Market monetarism in the news

Here’s Ramesh Ponnuru at

To return to reality for a moment: The Fed isn’t hitting its 2 percent inflation target now, let alone coming close to 4 percent. People who think the economy remains depressed — and think it’s depressed largely because money is too tight — have to urge the Fed to do something different. In some sense, we have to push the central bank out of its comfort zone.

Avoiding Backlash

It may be that a nominal-spending target is further outside that zone than a higher inflation-rate target. But remember that inflation is extremely unpopular. A deliberate Fed policy of raising inflation rates, especially permanently, seems likely to yield a backlash — or even a frontlash that keeps it from happening in the first place. A Fed policy that seeks to raise incomes and spending seems likely to meet less resistance.

And it seems to me that higher incomes and spending are what we should really want in today’s circumstances. Faster inflation is valuable to the extent that it produces higher nominal spending, and higher nominal spending would be valuable even if it didn’t involve more inflation.

The inflationists generally argue that the Fed needs a better communications strategy. They should take their own advice.

2.  And this is a link to a Bloomberg interview I did yesterday.

3.  Here’s the New York Times on (market) monetarism:

The prescription fits the worldview of some “monetarist” economists, who argue that the Fed should set a higher target for the nominal gross domestic product, to be met through real economic growth and inflation. Conservative pundits like Josh Barro of Business Insider have welcomed inflation as the right’s answer to fiscal stimulus — a way to juice the economy without increasing government spending.

But it is hardly a conservative idea. Paul Krugman, a Nobel laureate and liberal columnist for The New York Times, has been writing about the benefits of higher inflation, arguing that policy makers should be using any available tool — fiscal or monetary — to try to reduce an unemployment rate stubbornly stuck at more than 7.5 percent for over four years.

4.  And here’s Ambrose Evans-Pritchard in The Telegraph:

They are gambling that the US economy will shake off the effects of fiscal tightening of 2pc to 3pc of GDP this year, arguably the biggest squeeze in half a century. It may indeed do so, but it may not, and the costs of making a mistake before the US recovery is safely established are asymmetric.

Scott Sumner, the spiritual father of the Market Monetarists, says the errors made by the Fed in 1937 and the Bank of Japan in 2000 did serious damage, while the US suffered little lasting effect when the Fed delayed too long in 1951.

Are we to conclude that Ben Bernanke has lost his nerve and joined the Austro-nihilists?

The Godfather?  Eminence grise?  Spiritual father?  What will they think of next?

It’s interesting that the NYT just calls us “monetarists.”  The old monetarists sort of faded into the background after the new Keynesians stole all their best ideas (monetary stabilization policy trumps fiscal, nominal interest rates unreliable, natural rate hypothesis, high trend rates of inflation caused by rapid money growth, etc), and their other ideas (target the money supply) lost popularity.

Here’s my question:  When people talk about “the monetarists” in 2020, which variant do you think they will be referring to?  Market monetarists?  New monetarists?  Old monetarists?

HT:  Chris Beseda, CA

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