Skidelsky on monetary stimulus
For the past 4 1/2 years I’ve had a running battle with commenters who insist that progressives favor monetary stimulus, even if they almost never talk about it.
Obviously some do (Krugman, DeLong, Yglesias, etc.) But overall I’m just not buying. Academic economists vote Democratic by a 3 to 1 ratio, and yet I doubt even 10% would say that Bernanke’s policy is too tight.
Here’s Robert Skidelsky:
This new enthusiasm for unconventional monetary policy is the more remarkable in that no one is quite sure how it works. There are several possible transmission mechanisms from money to prices (or nominal income) – notably the bank lending channel and the portfolio rebalancing channel. They have been extensively tested, with inconclusive results.
All of this led John Kay to wonder why so much attention was given to unconventional monetary policies ‘with no clear explanation of how they might be expected to work and little evidence of effectiveness?’ His answer: they are helpful to the financial services and those who work in them.
Here is another answer, given by the Chicago University economist Robert Lucas in the Wall Street Journal. Quantitative Easing, he wrote, “entails no new government enterprises, no government equity positions in private enterprises, no price fixing or other controls in the operation of individual businesses, and no government role in the allocation of capital…These seem to me important virtues”.
In short, a happy mix of self-interest and ideology. It has always been thus; which has not stopped economists discussing questions of policy as though the only thing to get right was the theory of the matter!
I think the Summers/Skidelsky/Stiglitz scepticism about QE is much more representative of the left than Krugman.
Speaking of Summers, TravisV sent me the following:
“If we have slow growth, we are not going to keep thinking that 5.5 per cent unemployment is normal,” said Mr Summers. “We are going to decide rightly or wrongly that the potential of the economy is less and therefore we are going to decide that we are closer to that potential and that is going to operate in favour of suggesting that we should normalise interest rates.”
Great. We are going to base Fed policy on the growth rate of RGDP. Just like in the 1960s and 1970s.