Nighttime Must-Read: Paul Krugman: Neomonetarist Delusions

Paul Krugman: Neomonetarist Delusions: “Danny Vinik notes that…

‘reform conservatives’, who are trying either to rescue the right from its intellectual torpor or to provide cover for its fundamental anti-intellectualism… have gotten… lip service for some of their ideas, but none at all for… monetary policy to assure full employment…. The neomonetarist movement starts from an acknowledgement of reality: shortfalls of aggregate demand do happen, and they do matter, and we need an answer…. They argue that the Fed and its counterparts can do the job all on their own…. I don’t buy this on the economics; to do what’s needed central banks either have to take on a lot of risk, which is in effect a form of fiscal policy, or change inflation expectations, which is far beyond conventional monetary policy. But… the more important point is that the neomonetarists are deluded in imagining that there is any constituency for their ideas in the modern conservative movement….

Underlying this [right wing] total opposition to monetary expansion lie two deep forces. First, much of the right is thoroughly committed to the view that bad things only happen because of the government…. Paul Ryan is… the intellectual leader… and he gets his monetary economics from characters in Ayn Rand novels. Moreover, the Kalecki argument about why business interests oppose activist fiscal policy applies to monetary policy too. If ‘captains of industry’ want the body politic to believe that prosperity depends on their ‘confidence’… they’re going to hate monetarism… [because it says] full employment depends on policy…. There’s really no constituency for neomonetarism. Milton Friedman would be an isolated outcast in today’s conservative movement, and his would-be successors have no home.