Tuesday, November 25, 2014

Protestants Will Never Understand Monetary Policy

“Any central bank's ability to boost labor productivity is doubtful; whether recovery produces high or low value jobs is a complex matter of demographics, structural factors in the economy, and taxes and regulation. Attempting to manage this process must at some point run up against the BOE's inflation-fighting objectives, and no amount of assurances from Mr. Carney will mitigate the damage when that happens.”
--WSJ editorial board, August 8th, 2013

There are powerful forces arrayed against growth in the world today: the Dallas Fed, the Bundesbank, the ECB, the Ron Paul family, the entire German nation, Obama’s monetary ignorance, and the editorial board of the Wall Street Journal, the official organ of the orthodox right.

The WSJEB, headed by the estimable Paul Gigot (and controlled by my guy Rupert Murdoch) is an avatar of hard money, pain, discipline and depression. Like the Republican right in 1896 and 1933, they think that the problem is imminent inflation, and the populist challenge to the divine gold standard. They are what we now call “Austrians”, which has nothing to do with the wonderful people who inhabit Austria and serve great food. 

“Austrians” want hard money, oppose the idea of central banks, and want zero inflation. It is a charming and in many ways an admirable philosophy, but it is nonetheless pre-Copernican. The earth is not flat, and money matters. Yes, it would be a better universe if the earth were flat, and the sun revolved around the earth on a daily basis, and money didn’t matter. But it just ain’t so.

The WSJ doesn’t like Mark Carney (the new Canadian head of the BoE) because he is a monetarist, indeed maybe even a secret market monetarist. He has said things that have been interpreted as verging on Sumnerism: nominal targeting. In other words, he is an inflationist in the Fisher-Friedman-Bernanke-Krugman tradition. These are the kind of people whom one doesn’t want one’s daughter to meet, let alone date or, God forbid, marry. They are cheap and unclean.

The WSJ is worried that Carney might decide to target nominal growth, even if that meant massive money growth and higher inflation. No, in the eyes of the Journal, high unemployment is peachy, but inflation above 2% would be catastrophic.

Why is the Right so in love with hard money, low inflation, and high unemployment? Here is my answer: because they do not believe that there is such a thing as a free lunch. You could spread out a smorgasbord of caviar, salmon, lobster and Dom Perignon, and they would turn their heads and eat a cheese sandwich. Reflation is easy and thus sinful. It’s that Protestant thing. The only people who understand monetary policy are Jews and Catholics.

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    1. CommentedJames Andrews

      fine ... inflate your currencies ... but people should be free to move their money into assets that don't lose value ... and people should not have to pay bogus capital gains taxes when they convert back into the inflationary currency ... after all, their actual buying power often remains the same . The problem we have with your inflationary schemes is that it constantly cheats people of the value of their labor. It also secures for governments and governments only the bounty of economic growth. It is the labor of each person who contributes to economic growth, and so the fruit of that growth should go to the people who make it happen ... not the select few who control the money creation and their minions. (aka ... govts, politicians, connected contractors, CEO's seeking bailouts ... etc. etc.)

    2. CommentedRichard Nibbler

      This is the silliest article I've seen in a very, very long time. Not only is your assertion that economic philosophy is tied to a person's religious group wrong and stupid, it's totally irrelevant. What is the point of this post? Do you simply enjoy making baseless assertions about the value of your intellectual opponents' ideas? I see a lot of name-calling and snide remarks filled out by very little in the way of actual reasoning or information.

    3. CommentedSergio Barbosa

      Mahoney: My teacher says that growth and development are very different phenomena: Growth can be disproportionately. Development will always be uniform. An obese person has a disproportionate growth and illustrates well what the situacion of the global economy. Our economy has grown with fat of speculation and credit easy. The institutions you mentioned, they insist on nurturing the economy with those junk foods that I mentioned. There are a lot of fat and colesterol in the global economy and its engine can re-collapse.

    4. CommentedTyler Kubik

      Is this a serious post? Even your most innocuous statement, that there are free lunches, is totally false. If you can't recognize that the "free lunch" had to be produced by someone to be given away in the first place, there is little point in refuting anything else. Regardless, anytime you manipulating the money supply there are going to be winners and losers, chosen by those doing the manipulating. There are no "free lunches" in monetary policy; someone has to bear the cost.

    5. CommentedCarol Maczinsky

      Oh well, then go to your banana currency states and enjoy the great amount of welfare and stability there. It does not need virtues to go for undisciplined spending.

    6. CommentedStamatis Kavvadias

      They believe in pain, Mahoney believes in playing with pain. Not really a big difference. It's not about what he understands, because he chooses the least human side of it. It's not about what is important, because he thinks --as the FED thinks-- they have managed "business as usual" and the exit will eventually appear. But will it? Maybe we will not wait for it to appear, and then Mahoney will lose his mood to play with pain. Maybe.

    7. CommentedWalter Gingery

      Though I would choose tapas for a smorgasbord, I agree with Kit that the Austerians love suffering -- other people's suffering, that is. They're terribly afraid of the power of ordinary people to vote and organize. They hate the prospect of a challenge the right of the Austerians to decide who gets to suffer and who rakes in the dough. That's right, money matters, and what matters most is who gets to make it.