I was going to subtitle this post with “Doing a little evil to do a whole lot of good,” but really, evil isn’t required. In their paper written about by Sumner and Nunes separately, Mian and Sufi come to the conclusion that the Fed can’t hit the 2% inflation target. They go on to add something to the conclusion that isn’t supported by their study, questions about whether a NGDP target could be hit either.
Though Sumner was quick to jump on the conclusion, showing that the Fed can hit the inflation target if it tried, I think whether it can in a technical sense is beside the point. Because regardless of how Mian and Sufi arrive at their at their conclusion illustrating the true folly of inflation targeting and price stability, it is common ground, a high level point that at least I can agree with, nonetheless. I agree with the next logical conclusion from Mian and Sufi that IT is a suboptimal approach to the conduct of monetary policy. And because I agree at that level, I have almost nothing to say about how they arrived at that conclusion, taking it at face value and moving to the next portion of the debate: If IT is broken, what should be done about it? It’s a question to which I think Sumner has a rational, workable solution already tied up with a nice big red bow – NGDPLT.
I don’t have to agree entirely that the Fed can’t hit the inflation target in order to let them have their point. It isn’t correct in a technical sense, but it is correct in practice; and I think what we get in practice is infinitely more important than alternative possibilities – if only unicorns existed it would work… The point that the FOMC adopted an explicit inflation targeting regime that the committee members themselves render ineffective is reason enough to criticize it as inappropriate as an aside from all of the other unpalatable things that come with collisions with supply side issues, and the rather uncivil and unseemly effect of putting a bunch of people out of work in order to affect a change on variables that cannot be directly controlled. IT needs to die the death it deserves – alone and forgotten, and I can’t think of better way to help it along than by taking any common ground that is offered and bury the IT policy regime with it. R.I.P.
PS: This is about placing the onus of the situation where it belongs, on the FOMC, by arguing the absurdity of adopting a target it can’t hit and getting everyone else to see it in those terms. If it gains traction, it will be up to these bozos to prove the target can be hit or be seen as a few card short of a full deck, or they have the out of declaring IT a failure and trying NGDP LT. Either way we get the problem fixed – and I like it that way.