A case supporting NGDP targeting

Bruce Bartlett of the New York Times argues that the Federal Reserve must do what it can to stimulate our economy, especially after President Obama’s jobs package had been rejected. We learned in class that there are two methods of stimulating an economy, government expenditures (ex: the New Deal) and monetary policy (ex: the Federal Reserve purchasing bonds). Bartlett believes that with government expenditure no longer a viable option, we must now direct our attention to fiscal stimulus. He provides many links to arguments for and against NGDP targeting. In analyzing their arguments, he notes that a main counter-argument to fiscal stimulus is the risk of inflation. However, Bartlett notes that we currently have a problem with deflation, not inflation. With the risk of inflation “As low as it had been in the 1950’s”, Bartlett believes that the Fed intervene and help us try to stimulate our economy.

I also found that the author of our prescribed Econ 121 book, Paul Krugman has been advocating more stimulus as well. He notes that the prior stimulus package only attributed to 1.5% of GDP or less.

Sources: http://economix.blogs.nytimes.com/2011/11/08/can-the-fed-stimulate-growth-or-only-inflation/?scp=7&sq=less%20stimulus&st=cse

http://krugman.blogs.nytimes.com/2011/09/05/on-the-inadequacy-of-the-stimulus/