Macro Lit Review 2: Highlights from Late 2022 with George Selgin

Episode Summary

Executive Summary: The episode is a three-part macro/policy roundtable between David Beckworth and George Selgin covering nominal GDP targeting, payment-system reform, inflation politics, and central-bank digital currency. Selgin argues Powell’s objections to NGDP targeting are weak, criticizes FedNow and Fed master-account policy as misleading and incomplete, and pushes back on claims that inflation is merely popular or that private money lacks a historical anchor.

Main Topics: Nominal GDP targeting vs. Fed policy framework (Priority: 5/5): Beckworth and Selgin debate Jerome Powell’s rejection of nominal income targeting. Selgin argues NGDP stability is the right macro anchor because it stabilizes aggregate demand and is not too complex to explain to the public. FedNow and the future of real-time payments (Priority: 5/5): Selgin criticizes Lael Brainard’s FedNow push as redundant, poorly framed, and unnecessary given existing private-sector RTP rails and the Fed’s failure to prioritize 24/7/365 settlement for legacy systems. Inflation as a top public concern and political constraint (Priority: 4/5): Beckworth cites global survey evidence that inflation is the leading worry across countries, and Selgin agrees that public anger at inflation is historically consistent and politically powerful. Master accounts and access to Fed payment infrastructure (Priority: 4/5): Selgin argues the Fed’s new master-account guidelines still leave fintech and special-purpose banks without meaningful clarity, preserving uncertainty instead of creating a workable pathway. Deficits, inflation, and the UK market reaction (Priority: 4/5): Beckworth raises the UK’s bond-market turmoil and asks whether inflation is being driven by structural forces. He and Selgin discuss deglobalization, commodity prices, and demographics as possible supply-side factors. Central bank digital currency and historical claims about private money (Priority: 5/5): Selgin rejects Christine Lagarde’s argument that private currency destroys monetary anchors, saying the historical record shows central banks often weakened the anchor and that private redeemable money can be safely constrained.

Key Arguments: Powell’s claim that NGDP targeting is too hard to explain is not a valid objection; policy should be judged by whether it is the right rule, not by whether it is easy to sell rhetorically. NGDP targeting is effectively a stabilization rule for aggregate demand and is compatible with both inflation control and employment stability. Real-time retail payments are not a new Fed invention; private RTP already exists, and the Fed’s entry may slow convergence toward a single efficient network. The Fed should have prioritized extending settlement hours to 24/7/365 for legacy systems, which would have solved more real payment frictions at lower cost than building FedNow. The Fed’s master-account framework still leaves tier-three applicants in limbo, so it fails to provide the certainty and timeliness businesses need. Inflation is politically salient because households experience it directly, and public pressure to end it is historically strong when inflation becomes sustained. Time inconsistency is an argument for rules that constrain policy, not for central bank independence per se. Globalization, commodity prices, and demographics can matter for inflation mainly through real-output or price-level effects; not all structural changes imply a permanently higher inflation rate. Lagarde’s claim that central banks anchor money while private currencies do not is historically backward; central banks often loosened or abandoned the anchor to specie. Private redeemable money can be safe if reserves are fully backed and bankruptcy remote; regulators can permit safe stablecoins rather than block them entirely.

Data Points: Countries surveyed: 29 - Ipsos global survey referenced in the inflation discussion Respondents surveyed: around 20,000 - Ipsos global survey sample size Inflation concern share: about 40% - Inflation ranked as the top concern across countries in the survey Unemployment concern share: around 25% - Second-ranked concern in the Ipsos survey RTP coverage by value: 75% - Selgin says The Clearing House’s RTP system covers this share of U.S. deposits in value terms RTP coverage by number: 61% - Selgin says RTP covers this share by number of deposits RTP participants: about 250 - Approximate number of institutions connected to private RTP FedNow provisional participants: less than half as many as RTP - Selgin compares FedNow’s trial participation to RTP FedNow/ACH transaction volume cited: $40 million - Selgin says take-up on RTP has been disappointing and cites roughly this transaction amount Master-account processing time for ordinary banks: typically within 10 days - Selgin contrasts historical treatment of ordinary banks with special-purpose applicants Fed conference timing: September 2022 - Beckworth references the Cato Monetary Policy Conference held earlier than usual FedNow launch timing: spring or summer of 2023 - Selgin says FedNow was scheduled to come online then

Pivotal Quotes: "The fact that something seems difficult to explain is itself not a very good reason for not doing it if it's the right thing to do." — George Selgin: Selgin responds to Powell’s argument against nominal GDP targeting "It's the Fed's counterpart to a plan that was first put into effect by the clearinghouse... in 2017." — George Selgin: Selgin argues FedNow is a late duplicate of private-sector RTP "This isn't an argument for central bank independence. It's an argument for rules-based policies." — George Selgin: Selgin rejects the idea that time inconsistency justifies independent central banks

Implications: Listeners should expect continued controversy over how the Fed should target nominal spending, build payments infrastructure, and regulate stablecoins. Selgin’s view is that clearer rules, less duplication, and more openness to private money would improve stability and efficiency.