Monetarist Pathos

I feel David Beckworth?s pain. Really, I do.

Beckworth and a few others are trying to keep the spirit of monetarism alive. What I mean by that is that, like Friedman, they?re trying to reconcile a conservative view of government?s proper role with a bit of macroeconomic realism. They accept that a recession represents a huge market failure demanding policy action. But they want to keep that policy action narrowly technocratic, limited to open-market operations by the central bank.

As I?ve argued before, this doctrine has failed the reality test: liquidity traps are real, and blithe assertions that central banks can easily pump up demand even in the face of zero short-term rates have not proved correct.

But what our modern monetarists are facing is a different problem: it turns out that they have no political home. The modern American conservative movement has no room for nuance, for the idea that some forms of government activism are a good idea. Ayn Rand, not Milton Friedman, is their patron saint; in fact, if Friedman were alive today, he?d be shunned as a dangerous radical with inflationary ideas.

And no amount of data will change their minds. If you look at what these people say, they?ve taken to putting scare quotes around the word ?data?. Numbers, you see, have a clear liberal bias.

So again, I feel the monetarists? pain. But they should have realized that this was coming.

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Source: http://krugman.blogs.nytimes.com/2011/05/14/monetarist-pathos/

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