Give the people what they want: more money

Although I had never heard of a babysitting co-op (I didn't know that people actually started those), I was fascinated by Krugman's comparison of the economy to the one in Washington D.C. And I think he is right; I think the comparison is valid and that we CAN learn much from the co-op's recession, as it were.

In reading how the co-op worked its way out of the slump (by simply putting more coupons in circulation), I was reminded again of this notion that a "money injection" or a little bit of controlled inflation may not be a bad idea for our nation. This is something I've pondered since the idea was first presented in one of our earlier readings. If the people have a tendency to hoard something that is in short supply, then wouldn't increasing the supply of that commodity make the appeal to hoard less? I'm aware that too much money could lead to hyperinflation, but might a little do more good than damage?

Many of the writers we have read point out flaws in economic ideology, but I feel like they fail to answer the question of where those flaws come from in the first place. Sumner says that NGDP is not often considered when gathering and reporting on statistics and he makes a very good case for why it should be. But why is it not already? If people like Sumner have these things figured out, why haven't others caught on?

I think the answer to that is that there could be several ways to "fix" economic "problems" like the Fed's practice of inflation targeting. There is no right answer. There are pros and cons to so many different possible solutions. But I think a good starting place would be to at least include NGDP targeting, even if we don't want to shift to it exclusively. In other words, focus on NGDP in addition to RGDP + inflation rate. Focus on all three elements! Sumner may be on to something in suggesting a closer look at and focus on NGDP increase rate, but the current system focuses more on RGDP + inflation rate. Instead of trying to make the system completely alter its way of thinking, just add a piece to the puzzle. It makes sense to me.

Regardless of its failures to see the 2008 crisis coming, I believe the Fed still has an opportunity to repair our economy. I think they need to read Krugman's article and ponder, as I have been, the potential benefits of injecting society with more dollars. Unlike babysitting, the demand for money is not seasonal; until people are confident that it's safe to let go of their precious savings, they will continue to sit on them season after season and that seems like a big negative to me.