2011-11-17

Question to Market Monetarists

This post is an edited version of a comment submitted to Scott Sumner on his blog.

My assumptions:
  1. My salary does not increase by anything close to 5% per year
  2. Market Monetarists like Scott Sumner prefer a world of ~5% NGDP targeting
  3. In such a world, NGDP would increase by ~5% per year
My question: Why does this gap between inflation and my salary not hurt me in the long run?

Can this question be answered without the cop-out of suggesting that "I am asking for is constant real wages?” 

The point is that a world of perpetual inflation is a world in which my real income is perpetually diminishing. That sort of works against the NGDP-targeting-for-better-growth hypothesis.

Let’s accept the tenet of sticky wages and assume my expectations are spot-on. There still exist periods in which I am unable to respond to my own inflation expectations (if there were not, wages would not be sticky). How will I ever make up the difference between the inflation I know/expect and the income I am capable of earning?

Now I understand the response to this: A Market Monetarist might suggest that “on average” there is growth, i.e. that the income growth for the beneficiaries of venture capital is a greater total sum than the losses accrued by the rest of us… Okay, but why should “the rest of us” go for that?

In other words, why should I care about a policy that promotes growth to people other than myself, at significant loss to myself?

Give me a practical reason why I should go for that.