While there are pretty stark dissimilarities between the current quantitative easing (QE) policies of many governments and the old monetarism that prevailed in the late-70s and early-80s, the reason that these both policies were ineffective is because they were based on the same flawed ideas. The key difference between the two is that where monetarism was implemented as a deflationary and contractionary policy, QE is currently being implemented as an inflationary and expansionary policy. As a result, examining the failure of monetarist policies thirty years ago provides important lessons considering QE and its offshoots.
Before looking at the similarities between these two doctrines, we will explore the actual historical trial of monetarism. We will focus on the British experience since the doctrine was applied there with far more zeal than in the United States. Indeed, Paul Volcker – Fed chairman at the time of the monetarist experiment in the US – has recently stated that he never believed in the doctrine and simply used the monetarist ‘fad’ of the day to push for unpopular interest rate hikes. By contrast, those working in the Bank of England at the time were true followers of the monetarist faith.
Before looking at the similarities between these two doctrines, we will explore the actual historical trial of monetarism. We will focus on the British experience since the doctrine was applied there with far more zeal than in the United States. Indeed, Paul Volcker – Fed chairman at the time of the monetarist experiment in the US – has recently stated that he never believed in the doctrine and simply used the monetarist ‘fad’ of the day to push for unpopular interest rate hikes. By contrast, those working in the Bank of England at the time were true followers of the monetarist faith.Read it at Naked Capitalism
The New Monetarism Part I – The British Experience
The New Monetarism Part II – Holes in the Theory
The New Monetarism Part III – Critique of Economic Reason
by Philip Pilkington
2 comments:
Nice aricles by Pilkington.
He questions whether Milton Friedman new what he was talking about. Having read some pieces by Freiedman over the last week or so, I came to the same conclusion before reading Pilkington's articles.
More likely that Friedman had an agenda that he didn't know what he talking about? Hardly unusual. Greenspan, for instance.
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