Let's End the Recession Now. Let's Target NGDP.

The entire political and economic universe revolves around the question of whether or not Scott Sumner's policy will be adopted. The author of the blog The Money Illusion has the answer to our economic problems and, just as in the case of Frederick Kagan when he first advocated the strategy that would later be called 'The Surge', the silence in response to his arguments is deafening.

Sumner's main argument is that this recession was caused by excessively tight money supply. (Not the financial crisis, but the recession.)This argument would likely strike many as some form of uber-Keynsianism, where inflation is always good. (William Greiderism possibly). However, he is an Hayekian.

Sumner's proposed solution is a mechanism by which we will have more inflation during recessions, but tighter money during recoveries. It is automatic and removes discretion from the Federal Reserve because, like most of us, the Federal Reserve thinks it's better at doing its job than it actually is. The mechanism is that the Federal Reserve targets nominal gross domestic product growth at 5%.

It's possible that, as Dems face electoral doom this fall, NGDP targeting will gain credibility. Without the adoption of this policy, I believe Desmond Lachman and Nouriel Roubini when they predict that the recovery will yield to a second recession later this year.

Alternatively, the Dems could introduce major protectionist legislation aimed at China. If Obama publicly favored a bill imposing a 40% tariff on all imports from China, Dems could tap anti-China sentiment, find a scapegoat for the economy, purport a solution, and drive the debate into favorable territory for the entire election season.