You are exactly correct. Policy must switch to a less gameable metric in order to avoid situations like that. But it’s important to remember that the problem isn’t just the potential for schemers, but that, even without schemers, the extra trades you’ve forced to goose NGDP are even less indicative of economic goodness than the normal “GDP = good” assumption requires!
And I don’t think anyone can come up with such a metric without solving the (holy grail level) problem of microeconomic foundations for macro.
Wait, now I’m confused. Micro-foundations for monetary economics exist, and I know you know, because we’ve talked about them at length. Maybe you mean that there’s more to macro beyond monetary economics?
I’m referring the commonly-known problem of deriving macro results from micro, which we also talked about in those exchanges, and during which you rejected the claim that failing to so derive results is a reason to reject the macro conclusions. If you remember differently, give a link.
I think we discussed that we haven’t seen the AS/AD models derived from micro principles. I’m not sure this can’t be done, its just not commonly discussed, and I don’t see a good use for those concepts so I haven’t tried to find a derivation.
You are exactly correct. Policy must switch to a less gameable metric in order to avoid situations like that. But it’s important to remember that the problem isn’t just the potential for schemers, but that, even without schemers, the extra trades you’ve forced to goose NGDP are even less indicative of economic goodness than the normal “GDP = good” assumption requires!
And I don’t think anyone can come up with such a metric without solving the (holy grail level) problem of microeconomic foundations for macro.
Wait, now I’m confused. Micro-foundations for monetary economics exist, and I know you know, because we’ve talked about them at length. Maybe you mean that there’s more to macro beyond monetary economics?
I’m referring the commonly-known problem of deriving macro results from micro, which we also talked about in those exchanges, and during which you rejected the claim that failing to so derive results is a reason to reject the macro conclusions. If you remember differently, give a link.
Macro results are definitely derivable from micro principles: http://goodmorningeconomics.wordpress.com/2012/04/07/the-backrub-economy-a-simple-mathematical-model-of-monetary-disequilibrium/ .
I think we discussed that we haven’t seen the AS/AD models derived from micro principles. I’m not sure this can’t be done, its just not commonly discussed, and I don’t see a good use for those concepts so I haven’t tried to find a derivation.