David Stockman doesn’t know the difference between easy money and tight money
First Rick Perry warns about an easy money policy from the Fed. Then David Stockman said he agrees with Perry. But he goes on to show that he doesn’t know the difference between easy money and tight money:
The Daily Ticker’s guest David Stockman agrees with Obama about Perry’s poor choice of words but also wholeheartedly agrees with Perry’s sentiment. ” I think he was dead on in his thought,” the former director of the Office of Management and Budget in the Reagan administration tells Aaron Task in the accompanying clip. “I think it’s time Republicans woke up to the fact that is the fundamental problem in our economy today.”
Stockman, who has long been a critic of the Fed’s low interest rate policy, says it is “totally wrong.” Stockman says “exceptionally low” interest rates have resulted in excessive speculation on Wall Street “that is utterly destroying our capital markets” and adding to the already unsustainable debt crisis. He goes on to say, “The fact is the Fed is the number one problem holding back this economy, punishing savers, savaging low income people trying to buy food, energy or fuel.”
Of course low interest rates are actually a sign that money has been tight, as Milton Friedman told us in 1997:
Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy.
NGDP has risen 4% in 3 years, vs. a normal growth of 15% over three years. That’s easy money???
Sometimes I wonder if I’m the only person left who still looks at the world the way Milton Friedman did. I constantly get commenters telling me the housing boom was caused by easy money. When I ask them what evidence they had that money was easy in the early 2000s, they tell me interest rates were low.
Interest rates are the price of credit, not an indicator of easy and tight money. Unless and until we understand that money is tight, we will never be able to develop a sound monetary policy.
BTW: I’m old enough to remember when almost everyone thought money was really tight, but it was actually really easy (1979-81.) Have you ever noticed that inflation is high during easy money and low during tight money if you use my definition, but not if you use the conventional definition. I wonder why that might be?
Update: Just to be clear, Stockman and 6,999,999,990 other people.