Since 2009, I’ve spoken to many libertarian audiences. One point that I keep coming back to is that NGDP targeting minimizes severe recessions, and severe recessions lead to non-libertarian policies. A new study by Paola Giuliano and Antonio Spilimbergo in The Review of Economic Studies confirms the second part of that claim. Here’s the abstract:
Does the historical macroeconomic environment affect preferences for redistribution? We find that individuals who experienced a recession when young believe that success in life depends more on luck than effort, support more government redistribution, and tend to vote for left-wing parties. The effect of recessions on beliefs is long-lasting. We support our findings with evidence from three different datasets. First, we identify the effect of recessions on beliefs exploiting time and regional variation in macroeconomic conditions using data from the 1972 to 2010 General Social Survey. Our specifications control for nonlinear time-period, life-cycle, and cohort effects, as well as a host of background variables. Second, we rely on data from the National Longitudinal Survey of the High School Class of 1972 to corroborate the age–period–cohort specification and look at heterogeneous effects of experiencing a recession during early adulthood. Third, using data from the World Value Survey, we confirm our findings with a sample of 37 countries whose citizens experienced macroeconomic disasters at different points in history.
The problem is simple. While severe recessions are actually caused by governments (i.e., by unstable monetary policy), to the average person (and even the average economist) it looks like they are caused by the inherent instability of unregulated capitalism. Hence the call for more socialism every time there is a severe recession.
What makes me believe in the first part of my claim, that NGDP targeting minimizes severe recessions?
This:
READER COMMENTS
Andrew_FL
Feb 6 2022 at 1:34pm
1. Given that your own preference is for redistribution I don’t see why you consider this a problem
Unless, of course, you are making this argument as a socialist trying to persuade libertarians
B) Your solution to the government’s role in causing recessions is to permanently entrench the government in this role
Scott Sumner
Feb 6 2022 at 2:40pm
“Your solution to the government’s role in causing recessions is to permanently entrench the government in this role”
I think you misunderstood the post. I am not calling for “entrenching” anything.
Andrew_FL
Feb 6 2022 at 4:50pm
NGDP Targeting is a plan to guarantee the Fed’s monopoly privileges unto perpetuity. It does not help, in fact it would significantly hinder, any effort to end those privileges.
Scott Sumner
Feb 6 2022 at 5:36pm
That’s false.
Mark Barbieri
Feb 6 2022 at 6:33pm
I think that NGDP Targeting would be a constraint of the Fed, not expand it’s role or further entrench it.
robc
Feb 6 2022 at 7:34pm
Entrenched relative to getting rid of the Fed.
NGDP targeting is a second best solution. Best would be free banking.
Matthias
Feb 6 2022 at 9:40pm
The article suggests that a ngdp targeting would lead to a more stable economy, and a more stable economy would over time lead to more libertarian policies and deregulation.
Crises lead to more regulation, which causes more crises.
Gradual improvements seem to be the way to go.
Andrew_FL
Feb 6 2022 at 10:10pm
There is nothing in the article which says that stability leads to deregulation. There will be no deregulation, as there never has been in the past. Only an increase in the prestige of the state, and increased regulation for that reason instead of because crises appear to demand it. As the Economics Profession has increasingly lavished prestige on the Fed for its “stabilizing” of the economy, the economy is more regulated, more constrained, more nationalized than it has ever been, and the monopoly privileges of the Fed only expand.
Scott Sumner
Feb 7 2022 at 12:09pm
Andrew, You can repeat false claims about my views as often as you like; it doesn’t make them true. I have never advocated giving the Fed monopoly rights over money.
Alternative money providers should be able to freely produce whatever money they like, in whatever form, as long as they don’t counterfeit federal reserve notes.
Proposals to “abolish the Fed” tend to be very vague. Does that mean defaulting on 30-year Treasury bonds? After all, bond holders were promised repayment in Fed money, not Bitcoin. Most of these proposals are not serious, and not worth wasting time refuting.
Andrew_FL
Feb 7 2022 at 12:47pm
You can call me a liar with impunity, but I have to phrase my response to this very carefully, so I’ll just point out that obviously “I’m not for giving the Fed monopoly privileges” and then arguing the Fed MUST have them because Think of The Bond Holders and You Are Not A Serious Person If You Don’t Support The Fed seems… disingenuous
Scott Sumner
Feb 8 2022 at 2:11pm
Again, I don’t favor monopoly power over money creation for the Fed. Read my post. I simply said that Treasury bondholders should be paid what they were promised. People should be free to issue Bitcoin, and borrow by issuing Bitcoin bonds.
Thomas Lee Hutcheson
Feb 6 2022 at 2:20pm
And by the same reasoning, anthropogenic climate change is eventually going to cause something to be done. (We see the barest outlines in the BBB.) We neoliberals could really use all the help we can get from Libertarians to push for taxation of net CO@ and methane emissions.
Scott Sumner
Feb 7 2022 at 12:11pm
I’m doing my part.
Comments are closed.