Matt Yglesias sent me two emails last night in response to my critique of his proposal that the government should decrease unemployment by increasing inflation targets.
In the first email, he writes:
You’re attributing views to me I don’t hold. I was asked by the Atlantic for one idea, and I didn’t want an idea that would need to go through congress. So I said the Fed should set a higher inflation target (as FDR did: http://rortybomb.wordpress.com/2011/06/21/president-sets-a-price-level-target-in-a-depression-fdr-1932-edition/) which I think it should. But this is hardly the only thing we can or should be doing. The government should be borrowing money and spending it on public works (http://thinkprogress.org/yglesias/2011/07/11/265850/real-interest-on-government-debt-is-negative/) and the federal government should be giving fiscal support to state and local governments so they can avoid destructive layoffs (http://thinkprogress.org/yglesias/2011/07/08/263718/public-and-private-employment/).
I’m writing like a dozen posts a day, so it’s rare that any of them give a full view of the whole range of things that I think are worth doing. You just picked out a couple that I wrote on a specific idea and then assume that’s all I’d be willing to consider.
In his second email, he writes:
If you like a last thought: I do think it’s difficult to think of any single fiscal measure that would have as large an impact. It’s a large and diverse country with a modern economy, we can’t just employ millions of people on chain gangs or what have you. There are a bunch of different medium-sized fiscal measures that would help, but I don’t see any single shot great idea on that front.
Fair enough: it’s true that Yglesias has advocated these other policies.
But the post I was responding to begins with the following sentence: “The best step to create jobs and boost the economy would be for the Federal Reserve’s Open Market Committee to announce a plan to target inflation at 3 or 4 percent.” I took “the best step” to mean that Yglesias thought increasing inflation targets was not just a step but, well, the best step.
In his second post on the jobs question, Yglesias began thus:
I’m participating in a “Great Jobs Debate” at the Atlantic sponsored by McKinsey. The exercise is supposed to be to answer the question, “What is the single best thing Washington can do to jumpstart job creation?” I perhaps took the question a little too literally and offered the actual single best thing Washington can do to jumpstart job creation, namely adopt a higher inflation target.
Again, I took Yglesias’ words to mean what they say: in this instance, that adopting a higher inflation target was not just something Washington could do but the actual single best thing Washington could do.
Perhaps it was I who took Yglesias too literally.
I’m happy to now concede that increasing inflation targets is just one of many policies Yglesias thinks the government should adopt. But that still doesn’t answer the concerns I raised yesterday about whether it’s a policy that should be adopted.
The Roosevelt precedent cited by Yglesias in his email is a little misleading: in that situation, the country was experiencing severe deflation, so an uptick in inflation did give the economy a jolt. That’s not the situation we’re in today.
And, as I said yesterday, two of the reasons Yglesias offers in defense of his proposal—it enables the Fed to circumvent the problem of zero nominal interest rates; it will push capital to start investing, hiring, and procuring—seem to assume that the problem is a lack of cash in the system or in the hands of employers, when the real problem is a lack of cash in the hands of consumers.
Given all that, it struck me as strange that Yglesias would offer this proposal, especially in the context of something billed as the “Great Jobs Debate.” It was very decent and generous of him to respond to me—the guy does write, with great intelligence, an extraordinary amount of well-informed and well-argued posts, on a dizzying array of topics, prompting an even greater amount of much less well-informed responses from people like me—but I have to say, having re-read his original posts and his responses to me, it still strikes me as strange.