First, let me say that two primary goals of macro policy everywhere and always should be full employment and stable prices. Why? I am looking at this purely through the lens of the political economy – thinking about how our fellow citizens live and breathe the economy and how government should be designed to respond to their needs. On the jobs side, we have seen that high unemployment leads to political instability, economic turmoil and conflict. When you have masses of people unemployed or unable to earn enough money to sustain the lifestyle they aspire to – especially young males – you have the makings of discontent that leads to political instability, electoral desperation, fringe voting, and even revolt and insurrection.
On the inflation side of things, high deflation and inflation are equally problematic. When you have, say, families with mortgages or businesses trying to expand, doing the things we see as ‘normal’ to get ahead, deflation makes their task harder by unexpectedly increasing the real burden of that debt. That leads to a downward spiral as fire sales force prices even lower, what we now called debt deflation. Now I know the Austrians say just let this play out. But politically, that’s never going to happen. Think about the housing busts of this last crisis. Just as with joblessness, you have the same makings of political discontent that leads to chaos. And as bad as deflation is, we know inflation is difficult too – not just Weimar or Zimbabwe-style inflation but even the moderately high levels of the 1970s....Credit Writedowns
The limits of monetary policy in today’s fiat currency world
Edward Harrison
2 comments:
Harrison is right to point to the problems that have stemmed from over-reliance on monetary policy, not that that’s an original point. The best solution to this nonsense is to simply merge monetary and fiscal policy: i.e. where stimulus is needed, have the state print and spend base money into the economy (and/or cut taxes).
Milton Friedman advocated stimulus in that form (though he advocated the same unvarying amount of stimulus each year, which is an odd idea by today’s standards). That’s in his 1948 “A Monetary and Fiscal Framework…” paper.
Plus it’s frankly bizarre to have two different forms of stimulus, each administered by two different groups of people – central bank and second, treasury plus politicians. Bit like a car with two steering wheel each controlled by a husband and wife in the middle of a matrimonial row.
Merging monetary and fiscal policy is advocated by Positive Money, plus Bernanke expressed sympathy with the idea (at least for Japan) in this Bloomberg article:
https://www.bloomberg.com/news/articles/2017-05-24/bernanke-sees-boj-s-options-limited-for-any-boost-in-stimulus
alitergalen is a troll.
Post a Comment