Bartlett on Forbes Online
UPDATE:
Re: We've Never Been Here Before [Peter Robinson]
Below, as Mark Steyn has noted, I provide a link to a chart demonstrating the utterly unprecedented expansion in the monetary base in which Fed Chairman Ben Bernanke has engaged over the last few months. Now economist Bruce Bartlett (who is, I should note, an old friend) has written to take me to task. It's no good showing what Bernanke has done, Bruce suggests, without showing the problem to which he was responding.
Fair enough. But then Bruce continues, upbraiding me: "You should stop being such a doctrinaire monetarist." Ah, but I only aspire to being a doctrinaire monetarist. My shortcoming? I can't quite figure out what, in the current circumstances, monetarist doctrine is.
Three questions, then, for Bruce:
1. What would Milton Friedman have said that the Fed's monetary policy ought to be?
2. What would Milton Friedman have said that the new administration's fiscal policy ought to be?
3. Where, precisely, would he have been wrong?
I'll be very certain to post Bruce's replies.
FURTHER UPDATE:
Bruce Bartlett Replies [Peter Robinson]
This just in from economist Bruce Bartlett:
1. I think Friedman would tell the Fed to pump as much liquidity into the economy as possible. His Monetary History of the United States proved that a shrinkage of the money supply was at the core of the Great Depression and that the Fed failed the country by not increasing the money supply. I believe we are in a similar situation. The problem has been a sharp decline in velocity—the ratio of the money supply to GDP—which has economic effects identical to those that would result from a decline in the money supply. When velocity falls, GDP will fall unless the money supply increases enough the maintain GDP at the reduced level of velocity. The real problem is that the Fed is having difficulty getting money circulating because interest rates on Treasury bills are close to zero. Under these conditions, monetary policy is impotent. It is like pushing on a string.
2. I think Friedman would be sympathetic to using fiscal policy to try and mobilize spending at this time. But he clearly would be more inclined toward finding tax cuts that would achieve this goal rather than direct spending. He certainly would be highly critical of permanent or long-term spending increases to deal with a temporary problem. He would be opposed to anything that would permanently increase the public sector and would undoubtedly be very concerned about the de facto nationalization of the financial sector.
3. It goes without saying that whatever Milton Friedman had to say about the economic crisis or economic policy would be far better than whatever I have to say. I wish we had his counsel right now.
For anyone keeping track, I find not a single word here with which I would disagree.
01/26 12:25 AM
