June 19, 2012 at 11:21 am
#16949
jmherbener
Participant
Sumner’s proposal is for the Fed to target potential NGDP. So if the Fed thinks that potential NGDP will increase by 4 percent per year, it would inflate the money stock by, say, 6 percent per year. He considers this superior to a monetary policy that targets the price level.
http://www.adamsmith.org/sites/default/files/resources/ASI_NGDP_WEB.pdf
A basic problem with this from the Austrian view is that any monetary inflation and credit expansion will set in motion the boom-bust cycle. To avoid the boom-bust cycle, money production must be left to the profit and loss test of the market.
Here is Bob Murphy on Scott Sumner:
http://mises.org/daily/4904/Following-the-EfficientMarkets-Hypothesis-into-Absurdity