Over the past few years, an obscure economic policy idea has slowly been gaining support among liberal and conservative economists. It hasn’t made it into the mainstream agendas of either the Democratic or Republican Party. But every few weeks, it seems, another top economist endorses the idea. On Monday, Larry Summers, formerly both the Treasury Secretary in Bill Clinton’s White House and a top Obama administration official, nearly became the most important person to do so.

Technically known as nominal GDP (NGDP) targeting, it's a new way to answer a very big question: When the Federal Reserve sets monetary policy, what should its goal be? Currently, the Fed has a dual mandate to keep unemployment low and ensure price stability, and to achieve that latter goal, it has adopted a 2 percent inflation target.

Under the proposed idea, the Federal Reserve would have a new goal: increase the size of the economy by a certain percentage, typically assumed to be 4 or 5 percent, each year. Supporters say a clear GDP growth target would give the Fed more latitude to act — so, for instance, if it needed to let inflation drift upward a bit to fulfill its NGDP target, it wouldn't be handcuffed by an inflation target. Under the current regime, that would be unacceptable.

Scott Sumner, an economist at The Mercatus Center at George Mason University, has heavily promoted the idea through his blog, The Money Illusion, since early 2009. And slowly, some heavyweights in the field of macroeconomics have expressed support for the switch to NGDP targeting, including left-leaning economists like Christina Romer, an economics professor at the University of California, Berkeley and the former chair of Obama’s Council of Economic Advisers, James Bullard, the president of the St. Louis Federal Reserve, and Brad DeLong, an economist at the University of California, Berkeley. On the right, well-known economists like Greg Mankiw, an economist at Harvard and the former chair of President George W. Bush’s Council of Economic Advisers, and David Beckworth, an economist at Western Kentucky University, also support the idea.

You can now add Summers to that list—almost.

On Friday, Summers gave a speech at a think tank in Berlin. Video of the speech is not yet available, but a commenter on Scott Sumner’s blog said he asked Summers about NGDP targeting and, more importantly, that Summers had endorsed the idea.

So is it true? Did Summers, who is likely to have the ear of the next White House if a Democrat wins in 2016, call for a change in how the Fed does business?

We emailed him to check, and he quickly wrote back: “I didn't quite endorse NGdp targeting. I said that I would prefer a shift to NGdp targeting to a shift up in inflation targets.”

What does Summers mean by “a shift up in inflation targets?” Over the past few months, a debate has emerged in economics over whether the Fed’s 2 percent inflation target should be raised in light of the persistent low levels of inflation in recent years. A higher inflation target would enable the Fed to lower real interest rates further—to -3 percent, for instance, instead of -2 percent—to spur demand in the event of another recession.

Summers argues that an NGDP target is preferable to a higher inflation target for two reasons. “The lower real growth [is], the lower real rates may need to go and [NGDP] unlike pure inflation targeting guarantees this,” he wrote. Summers also expressed concern about measuring inflation. He added, "a target that doesn't depend on inflation adjustments" makes more sense.

While Summers isn’t endorsing NGDP targeting, he’s tiptoeing awfully close to the line. By parsing Summers’s words—in particular, the word “quite”—you can tell he’s not far off. Adopting NGDP targeting would be a revolutionary change for the Fed, and Summers's almost-backing is indicative of the speed at which it's gaining supporters.

The NGDP debate stems from the emerging concern that the powerful Fed hasn't quite been powerful enough to sustain a strong recovery. The Fed cut short-term rates to zero, for instance, but that wasn't enough to snap the economy out of its prolonged slump. The Fed also used unconventional policies such as "quantitative easing" — the purchase of hundreds of billions of dollars of Treasury bills and mortgage-backed securities to lower long-term interest rates. Those all helped, but the recovery has still been slow.

How would NGDP targeting have changed this? It generally doesn't change the tools at the Fed's disposal, like setting short-term interest rates, but it would let the central bank use them more aggressively. Nominal GDP growth has been around 4 percent for the past five years. Under a 5 percent NGDP target, the Fed would have had to loosen policy even further, perhaps by increasing its asset purchases. If inflation suddenly increased, nominal GDP growth, by definition, would rise as well, requiring the Fed to tighten policy to fulfill its mandate. In both cases, proponents say, the Fed would be creating a more stable macroeconomic environment.

Summers isn't in office, true, but few economists have his academic pedigree and his influence in Washington. In January, he co-authored a report for the Center for American Progress that is widely considered to be a preview of Democratic presidential candidate Hillary Clinton’s economic platform. Summers himself nearly became Fed Chair last year but Obama ultimately nominated Janet Yellen after Senator Elizabeth Warren (D-Mass.) and other liberal senators opposed Summers’s nomination.

If anyone could move this idea from the classroom to reality, it would be Summers. That might not be too far away.

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