These all make sense to me, particularly #3 with the huge recent interest in crypto. Monetary policy seems like some strange dark art where we think we have more control over the world than we actually do, and we’re probably not seeing some of the most important unintended consequences of our actions. You have to do the best you can based on what you understand, so I mostly agree with the monetary policy regime, but wouldn’t be surprised if we look at things very differently in 50 or 100 years. (The history of the subject is really rather recent — the Federal Reserve was born in 1913, and Nixon only fully took us off the gold standard in 1971.)
A separate topic you might be interested in would be Modern Monetary Theory. It’s is widely derided by economists, mainly I think because it’s so closely tied to Democratic politics and advocating big budget increases. But as an academic theory I think it’s a really compelling new account of the function of money and the levers we have at our disposal to affect the economy. A lot of the MMT authors themselves are pretty polemical, I didn’t like Kelton’s Deficit Myth. Greg Mankiw’s introduction is pretty balanced IMO, check out the full thing if you want but here’s his conclusion:
“In the end, my study of MMT led me to find some common ground with its proponents without drawing all the radical inferences they do. I agree that the government can always print money to pay its bills. But that fact does not free the government from its intertemporal budget constraint. I agree that the economy normally operates with excess capacity, in the sense that the economy’s output often falls short of its optimum. But that conclusion does not mean that policymakers only rarely need to worry about inflationary pressures. I agree that, in a world of pervasive market power, government price setting might improve private price setting as a matter of economic theory. But that deduction does not imply that actual governments in actual economies can increase welfare by inserting themselves extensively in the price-setting process. Put simply, MMT contains some kernels of truth, but its most novel policy prescriptions do not follow cogently from its premises.”
Monetary policy seems like some strange dark art where we think we have more control over the world than we actually do, and we’re probably not seeing some of the most important unintended consequences of our actions. You have to do the best you can based on what you understand, so I mostly agree with the monetary policy regime, but wouldn’t be surprised if we look at things very differently in 50 or 100 years. (The history of the subject is really rather recent — the Federal Reserve was born in 1913, and Nixon only fully took us off the gold standard in 1971.)
This resonates for me (it’s interesting though how you and I still draw different conclusions on whether to build up the supply of monetary stimulus or not; seems like some underlying differences in how we each relate with the use of leaky abstractions like MMT in practice?).
Thanks, I appreciate learning from you here.
A separate topic you might be interested in would be Modern Monetary Theory.
I’ll make time to read this paper and arguments for MMT policy when/if OpenPhil writes up their updated review later this year. For now, got to focus on digging into other research and research programs.
Awesome yeah, this was a great discussion. Relevant to OpenPhil’s grantmaking and it’s great to have a venue for discussing thorny questions in a reasonable way. I probably trust the monetary establishment a bit more and see newer proposals as more predictable / within the historical distribution of what we’ve seen before. But I’m not an expert and definitely could change my views here. Really appreciate your perspective and would be happy to follow up later.
I probably trust the monetary establishment a bit more and see newer proposals as more predictable / within the historical distribution of what we’ve seen before.
These all make sense to me, particularly #3 with the huge recent interest in crypto. Monetary policy seems like some strange dark art where we think we have more control over the world than we actually do, and we’re probably not seeing some of the most important unintended consequences of our actions. You have to do the best you can based on what you understand, so I mostly agree with the monetary policy regime, but wouldn’t be surprised if we look at things very differently in 50 or 100 years. (The history of the subject is really rather recent — the Federal Reserve was born in 1913, and Nixon only fully took us off the gold standard in 1971.)
A separate topic you might be interested in would be Modern Monetary Theory. It’s is widely derided by economists, mainly I think because it’s so closely tied to Democratic politics and advocating big budget increases. But as an academic theory I think it’s a really compelling new account of the function of money and the levers we have at our disposal to affect the economy. A lot of the MMT authors themselves are pretty polemical, I didn’t like Kelton’s Deficit Myth. Greg Mankiw’s introduction is pretty balanced IMO, check out the full thing if you want but here’s his conclusion:
“In the end, my study of MMT led me to find some common ground with its proponents without drawing all the radical inferences they do. I agree that the government can always print money to pay its bills. But that fact does not free the government from its intertemporal budget constraint. I agree that the economy normally operates with excess capacity, in the sense that the economy’s output often falls short of its optimum. But that conclusion does not mean that policymakers only rarely need to worry about inflationary pressures. I agree that, in a world of pervasive market power, government price setting might improve private price setting as a matter of economic theory. But that deduction does not imply that actual governments in actual economies can increase welfare by inserting themselves extensively in the price-setting process. Put simply, MMT contains some kernels of truth, but its most novel policy prescriptions do not follow cogently from its premises.”
https://www.nber.org/system/files/working_papers/w26650/w26650.pdf
This resonates for me (it’s interesting though how you and I still draw different conclusions on whether to build up the supply of monetary stimulus or not; seems like some underlying differences in how we each relate with the use of leaky abstractions like MMT in practice?).
Thanks, I appreciate learning from you here.
I’ll make time to read this paper and arguments for MMT policy when/if OpenPhil writes up their updated review later this year. For now, got to focus on digging into other research and research programs.
Awesome yeah, this was a great discussion. Relevant to OpenPhil’s grantmaking and it’s great to have a venue for discussing thorny questions in a reasonable way. I probably trust the monetary establishment a bit more and see newer proposals as more predictable / within the historical distribution of what we’ve seen before. But I’m not an expert and definitely could change my views here. Really appreciate your perspective and would be happy to follow up later.
Glad this opened up a richer discussion :)
Got it.
Happy to have a chat in February btw. Will try to read the paper you linked to before our call in that case: https://calendly.com/remmelt/30min/?month=2022-02&date=2022-02-01