A bearded man sits at a desk. He is the chairman of the Federal Reserve. He is a life-long academic. He holds a PhD from a vaunted Ivy League Institution, where his dissertation is widely regarded as one of the most penetrating of analyses on depression economics, especially monetary policy during the “Great Recession” of the previous century. He is, at his desk, watching the trading of NGDP futures. All seems well — no crisis here.
One of the ironies of the chairman’s dissertation — the one that really makes him chuckle to himself — is that his Great Recession predecessor was, like him, a student of depressions. In some ways, it could be said that the central bank had learned from the Great Depression of the early 20th Century because monetary policy seemed much looser during the Great Recession. There were, after all, 5 iterations of “Quantitative Easing” between 2008 and 2020.
But this was an illusion. That’s the great insight, really, of his paper — why it was so well received. It challenged the notion that progress is an upward trajectory. It repudiated the idea that we don’t always get it right the second time around, but we’re damn closer. Sometimes we regress in our actions even in spite of our putative understanding.
Because, you see, a rogue group of intellectuals in the emergent “blogosphere” of the early Internet pointed out that monetary policy was in fact too tight all along. These people were both radical and traditional. They wanted to change the entire monetary regime by replacing interest rate targets with nominal income targets. Yet their analysis rested on a simple age-old foundation: MV=PY.
They went ignored, and the economy languished for years. After all, there was really just one great academic among them, but he wasn’t from an Ivy League institution. Another irony of the dissertation: the bellwethers were a handful of bloggers who generally opined on broad issues of political economy, and even a high schooler blessed with distinct natural and temporal privileges, but a high schooler nonetheless.
After the Great Depression, the Ivory Tower led the way in understanding what went wrong and creating a regime with the idea of “never again.” Then it happened again. After the Great Recession, it was the slow and painful bottom-up lowercase-d democratic dissemination of ideas by a humble class of a few who ultimately prevailed in changing the regime, again.
At the time their singular, penetrating focus and advocacy on NGDP targets led people to call them myopic. It turns out they saw more broadly than anyone. That novel insight dressed in sophisticated data presentation at an Ivy League institution does a future Fed chairman make. Some things never change.