This is the Cato Daily Podcast for Monday, March 30, 2015.

I'm Caleb Brown.

To bring accountability to the Federal Reserve. Economist Scott Sumner proposes

targeting nominal GDP over targeting interest rates.

Sumner is the chair of monetary policy at the Mercatus Center.

He blogs at Money Illusion. We spoke today.

If you could briefly describe what you call market monetarism.

Okay, market monetism has several tenants.

One is that we look at nominal GDP, which is the total dollar spending in the economy on all goods and services,

as the key monetary variable to monitor and also to

target.

So we don't look, say at low interest rates as being an easy money policy.

We look at monetary policy in terms of its outcome,

what kind of nominal GDP growth is being produced.

We would argue that monetary policy is most stable when nominal GDP is growing at a slow but steady rate.

That's essentially the best policy target for the Federal Reserve.

Now that has a certain attraction to it because if you have very low interest rates and yet people are sitting on

Piles of cash anyway there's something fundamentally wrong with

Exactly the system.

And it's also easier to see the problem with interest rates on the high end.

Some of your viewers may recall in the 1970s we had very high inflation and also high nominal interest rates. Those tend to go hand in hand.

So what happens is people get confused because they think of high interest rates as tight

...