2010-12-20

Open Question to the Macroeconomic Community

By now, everyone is talking about Scott Sumner's NGDP targeting idea for central banking.

Here's an open question to macroeconomists: Can you provide a compelling reason why the expenditure levels in an economy "should" grow at any particular rate?

Don't brush me off just yet. I understand that in good times, people will have more money and want to consume more stuff - and they'll be able to buy much of that stuff despite scarcity. This points to growth. I understand that in bad times, people will save for that hypothetical "rainy day" in the future rather than spending their money today; this points to slow growth or no growth.

But aren't the motives behind these spending decisions the real economic story here? Sure, you can target economic growth and screw with the money supply, but doesn't that just gloss over the fact that economic conditions have caused people to change their spending behavior? Isn't that what economists should be focusing on, rather than just skipping that step altogether and going straight to a "solution?"

How would you feel if a doctor treated you that way? "Well, Sam, the thing of it is, no one really knows why you cough up blood every night. We just know that for whatever reason, your body does this. So what we're proposing is to inject a tranquilizer into your lungs to stop the coughing..."

Big difference between attempted symptom-alleviation and an actual cure.