Pursuit of Truthiness

my gut tells me I know economics

Monetary Policy: The Most Important Policy

with 3 comments

Scott Sumner has said that monetary policy was the Achilles heel of conservative/libertarian/free market economics all through the world in the 20th century.  I am realizing how big a problem it still is.  I always thought that it we be great if some twist of fate brought us President Ron Paul, because I think most of his proposed policies would make Americans much better off; my only big disagreement is with his monetary policy.  However, I can’t say I disagreed when I read Adam Ozimek’s description of what hypothetical presidents would bring:

You know who else ran for President in 2008? Ron Paul. President Paul would have yanked out Bernanke and put in a gold bug, which would have outdone anything any other president could do, short of unnecessary nuclear war, in terms of a welfare loss. President Paul would have heralded in the Great Depression 2, not the Great Recession.

I don’t think it is unreasonable to expect a second Great Depression to do as much damage to free-markets and libertarian politics as the first.  You might think that a libertarian president could get lucky and get elected during good economic times, when tight money would not push us all the way to a Depression.  However, any President that does drastically shrink the government is going to cause a recession; almost every post-war demobilization is accompanied by a recession.  This doesn’t mean we shouldn’t end wars or shrink government of course, but such times do call for an accommodative monetary policy- and given the current state of libertarian beliefs and politics, we are likely to get just the opposite.  Unless we get a new Milton Friedman(who I guess is now a money-debasing statist), a libertarian president will be bent on bringing “sound money” and will be a disaster for the country and for free markets.


Written by James Bailey

April 6, 2011 at 2:53 pm

3 Responses

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  1. Huh, Monsieur Maine, this was an interesting read. I have not read up on monetary policy that much. Do you know of any good books that can give a decent cursory summary?


    April 11, 2011 at 11:27 am

  2. D2, actually I don’t, I should change that by the next time I teach macro. You could get the basic idea from a textbook of course. I think Friedman’s Capitalism and Freedom has a chapter on it.


    April 11, 2011 at 11:49 am

    • Thanks for the suggestion, Monsieur Maine! May I suggest that I’d like to see “A Cursory Summary of Monetary Policy”, a book by Dr. James Bailey, in a few years? Of course it’d have a catchier title… ^_^


      April 11, 2011 at 11:53 am

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