In shameless imitation of Greg Mankiw’s Pigou Club I announce the creation of the 4% Club, hereafter defined as:
An elite group of economists, pundits, and politicians with the good sense to advocate that the Federal Reserve adopt an explicit inflation target above the 2% level.
In an effort to create a big tent, those advocating targets other than 4% are eligible for consideration as well as general proponents of quantitative easing:
Nominations are open in the comments
Note: I am no longer regularly checking the comments but I am adding new names as I discover them. I hope this list can serve as a resource for journalist or policy folks looking for a sampling of the arguments for moderately high inflation. Such arguments are of course a staple of this blog as well.
Rolling Update:
Newly Inducted Members
Tom Gallagher Probationary Status
25 comments
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Monday ~ August 16th, 2010 at 12:21 pm
Ken Houghton
I think it’s safe to add Bruce Bartlett to the list, based on his comment here.
(Feel free to add me as well, but I doubt that will actual be a value add.)
Monday ~ August 16th, 2010 at 1:29 pm
Karl Smith
Bruce has declined membership
Monday ~ August 16th, 2010 at 12:27 pm
bmaz
I hereby nominate pundit extraordinaire Kevin Drum of Mother Jones fame.
Monday ~ August 16th, 2010 at 1:15 pm
blokeinfrance
Mervyn King of the Bank of England. He must be on his nnnth letter to the Chancellor explaining why he’s missed the 2% CPI aim in his remit.
Monday ~ August 16th, 2010 at 1:29 pm
Tom Church
Scott Sumner is firmly rooted in the 5% NGDP targeting club.
Monday ~ August 16th, 2010 at 1:50 pm
Andy Harless
You can sign me up.
But you might want to tinker with the wording. As Tom Church points, Scott Sumner technically favors NGDP targeting at 5% rather than inflation targeting at 4% (and in the long run, the two are not consistent). I would personally advocate a higher NGDP target, and I would prefer price level targeting to “inflation targeting” in the strict sense. Moreover, I would settle for a price level target based on a 2% inflation rate, provided it were determined retroactively.
Monday ~ August 16th, 2010 at 4:53 pm
Niklas Blanchard
I’m not a fan of inflation targeting, but in the interests of doing SOMETHING, I suppose I’m in the 4% club.
Monday ~ August 16th, 2010 at 6:56 pm
Bruce Bartlett
I have serious doubt as to whether the mere announcement of a higher inflation target would accomplish anything. I know expectations are important and that if people really thought a higher inflation rate was coming then this would raise spending, which would raise velocity and growth. The problem is that the Fed lacks the credibility to carry through with actual policies that would in fact raise the inflation rate. The proof is that the Fed ca’t even hit its current target of 2 percent–the inflation measure the Fed uses is running half that and falling. My great fear is that the Fed knows that it lacks the means to raise the inflation rate because monetary policy is effectively impotent at this point. And even if it isn’t, I don’t think the FOMC would authorize the sorts of measures that would be needed. A number of the regional bank presidents are already pushing for a tighter monetary policy.
Monday ~ August 16th, 2010 at 7:22 pm
Niklas Blanchard
It may be a simple difference in perspective (as I don’t believe that monetary policy ever “becomes impotent”), but instead of saying that the Fed “can’t” hit its current implicit target of 2%, I would say that they “won’t”.
I think that a central bank, issuing its own currency, can always hit a nominal target (or at least come within a fairly narrow range). If that means buying the entire national debt (as Andy Harless has suggested), then so be it — but just as well; that’s not an issue of “can’t”, that’s still an issue of “won’t”.
Also, I think it’s important to note that Oliver Blanchard proposes making 4% inflation the new norm, and not just a policy response to recessions.
Tuesday ~ August 17th, 2010 at 1:14 am
teageegeepea
If the Fed is impotent to do other than undershoot their target, I’m sure there are some Zimbabweans or Argentinians they could hire to show them how.
Monday ~ August 16th, 2010 at 10:32 pm
Brandon
Shouldn’t the correct inflation rate be 0%? I mean, if you’re making the assumption that growth will follow a 2 or 4% level, fine. But inflation alone is just dumb. No one wants prices to go up without getting proportional increases in income and living standard.
Monday ~ August 16th, 2010 at 10:34 pm
Brandon
Henry Paulson is an environmentalist?? O.o
Tuesday ~ August 17th, 2010 at 8:41 am
Bruce Bartlett
I am sympathetic to Blanchard’s argument, but first we need to get back to normal. I think the idea that the Fed can hit whatever nominal GDP target it chooses is demonstrably wrong. As long as we are in a liquidity trap the Fed’s hands are tied. I think that’s the central problem and why the Fed needs an expansionary fiscal policy to make monetary policy effective. Since no additional stimulus on the fiscal side is foreseeable, I fear we may be stuck where we are for a considerable period of time.
Tuesday ~ August 17th, 2010 at 12:55 pm
David Beckworth
Bruce:
How can you say the view that monetary authorities can hit a higher nominal GDP is “demonstrably wrong?” FDR and the U.S. Treasury Department was able to successfully use unconventional monetary policy (i.e. devalue dollar and not sterilize gold inflows) to bring about about a sharp recovery in 1934-1936. The early 1930s was a far worse economic environment than today’s and yet unconventional monetary policy worked.
Another reason to believe the Fed could do more is that most of the theoretical research on this issues shows monetary authorities could do more if they wanted. As has been well documented in the blogosphere, even Bernanke’s own work shows this result. Others have shown that Japan’s deflation experience was due to a lack of effort by monetary authorities, not ability.
Have some faith in the efficacy of monetary policy.
Saturday ~ August 21st, 2010 at 7:05 pm
Jared Yarsevich
I have to agree with Bruce here. We’re at a stage where only expansionary FISCAL policy can help. Even the most radical monetary policy will still merely push on a string. Every monetary policy proposed amounts to the same thing: the Fed swapping bank assets for increased reserves (now or in the future). Increased reserves, however, do NOT increase lending (see the last 2 years in the US and the last 15 years in Japan). In effect, the increase in the monetary base will not be inflationary if the reserves just sit on the banks’ balance sheets. And they will just sit there (earning .25%) unless credit-worthy customers begin looking to borrow with the likelihood of profitable opportunity around the corner. But that’s not going to happen until aggregate demand rises. Public spending needs to pick up the slack created by the private sector’s rush to deleverage and increase savings.
P.S. Hi Karl!
Tuesday ~ August 17th, 2010 at 1:06 pm
David Beckworth
Karl:
I like your call for action, but like Blanchard I am not a big fan of inflation targeting, but rather of NGDP targeting. The reason being is that inflation targeting only works well with AD shocks. It does horrible with AS shocks. While an inflation target would be immensely helpful now, I am afraid it would create problems down the road.(see here for more on this problem) Better to go with a NGDP target that allows for AS shocks while aiming to stabilize AD.
Of course, if the option were between what we have and an inflation target, I would go for an inflation target (with the hope that one day it would be modifed into a NGDP target.)
Wednesday ~ August 18th, 2010 at 9:32 am
Excuse is spelled S.T.R.U.C.T.U.R.A.L. « Modeled Behavior
[...] Via Ryan Avent, Narayana Kocherlakota explains why he won’t be applying for membership in The 4% Club anytime soon. Of course, the key question is: How much of the current unemployment rate is really [...]
Wednesday ~ August 18th, 2010 at 3:51 pm
Back: Does the Federal Reserve Simply Not Like Democrats? « Rortybomb
[...] If they’ll have me, I’d like to be a member of Modeled Behavior’s 4% Club. You should join too! I think we probably overestimate what the Fed can do, but at this point it [...]
Wednesday ~ August 18th, 2010 at 7:43 pm
A Bubble in Bonds? Silly Me, I Thought That Was Called A Recession? « Modeled Behavior
[...] 4% Club is still accepting nominations Technorati Tags: high interest rates,fixed income products,bush tax cuts,hoover digest,milton [...]
Monday ~ August 23rd, 2010 at 11:58 am
Aaron Swartz
You should add MSNBC host Chris Hayes who did a segment about it on TV and wrote a long paper calling for inflation:
http://www.chrishayes.org/articles/Overcoming-Americas-Debt-Overhang/
Sunday ~ September 19th, 2010 at 4:26 pm
Tyler Cowen joins the 4% Club « Modeled Behavior
[...] Thanks Tyler. Your advice and membership is appreciated. [...]
Tuesday ~ September 21st, 2010 at 12:13 pm
Neil Irwin Joins the 4% Club « Modeled Behavior
[...] my darker movements I worry that some of my more conservative friends are reluctant to join because the poor economy has been so bad for Obama’s poll [...]
Monday ~ October 4th, 2010 at 12:09 pm
This is What Victory Feels Like . . . « Modeled Behavior
[...] of passages. The underlined indicate outright unequivocal theoretical embrace of the positions the 4% Club is trying to [...]
Friday ~ October 29th, 2010 at 6:20 am
I just read an article that said inflation is good for the economy. Now I'm confused? | Economic theory
[...] 1. While too much inflation is bad for the economy, in the long term, a modest amount of inflation is good. In addition to stimulating the economy:http://pages.stern.nyu.edu/~nroubini/NYT…it leaves room for monetary policy to workhttp://online.wsj.com/article/SB10001424…http://www.economist.com/blogs/freeexcha…http://modeledbehavior.com/2010/08/16/th… [...]
Thursday ~ November 4th, 2010 at 2:15 pm
Recovery is still job No. 1 Internet Related Technologies Recovery is still job No. 1
[...] reasons, I’ve argued that the Fed move to a permanently higher inflation target, something in the range of 4 percent — a smidge above the inflation rate we had during the Clinton administration. There are many [...]