Wednesday, October 6, 2010
Don't mix monetary policy and politics
Scott Sumner (the world’s leading monetary dove) on the subject of trying to understand the intellectual confusion of liberal economists who are fiscal doves and monetary hawks:
I have no idea where these guys are coming from. A currency war causes everyone to lose? Why is that Mr. Reich? Because it leads to high inflation? And what causes the high inflation? Rising aggregate demand? And what is the point of the fiscal stimulus you favor? Higher aggregate demand?
The name of my blog [The Money Illusion] never seemed more appropriate. We’re hardwired to think disputes must be over who gets what—who’s favoring the capitalists and who favors the workers. It’s much more than that. It’s mass confusion about the nature of monetary policy. Krugman and Stiglitz are distinguished economists with impeccable progressive credentials, and they both can’t be right. The AFL-CIO opposed FDR’s dollar depreciation of 1933, even though it led to a rapid increase in production. Every day that goes by I’m reminded more and more of the intellectual climate during the 1930s. We’ve learned nothing.