Excuses, Excuses


A commenter over at Ezra Klein’s blog asks:

Can somebody tell me the core issue behind this latest crisis?!?

Klein then proceeds to outline, in a fashion that in no way resembles a “unified theory” of anything, a list of effects of the actual core issue: falling NGDP (also here).

Concluding,

But where you start your story matters for what you learned from it. You could take the economic crisis as a reason to rebalance global trade, strengthen the institutional banking market so that it uses safer collateral and is less vulnerable to runs, or pass regulations making it easier for regulators to see when major banks and investors are making bad decisions and need to shed some risk or be broken up. We’re really only doing the last of these.

Or you could take the economic crisis as a reason to yell, scream, beg, plead, pray, and yell some more to have the Fed explicitly target a specified level of some nominal variable, and use a forward looking indicator to gauge the effects of monetary policy in order to stabilize the rate of growth of said nominal variable. NGDP is a good one.

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