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Why is the Smith paper free but the Fink one isn't?

Regarding "Robust Political Economy and the Federal Reserve", I can think of at least three reasons why people are focusing on the technical, rather than political economy, problems of monetary policy:

1. The political economy problem of monetary policy is really really hard.

2. Discussing political economy problems is relatively futile until technical matters are resolved, because a solution to the former is to some degree contingent the particular solution of the latter. Therefore, debates that begin with political economy problems tend to move toward technical problems.

3. Some believe that political economy problems are not problems for economists, but for political scientists and practical policy makers.

Anyway, in the paper you write that "currency inflation" is "one of the favoured and pernicious" ways that governments "push debt problems into the future." Then you note how the "monetary base in the U.S. has more than doubled in the last couple of years" and provide a graph of the monetary base over the last 25 years. The obvious suggestion is that the U.S. government is currently trying to "push debt problems into the future" with massive "currency inflation". Do you really believe this?

Admittedly, if the demand for base money suddenly returns to its pre-recession levels, then inflation has the potential to get out of control very quickly, and the real burden of the U.S. government's debt would be reduced significantly. But do you really believe this is the reason why the monetary base was doubled? The Fed has repeatedly talked of its "exit strategy", which all have taken to mean a significant contraction (or sterilisation) of the monetary base the demand for base money falls: is that just a big lie?

The prospect of governments debasing the money supply to reduce the real cost of repaying debts is a concern I share, and it is one of the many reasons that I would like the government's monetary monopoly to be abolished. But I just can't swallow the notion that the present build up of bank reserves is a part of the the story of debt, deficit, and debasement.

First, the paper with Alex is now available to download.

Second, Lee -- I have a bet on record with David Henderson that we will see double-digit inflation before Obama leaves office. So yes, I believe our current monetary policy is part of an effort in the endless cycle of deficits, debt and debasement, and NOT a Scott Sumner inspired effort to stave off a nominal income collapse.

Finally, to Lee -- you cannot do economic analysis of policy without an economic analysis of politics. In short, there are no technical issues in economics divorced from political economy once you really understand political economy. The continued effort to do such a divorce is to commit a significant error in judgement I believe.


What if you lose the bet?

I just don't see how the Fed's recent expansion of the monetary base or its promised exit strategy actually benefit the federal government very much. Could you explain? I am genuinely interested.

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