Another fine piece by market monetarist Scott Sumner:
Here’s a few observations that might be loosely viewed as responses to thoughtful conservatives who are skeptical of the need for monetary stimulus:
3. Now more than ever
One often hears people using a crisis, especially one where the cause is rather murky, as an excuse to press for something they’ve favored all along. High speed rail. Break up the big banks. Radical liberalization of the eurozone economy. Lower tax rates on capital. Less restrictions on occupational entry. I favor some of these proposals. But that’s not the problem we face. I’ve followed the US business cycle since LBJ was president and I don’t recall there being even a hint of evidence that 8.2% unemployment in the US is caused by regulations, taxes, lack of high speed rail, big banks, or anything else other than tight monetary policy. In 1982 the tight money was justified because inflation was a big problem. It wasn’t “overly” tight. That’s clearly not true today.
4. Johnny come lately
I hear people say; “Yes, we all agree that money was too tight in 2008-09 when NGDP fell 4% peak to trough, but it’s no longer too tight.” It’s interesting that “we all agree” because when I was running around like a chicken with its head cut off in late 2008 I don’t recall anyone agreeing with me (that tight money by the Fed was creating a disastrous fall in NGDP.) I recall attending an economics convention in late November 2008, and there was a 5 person panel that was dismissive of the need for easier money. And that was during the worst of the crisis, when markets clearly showed the global economy falling off a cliff. Even if I remembered who they were it wouldn’t matter, as there’s no reason to single them out.
Definitely read the whole thing.