect changes in the extent of factor output.
It cannot be repeated often enough: stability of NGDP growth is NOT properly regarded as a means toward the higher end of stabilizing the rate of inflation. It is itself a policy desideratum, because it serves better than inflation stabilization does to avoid “unnatural” changes in real economic variables.
Another post along these lines, that can explain what is meant by NGDPLT being better at avoiding “unnatural” changes in real economic variables, that is worth mention is one at World of Interest about the cause of the crisis, and discusses the higher cost of inputs colliding with inflation targeting. It has much less emotional thrust than anything that can be found here on my blog, and is certainly worth the read.