Every so often I make a list of economists who recognized that money was actually rather tight last year; or at least that a more expansionary policy could have greatly reduced the severity of the recession.  Of course it is hard to draw sharp lines, as there are almost as many different views as there are economists.  For instance Tyler Cowen recently suggested that about 1/3 of the downturn was due to the drop in nominal spending.
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I was in a bad mood when I wrote my last post on Mr. Fisher.  I turned 54 that day and would have rather been spending the time with my family.  This is another foul-tempered post.  But don’t worry it’s (relatively) short, and I’ll do one soon on the thinking man’s sex symbol (Scarlett Johansson.)
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I just checked Econlog, and there are two more posts challenging my views.  One is on monetary policy, the other on utilitarianism.  Let’s start with Arnold Kling, who claimed that the Fed is not able to quickly change the inflation rate, at least with conventional policies that exclude cases such as hyperinflation.  I responded with examples like 1921 and 1933, where powerful, clearly identified monetary policies did quickly change the inflation rate, and also the NGDP growth rate, which is what I am actually interested in.  Here is his response:

Beware of proof by selective example. Some thoughts:

1. The monetary regime in 1920-21 was different than today’s regime. It could be that relative to the gold standard, prices had risen way too much in 1919, and everybody knew it. That would have made it easy to bring prices back into line.

2. As to the 1933 episode, what was the long-term impact on general wages and prices? In the short run, the wholesale price index (WPI) can be dominated by commodity prices, which are volatile. Today, in order to gauge the trend of inflation, economists use broader price indexes, and they remove changes in food and energy prices in order to focus on “core inflation.” I wonder how “core inflation” behaved during the episode in question.

3. I can do “proof by example” going in the other direction. Consider how long it took for inflationary expectations to rise from the early 1960’s to the late 1970’s. Consider how long it took for inflationary expectations to fall from 1980 to 2000, even though the “regime change” under Paul Volcker was sharp and highly publicized.
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Now I’m really angry.  Maybe it comes from studying the Great Depression, and reading all those smug Wall Street types from the 1930s who heaped scorn on the “academic scribblers” who thought deflation was caused by tight money.  The people who thought monetary policy was all about interest rates and credit channels and lending.  As if Zimbabwe wouldn’t have been able to create hyperinflation without a smoothly functioning credit system.  Of course when FDR won he ignored Wall Street and turned to an economist named George Warren, who convinced him that monetary policy wasn’t about banks, it was about determining a path for the price level, for the value of money.  Something our modern Fed has resolutely refused to do, despite a widespread consensus among the world’s best economists (including Bernanke) that we need to set an explicit target, and try to hit that target.
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I’ve already done three posts on this.  One on the EU elections, one on the Indian elections, and one on the Argentine elections.  But each time you socialists and pessimistic libertarians keep telling me I am wrong.  So I’ll just have to keep doing them until people get so sick of it they stop commenting.  As this article shows, today the conservatives won a big victory in Germany. When I discussed the sweeping victory of the right in the last EU elections, some commenters pointed out that it might represent an anti-immigrant vote, not a pro-free market vote.  OK, I’m ready this time.  Let’s take a closer look.
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