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jsalvatier comments on Mathematicians and the Prevention of Recessions - Less Wrong
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Convincing the US Federal Reserve and the European Central Bank to adopt more intelligent monetary policy (something like NGDP targeting) would be big win for the world.
I'll admit that I'm tragically under-read on the NGDP thesis, but it seems like a restatement of the old Phillips Curve nonsense that caused so much of the wreckage of the 1970s. It basically amounts to "inflate when times are bad to spike employment", which does work in the short-term, but the long-term second-order effect of increased inflation expectations saps all the value out of it quickly.
Is there something I'm missing here, or is this just failed policy from 50 years ago with a new label on it?
First, I think 'flexible inflation targeting' is still the conventional wisdom, so I don't think people have abandoned "inflate when times are bad to spike employment".
Second, the case for NGDP targeting is more subtle than that. Market Monetarists claim that an NGDP targeting provides approximately the correct amount of money for the economy. A key difference is that one targets a time-path for the level of NGDP rather than the rate of growth.
There's definitely something you're missing, its not just a dressed up old theory. I wish I had a great starting point to start reading about this stuff, but I don't. If you're very interested I can try to find some especially good articles. This post of mine (and the ones it links to) tries to explain the process of monetary disequilibrium, which I think starts to give you some intuitions for why NGDP targeting might be a good idea (but is certainly not the whole story).