John Tamny’s byline at Forbes magazine states:
John Tamny, Forbes staff
I cover the intersection of economics and politics
He has a new article that starts off with a quote from Mises:
“No individual and no nation need fear at any time to have less money than it needs.” – Ludwig von Mises, The Theory of Money and Credit
That’s certainly good to know. Given that monetary theory is symmetrical, if a 99% drop in the money supply has no real effects, then we also don’t need to fear hyperinflation. As Tamny says, “money is merely a measure.” And no country ever went into a depression by changing to the metric system, did it?
Tamny starts the article by noting that late in his career Friedman began to have doubts as to whether a money supply target was best. From this he inferred (I kid you not) that Milton Friedman had repudiated monetarism. Then it starts to really go downhill. He goes on to argue David Beckworth and Ramesh Ponnuru are members of the monetarist school that was abandoned by Friedman. That’s right, Tamny claims that market monetarists also believe in targeting the money supply. I suppose he saw the term ‘monetarism’ in the market monetarist name, and figured no further investigation was needed.
I know what you are thinking, there’s no way respected magazine like Forbes could publish anything so idiotic. Everyone knows the market monetarists agree with the late Friedman, the one who was skeptical of targeting the money supply. Everyone except John Tamny and the editors at Forbes.
But perhaps we shouldn’t be surprised. Didn’t Forbes publish an article a couple years ago claiming that fans of inflation targeting wanted to impose a regime where all prices were fixed, where technological progress in electronics would not reduce the price of TVs and computers? Yes they did:
Taking this further, if price stability were policy, it would still be the case that a phone call from Houston to Dallas would cost $15 for a half hour of conversation. It would similarly mean that we’d be paying thousands of dollars for flat-screen televisions, not to mention even more for computers that perform very few functions.
And who was the author who made that monumental blopper? Why the very same John Tamny.
If Tamny hadn’t made the following statement in the new article:
Monetarism’s most notable modern supporter is Ramesh Ponnuru of the great National Review magazine. Ponnuru has gulped the Kool-Aid as it were, and he’s joined up with a former Treasury economist David Beckworth (presumably one of the minds behind the dollar’s destruction and resulting crack-up during the Bush years) to revive the idea. Policy analyst Timothy Lee has jumped on board to parrot the other two, proving that even those thought to be nominally libertarian can be taken in by central planning at times; the false logic behind their thinking fairly reduced to “Weak Economy? Just Add Dollars.”
I would stop now; there’d be no point in rubbing it in. But alas he did use the term “Kool-Aid” so I’m afraid I’m not done yet.
Tamny continues with a bizarre discussion of the “gold standard.” Market monetarists believe that a revived gold standard would risk the sort of deflationary depression we experienced in the interwar years. Here’s Tamny responding to the famous Eichengreen graph showing countries began recovering after they left the gold standard:
To begin, the writers assert early on that “During the Great Depression of the 1930s one country after another abandoned the gold standard – a decision vindicated when they recovered in the same order.” The latter is interesting, and wildly false.
And what is the evidence that it is wildly false? He doesn’t present any, other than to claim the US was prosperous after WWII, despite returning to the gold standard. Here I’ll have to give Tamny credit for not dodging responsibility for the interwar years by claiming it “wasn’t really a gold standard.” It certainly wasn’t a well run gold standard, but all through the Great Contraction of 1929-33 dollars could be converted into gold at $20.67/oz. Tamny’s claim that post-war prosperity was caused by the gold standard is an argument I’ve never heard before, probably because after WWII not only were Americans not allowed to convert dollars into gold, but it was illegal for Americans to even own gold from 1934 to 1976.
I don’t object to people noting that Bretton Woods had some characteristics of the gold standard; I’ve made that argument myself. But I wish the gold bugs would get the story straight. Half of them seem to think the US monetary system of the 1920s wasn’t really a gold standard, and half seem to think Bretton Woods was. Which is it?
Indeed, quite unlike nearly all religions that are based on faith, the stock/flow properties of gold are what make it so attractive as a money measure. Gold isn’t faith based, rather its impressive stability has been a market fact for hundreds of years.
This is written immediately after the price of gold went from $300 to $1900, and then back to $1600. Of course the gold bugs will tell you the value of gold was stable throughout that period, it was everything else that went crazy.
About their call for a “monetary regime change”, Beckworth and Ponnuru seek a new policy that “learns from both the successes and failures of the past.” If so, it’s apparent they’re not very familiar with the recent past because their monetarism was once again tried from 1979-82 and was a stupendous failure.
Tamny doesn’t seem to have any idea why monetarism was widely assumed to have failed. (Put aside the issue of whether it actually failed.) The critics did credit monetarism with reducing inflation from 13% in 1980 to 4% by 1982. I would expect a hard money guy like Tamny to view that as a success. But no, that’s not just a failure, it’s a stupendous failure. The critics did complain that velocity fell in 1982, and this made the recession worse than expected. But Tamny’s already told us that no country can ever have too little money, which means one can also never have too little velocity. After all, money is just a “measure.”
It’s hard to pick out a most embarrassing line in the article, but this surely comes close:
No doubt [Beckworth and Ponnuru] both would argue that they’re merely seeking stable money growth;
Yeah, market monetarist . . . famous for advocating stable money growth.
When Forbes published the previous article claiming that inflation targeting proponents like Bernanke wanted to keep all prices fixed, I wondered if it was just a fluke. Forbes is a relatively well known publication. Surely they couldn’t be that clueless? It looks like I was wrong.
PS. David Beckworth finds even more nonsense.