End Stupid Monetary Policy Debates

As I see it, there are two types of debates over real world monetary policy. In one debate, one side says monetary policy is obviously way off course. The other sides concedes that aggregate demand (AD) is not where we’d like it, but suggests there’s not much the central bank can and/or should do about it. These are stupid debates. In the second kind of debate, reasonable people will disagree as to whether growth in AD is likely to be excessive or inadequate going forward. These are intelligent debates.

Politician Holding Loudspeaker


I can’t emphasize enough that you do not want to live in a time where the first type of debate is occurring. Those are bad times, at least regarding monetary policy. And not just bad, obviously bad. People sometimes claim that there are periods where asset prices are obviously wrong (usually excessively high.) Actually, those asset price bubbles do not exist. But there really are times where monetary policy is obviously off course, as we don’t have the sort of NGDP future market targeting that would prevent those policy fiascos.

What are some examples of periods where monetary policy is obviously way off course? At a minimum, I’d say 1930-35, most of 1968-81 and 2009-14. That’s not to say there aren’t plenty more periods where monetary policy was off course in my opinion, I’m just listing a few periods where it’s patently obvious that either more AD or less AD would have been desirable.

Jay Powell’s Fed has given us reasonable monetary policy. Lots of Keynesian economists seem to think the economy would benefit from more AD. That view is certainly implicit in concerns expressed that the expiration of the $300 bonus payments in the unemployment insurance program will reduce AD. Larry Summers has a recent piece that suggests that monetary policy is too expansionary, i.e., that AD will be excessive going forward. That’s an intelligent debate.

It’s really nice to live in a world where this sort of intelligent debate is taking place. We need a monetary regime where the first type of debate never occurs. We need to do whatever it takes to avoid a situation where everyone agrees the economy needs more AD, or less AD, but people doubt whether the Fed can or should address the problem. The Fed always can and should address the problem—if we are debating that issue then we are in a very dysfunctional place.

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