Why NGDP targeting and printing money do not work

I’ve long thought that printing money and/or NGDP targeting are no solution to this crisis. The reasons?

First, boosting demand does not depend on inflation. It depends on wage inflation being bigger than price inflation This was the case with the anglosaxian inflations during the oil crisis. Ever since anglosaxian economists take it for granted in their analysis that wages inflate more than prices. However, the reverse was true in the case of German inflation during the 20ies. I might argue that German inflation is more apt to serve as an example what to do today: The western world fought for more than 40 years to limit the power of unions and unions are weaker than they were for a long time, limiting potential wage inflation . Moreover evidence from the UK and the US support the claim that prices rather than wages inflate- wages are pretty flat while prices rise by 5%p.a. in the UK. This means that inflation reduces demand rather than to boost it! Second, with more than 40% of young Spaniards unemployed and millions of unemployed poeple elsewhere in Southern Europe even very strong unions have no chance to demand higher wages.

And to boot with, printing money may only inflate wages and prices if a significant amount remains in the country. This is evidently not true for the Euro Area where investors are scared of and do not even buy bunds as they used to.

For inflationary policies to work, Europe would need to introduce both capital controls and stronger unions – these are meassures proponents of NGDP-targeting abhor to to use. But if I, being an ordinary German, have any vote in that matter, the world will get all three of these meassures for an integrated Europe which is transforming itself into the United States of Europe or none of the above and bancruptcies across Europe. Of course all of the measures should be strictly limited in time and countries should agree that every country has the right to leave this experiment at any time.

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