Tyler Cowen posted this set of slides with data analysis of why the current weak recovery from the recession like the depth and severity of depression of the 1930s is a consequence of insufficient creation of credit by the banking system.
What is interesting in this presentation is each slide takes on an alternative hypothesis and offers evidence countering that hypothesis. To economists such as myself, this presents a very good challenge. What alternative evidence would I provide to show that it is "regime uncertainty", or "hampering of the free market adjustment process through government regulations", or "excessive government spending", etc.?
What argument or evidence would persuade the author of the presentation to the opposite of his position on insufficient credit creation? What argument or evidence would persuade me that it is not government impediments to the market process?
And, how does one account for the political economy aspects of monetary policy even if one agrees that the evidence in the slides suggests a more activist role for the central bank? Isn't it possible that the central bank suffers a "planner's problem" as well as a "political power problem"? (My reading of Selgin certainly suggests so). Perhaps Milton Friedman, as the slides suggest, would blame the central bank for not providing enough credit to the economy in its time of need, but that same Milton Friedman in Capitalism and Freedom also argued that any institution that is capable of bringing an entire economy to its knees through a sincere error of a few men, is perhaps an institution that a free and vibrant society cannot afford.
When we take that sort of insight into account, does the policy analysis change as drastically as I believe it does even granting the technical points of economic theory? And, is it really proper to do economic theory that is policy relevant without incorporating the political economy points at the very beginning?