As an avowed enthusiast for the idea of changing central banks' goals to nominal GDP targeting, I would be remiss in not calling attention to a new Goldman Sachs research note produced by Jan Hatzius and Sven Jari Stehn. I'm unable to link, unfortunately, but the authors argue that NGDP targeting is consistent with the Fed's dual mandate and if implemented credibly would improve economic performance. – The Economist
Dominant Social Theme: If we could just rationalize money printing and make it scientific, it would work! Sure it would! It would! It really would!
Free-Market Analysis: Like a bad guest at a dinner party, Milton Friedman won't go away. Now he is returning in the guise of the anonymous "Washington" writer for the Economist magazine. Just like Friedman, he has the idea that central banking can be run scientifically. In fact, it cannot.
Central banking was created to fund the British Crown's wars and it has never been anything but a brutal and destructive force. Giving a handful of men the power to print money and monitor its price and volume is bound to cause unmitigated disasters. In fact, it has.
Booms caused by monetary stimulation inevitably give way to busts. There is no way for the hand of man to monitor money. Only the free market itself, through monetary competition and the historical evolution of gold and silver as money can do that. But that doesn't stop the Anglosphere power elite from trying.
From our perspective, Friedman was surely a formal or at least informal agent of Money Power. The mainstream libertarian community still promotes Friedmanite "free-market" solutions and certainly his Chicago Fresh Water school, located primarily within the metaphorical ambit of the Chicago School of Economics, has been extraordinarily influential.
But we've never been great fans of Milton Friedman (or at least not after we became "hip" to his agenda), mostly because of his strenuous attempts to justify central banking. Money as much as war is the health of the State. In fact, states seek ownership of money to FUND wars. The control of money by the State is paramount.
It was this anointed, even sainted, free-market thinker who suggested (in his often unreadable way) that if central bankers would just increase the money supply by a steady amount each year (4 percent?) – presumably in line with expansion of goods and services – then All Would Be Right With the World. Now the Economist has come on board, along with others, endorsing similar "scientific" adjustments.
It is also a fact that in the 21st century, the meme of central banking – the fear-based propaganda calling for its continued implementation – is shriller than ever. As never before in its history, central banking as a concept is under attack. It is no wonder that new and improved versions of central banking are being floated.
The latest sub-dominant social theme seems to have to do with NGDP targeting. What this means is that central banks (specifically the Fed) ought to target "Nominal Gross Domestic Products." This is being suggested for both the Bank of England and the Fed. The Economist is the latest to jump aboard this particular train. Here's some more from the article:
… The announcement of an explicit target is likely to substantially increase the potency of asset purchases (similarly, asset purchases increase the credibility of the target announcement). In their simulation, unemployment falls rapidly when asset purchases are combined with an NGDP target, while inflation remains well under control.
Unfortunately, the Fed is unlikely to move quickly to adopt the policy, for a couple of reasons, both related to the central bank's conservatism. The Federal Open Market Committee will be reluctant to change policy goals, and when and if it decides that an NGDP target is the better policy it will be reluctant to make a quick change. It seems more likely to me that over the next couple of years, Fed policy is likely to ever more closely approximate an NGDP target.
While that's fine for long-run policymaking, it will make for disappointing results in the short to medium-term. Even under Goldman's sunny estimate of the impact of NGDP targeting, unemployment remains above 6% for the next 2.5 years or so. So it goes; the lessons learned in major crises are primarily of benefit to the people who live through the ones that come later.
Even leaving aside the point that this latest study comes from Goldman Sachs, we can see the regular memes at work: The use of econometrics to model "predict" the future and the implicit assumption that human beings can do better at supplying the market with money than the Invisible Hand.
What nonsense. The Economist is another elite mouthpiece pro-offering justifications for economic control of money. It doesn't matter what the justifications ARE – just that they are made in a steady stream. When one proves out as dysfunctional, another one comes along.
It's kind of a central banking approach to the industrial just-in-time concept. Always enough reasonable propositions waiting in the wings. It doesn't hurt if the justifications are fairly incomprehensible, either. Here's how this NGDP targeting would work according to another proponent, Tom Clougherty, who wrote a seminal article about it back in April 2011 – based on a report by the Adam Smith Institute:
The Bank should promise to buy and sell unlimited amounts of NGDP futures at the target price, thus making their policy goal equal to the equilibrium market price. Essentially, this would mean the NGDP futures market forecasting the setting of the monetary base that was most consistent with on-target NGDP growth. The monetary base would respond endogenously to changes in money demand, keeping NGDP growth expectations on target.
Wow. This is good to know. The Bank of England should massively invade the future market in order to bring about a private market realignment of the monetary base. No thought that it is truly impossible to define what the monetary base is or what people will do in response to such massive fiddling.
The biggest issue, however, is that central banking is evidently and obviously NOT set up for the benefit of the societies that it purports to support. Central banking is a methodology of elite centralization that stealthily bankrupts the middle class while supporting the ongoing globalization of government. This is why no matter what remedies are suggested, the destructiveness of central banking will never change. It's not a beneficial financial system; it's a weapon.