NGDP Futures: Fairies helping Goldman Sachs
I've written in the past about how the Monetarist idea of NGDP futures is lousy. Monetary policy in general has no mechanism to clearly stimulate (or dampen) economic activity, therefore Monetarist are reduced to talking about magic (the Confidence Fairy) or dressing up fiscal policy and calling it monetary policy. NGDP Futures fits firmly within this established tradition but is also too-clever-by-half, so you can see it getting traction amongst academics. This is how academia works. There's a great post by Michael Sankowski, who seems to have some experience in this area, about why, if this thing were implemented, it would simply generate a giant pay day for Goldman Sachs.
NGDP level futures would almost certainly hand Goldman Sachs and hedge funds a payday worth over $500bn, while giving almost nothing else to the rest of the economy. Either that, or NGDP level futures would never be traded by anyone. There are no other outcomes for NGDP level futures. It’s between some dude pulling down a multi-billion dollar bonus, or nobody trades them. There is no in between. NGDP level futures are such a bad idea I can’t even stand to hear about them – they are offensive to everything I know about how futures markets work. I’ll show NGDP level futures have a host of extremely serious problems, and even worse, one of these serious problems cannot be overcome by any possible futures contract design.Read the whole thing.