Why Targetting NGDP WIll Fail, Redux

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I've posted on this before, but I just ran across some quotes on the matter, so I will share them with you. The following is from my review of James C. Scott's Two Cheers for Anarchism:
Scott also takes on the Bush administration’s “No Child Left Behind” legislation, which predictably resulted in teachers “teaching to the test” and in fact often falsifying results to meet standards imposed from the top downward. Scott explains the perverse results by invoking “Goodheart’s law [which] holds that ‘when a measure becomes a target it ceases to be a good measure.’ And Matthew Light clarifies: ‘An authority sets some quantitative standard to measure a particular achievement; those responsible for meeting that standard do so, but not in the way which was intended.’” [Emphasis mine.]
 Looking backwards, we might conclude, with Scott Sumner and other monetarists, that stable NGDP is a good measure of whether the monetary authorities have been doing their job. But once it becomes their target, its meaning will change, and it will cease to be a good measure!

Comments

  1. rob8:48 PM

    I have a thermostat that controls the heater and the a/c in my house.

    I have set it to target a temperature of 78 degrees as that seems like a nice comfortable level. The thermostat has done a good job of hitting the target so far.

    Having read your post I am now worried. Is something bad going to happen to my heating system?

    ReplyDelete
    Replies
    1. gcallah10:07 PM

      Hilarious, rob!

      And appropriate if, as a thermostat, you employ a conscious entity which is "responsible for meeting that standard... but [could do so] not in the way which was intended."

      If that is not the kind of thing you have as a thermostat, then I am having a hard to seeing anything related to my post in your comment.

      Delete
    2. rob10:45 PM

      My thermostat runs a simple algorithm along the lines of "temperature below 78 turn on heater, temperature above 78 turn on a/c" (actually its a bit more complex than that but you get the idea)

      If the fed ran a similar algorithm (I'm sure they could pay the manufacturers of my thermostat to build a device to do this) "NGDP growing less than 5% increase money supply, NGDP growing more than 5% decrease money supply" would this still fall foul of Goodheart’s law?



      Delete
    3. gcallah11:28 AM

      Rob: http://gene-callahan.blogspot.com/2013/07/targetting-ngdp-iii.html

      Delete

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