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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.

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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.