What’s Wrong with the World

The men signed of the cross of Christ go gaily in the dark.


What’s Wrong with the World is dedicated to the defense of what remains of Christendom, the civilization made by the men of the Cross of Christ. Athwart two hostile Powers we stand: the Jihad and Liberalism...read more

Monetarism has a conservative pedigree

My friend Pejman Yousefzadeh has a good post up on why monetary stimulus need not be advocated in hushed voices by embarrassed conservatives overawed by goldbugs.

Note that the idea to increase monetary stimulus has provenance on the center-right. And of course, the late, great Bill Niskanen was not the only person on the center-right to argue in favor of monetary stimulus in a recessionary, or slow growth period; if Milton Friedman were here, he would be arguing for monetary stimulus as well, and would look favorably on the idea for a third round of quantitative easing by the Federal Reserve. Monetary stimulus is needed to balance out against budget cuts that are aimed at reducing the deficit, and to meet the demand for money balances, which Beckworth and Ponnuru note has “surged.”

Comments (26)


I might as well come out of the closet now and let everyone know that I've been reading Scott Sumner's blog, The Money Illusion, for the past year (he is considered by many to be one of the gurus of the new market monetarist movement) and I have to admit he has me convinced that we need robust nominal GDP -- which means monetary stimulus. What I can't figure out is what exactly are the smart inflation hawks who line up against Sumner opposed to? For example, John Taylor seems to prefer less monetary stimulus or at least tighter money but as Scott suggests in this post, he's not sure that worked all that well for Japan:


So the inflation hawks who sit on the Fed Board of Governors, economists like John Taylor, and popular commentators like Larry Kudlow and yes, even Ron Paul -- all folks I respect to varying degreess are worried about monetary stimulus because they are worried about inflation. But the data right now suggest that inflation is just not a problem and that easy money could really help folks.

Psul, Paul's father, Tony, and I discussed some of that in a thread down below, Jeff S. I don't have time to paste the links just now. The basic question that divides us is to what extent the new dollars created in past rounds of QE should be regarded as existing despite the fact that they have gone into reserves or short-term investments and therefore haven't involved as much lending as had been expected. Since they are available, Paul (as I understand him) admits that they could come back into the economy quite suddenly, leading to steep inflation, even where "inflation" is thought of in terms of prices. Hence Paul's father raised, rightly, real concerns about deliberately pursuing "inflation as policy," but Paul stood firm in favor of it because of the fact that past rounds of QE have not had all of the desired effects due to continued lack of investor (and bank) confidence, deleveraging, and so forth. Hence Paul prefers to speak of these added dollars as "extinguished" and the like despite the fact that they do remain available in a very real sense. (For example, it's not like someone has buried them and we don't know where to find them, or someone has stashed them in his closet and forgotten that he has them.) I consider this to be very confusing, and all the more so as many of these dollars are quite visible--deposited in bank accounts as liquid funds, invested in short-term assets, etc.

Tony had some excellent comments in the course of that exchange.

See what y'all think of this possible scenario: The Fed does QE3, and it is successful. That is, it gets banks to start making more loans, gets people to take those loans to start or expand businesses, jump-starts the economy, and increases investor confidence. At that point, _because_ QE3 did what it was supposed to do, people and banks start investing those cash reserves far more willingly than before, the money from QE1 and QE2 that _didn't_ have the expected effect comes back into the action with a bang, and we get more than the Fed hoped and bargained for.

In other words, how can further money printing succeed at what it is supposed to do _without_ triggering troublesome inflation (in price terms) as a consequence?


I have gone back and forth on this subject with some reactionary bloggers I admire so the question is a good one and boils down to -- how do you know the Fed can control their monetary monster? The short answer, and if I have time I'll try and dig up some links, is that market monetarists like Scott Sumner claim the Fed has all sorts of tools at their disposal to quickly act to "mop up" extra funds sloshing around if necessary and that they can tame monetary inflation quickly before it gets out of hand (even without drastically raising interest rates like Volcker had to do in the early 80s).

One obvious tool is to sell back the assets purchased under quantitative easing. The cash from those purchases is then sterilized, i.e., removed from circulation permanently.

And maybe all of that could work, and maybe it wouldn't. And maybe the Fed would do it, and maybe it wouldn't. This is all an exceedingly large gamble we're taking. Meanwhile, what we are all studiously ignoring is the fact that our economy has its feet firmly planted in midair on the "famous for being famous" principle, so the question, "Will another round of QE get us out of this recession?" more or less has only the socially-constructed answer, "It will if enough people think it will."

I think this should bother us. A lot of people, including most conservatives, don't think it should bother us at all.

I wish I could meet some of these conservatives "overawed by goldbugs." All the conservatives I've met either are goldbugs themselves (that's a very small fraction) or don't seem to be overawed (the majority). This middle group of overawed-by-goldbugs conservatives is unknown to me. Might be nice to hang out with some of them sometime.

Lydia, grassroots conservatives loathe the Fed. They may not all be goldbugs, but the Tea Party folks are equally vociferous in their condemnation of the central bank. Gov. Perry began his campaign by insinuating treason on the part of Bernanke. Herman Cain (before his latest troubles) faced his toughest challenge in defending his support for the 2007-08 emergency measures. As Pejman puts it, "the prospects are poor that the Federal Reserve is going to do more in order to encourage economic growth, because the Ron Paul types have hijacked monetary policy in the Republican party, and other Republicans do not know enough, or care enough about monetary policy to challenge them." Here at W4 a guy can get called a socialist for endorsing a monetary policy that Milton Friedman would have favored.

All that said, you know my prescriptions are not exhausted by monetary easing. My primary hope lies in a restoration of sound finance at the highest level. Without that, everything is "an exceedingly large gamble."

Here at W4 a guy can get called a socialist for endorsing a monetary policy that Milton Friedman would have favored.

Maybe I should have stayed away from the blog longer than a day. That's not very careful reading, Paul. Viz.,

1) It wasn't a monetary policy (in anything like the sense that that phrase would be understood in *this thread*) but a wide-ranging social policy of wealth redistribution.

2) My blog colleague was not advocating it but only raising it. Ergo, I did not call him a socialist but rather referred to the person he quoted and whose ideas he was apparently entertaining as a socialist.

3) The person he quoted was not simply advocating Friedman's suggestion but rather a far wider-ranging way of thinking, a way of thinking that Friedman wouldn't have been caught dead agreeing with, about the entire question of whether the world owes you a living, "evil capitalists," and other things in that vicinity, and I stand by my characterization of that person's ideas as socialistic on their face.

4) That thread was discussing quite a different topic from this one, so you seem to be changing the subject by bringing it up (see point #1).

5) My blog colleague was not overawed anyway, if that were relevant.

To call what Louis Even has written--his proposals and his rationale for them--"monetary policy" is an insult to monetarists. I have disagreements with the methods and assumptions of monetarists, but at least they _are_ proposing monetary policy, and doing so based on an actual desire to stimulate actual wealth creation and based on actual economic knowledge--in technical areas, and for the highbrow monetarists, far more detailed economic knowledge than I have. Judging by those quotations, Louis Even doesn't get to first base on any of these measures.

The paricularly interesting part of this is the desire that something must be done to offset the federal budget cuts that haven't happened yet and in any case had no appreciable or noticable effect. Not that they ever were intended to. Still we must not totally ignore the efficacy of federal spending it seems, it's well known or at any rate devoutly believed that a federal dollar spent has more potency than a dollar spent by any other source, a certain but never defined fact. And in any case how did we ever survive when spending was markedly lower at the federal level? My only problem with this, apart from relying on what a dead man may have thought about it all, is, why only three QE's, why not four or five?

Lydia, for the record the context of my comment was not the "social credit" thread. That thread, in fact, did not even enter my mind in the course of this one. Hope that alleviates some of your irritation.

Okay, explanation accepted, and thanks much, but in that case I don't know what you were referring to. That's the only time I can think of here that anyone has referred to something that Milton Friedman allegedly would have advocated and that the term "socialist" has been used in response. But I'm not really particularly concerned to work out the intended reference.

John Taylor and the like are playing for Team Republican, wish to keep their employment options open in a possible Republican administration, and will stick to their stories until a Republican gets into the White House at which point their takes on both monetary AND fiscal stimulus will turn on a dime. What are a few million damaged and ruined lives compared to an office in the West Wing?

Any sort of QE will be ineffective as long the Fed persists in seeing 2% inflation as a ceiling and setting amounts that are trivial when one is in a liquidity trap.

Those concerned about the Fed being unable to deal with inflation should revisit late 1970s and early 1980s. Right now the Fed needs to make it clear that it will tolerate inflation of 4 - 5% and keep buying stuff until everyone believes it. The inflation indicator that most matters is evidence of a wage-price spiral and we are no way close to that.

Good to see minds being concentrated.

al, you never fail. You are one jump ahead of your seeming peers in recognizing that slow doses work better, and with less alarm, then the whole hog approach. As in the old Cary Grant movie "Arsenic and Old Lace", a little poison at a time. And as goes back multiple centuries, to the clipping of rudimentary coinage that allows a seeming miniscule theft of value, why not debase a modern nations currency for a good cause?
By the early 80's I assume you mean the Volcker period, when the 20% inflation was wrung out by the the only thing Carter got right, appointing Volcker. You were in the country at that time I assume.
Good call on the Republicans, though possible I would hate to see them emulate the policies of Obama and the Democrats. Which you have no problem with.
I do wonder, if trillion $ stimulus plans don't work,[you never complained] and if QE 1&2 didn't work, why a slower rate of curency degradation?
"ruined Lives" I'll pass on for now.
Glad to see you are still going strong.

"...the only thing Carter got right, appointing Volcker..."

Given that the godly Reagan fired Volcker and appointed the atheist Ayn Rand acolyte Alan Greenspan (and we know how that has turned out), you have pointed out a good reason to have wished for a different result in the 1980 election. Anyway, I 'm not sure what you mean by the stimulus not working.

If you mean it didn't do what Obama claimed it would do, I'll take your point but I'll also point out that it is macro-economically irrelevant. That Obama's initial and continuing insistence on the ARRA being sufficient was politically and economically inept was deeply wounding to him and disastrous for the nation.

Recall that every public and private forecasting entity saw a GDP dip of around 4% or less while the real dip was around 9%. Romer did her forecast on the information available and it called for a $1.4 trillion stimulus. Because the United States is currently in a state of political dysfunctionality we got a $700 billion too tilted towards low multiplier tax cuts and was largely cancelled out by state and local government cuts. The stimulus "worked" in that it stopped the plunge but as we needed a $2.5 - 3 trillion dollar stimulus what we have is what one would expect.

As for inflation: the return on five and ten year U.S. notes is currently negative. This may be of interest,

"I think this aberrationist view is quite wrong. I don’t think you can make sense of the last decade without understanding that the so-called real interest rate has been trying to fall through zero for years. Only tireless innovation by the men and women of Wall Street prevented negative rates long before the traumas of 2008. A deep cause of the financial crisis was a simple expectation: That lenders ought to earn a “decent” real, risk-free yield even while a variety of trends — skyrocketing incomes for the 0.1%, the professionalization of investing, leverage-induced risk aversion, China — were creating Ben Bernanke’s famous savings glut. The market response to a global savings glut ought to have been sharply negative real interest rates for low risk savers. But as a society, we resent and resist that capitalist outcome. It is well and good for markets to drive the price of undifferentiated labor asymptotically towards zero. But God forbid that “savers” not be paid for supplying a factor that turns out not to be scarce. Instead, an alphabet soup of financial innovations was conjured to transform bad lending into demand for low risk money, and thereby support its price. Now those innovations have failed, and the fact of negative real interest rates is plainly before us. But we are still, desperately, resisting it."


There is plenty to criticize Obama for but it is all from the left. I hoped I was voting for at least a center leftie but I got an Eisenhower Republican.

"Monetarism has a conservative pedigree"

I would point out to our friend Paul that folks like Krugman and Delong were making this point a couple of years ago as I assume he knows and should acknowledge.

I wonder if Al supposes that the fact that since 2008 liberals have been marginally better in assaying the threat of plutocracy, is actually of sufficient weight to my historical mind to induce me to quietly forget that back in 1980 (the election whose outcome we are invited to lament), when the menace to America of plutocracy was in its infancy, while the menace of Communism was still alive and active; we should all forget that back then his side was dead wrong and my side supremely right on the matter of far greater importance?

Here at W4 what we know about Al is minimal; but one thing we know for sure (probably the reason we keep him around) is that he is a man of strident and impressive rhetoric. We know that he's not some lily-livered liberal who'll neglect to hang the reactionaries.

So Al gives us liberalism unvarnished.

The other side of that is this: that given his judgment of the character of the conflict between tyranny and freedom in the 20th century, this old codger Al, for all his vibrant and memorable rhetoric, is really extraordinarily clueless and naive about human politics. He thinks Communism was a threat cooked up to elect Republicans (or was it to elect Conservative Democrats?) He would actually present the argument that we'd be better off with Carter having won the election in 1980, because Greenspan 1987.

"...when the menace to America of plutocracy was in its infancy, while the menace of Communism was still alive and active; we should all forget that back then his side was dead wrong and my side supremely right on the matter of far greater importance?

You assume two things:

Team B was correct and there was a uniform national security position across the spectrum from center-left to far left. Both assumptions are, of course, dead wrong.

We need to remember that containment was a liberal strategy and it worked. The appeal of Communism as a viable ideology had crashed and burned in the period between Khrushchev's speech at the Twentieth Party Congress in 1956 and the crushing of the Prague Spring in 1968. The Soviet economy began to stagnate in the early 1970s and was creaking along by the Afghanistan intervention in 1979, Decline was baked in the cake well before Reagan and he was hardly the indispensable` man. We could have entirely done without the adventures in Central America.

His response to the early 1980s recession was standard Keynesian - tax cuts and deficit spending, raising taxes after things improved. Reagan, of course, couldn't make it through a Republican primary these days - too liberal.

Using your irrational and ahistorical fear of Communism to justify the plutocratic takeover of the United States is perhaps comforting to you and is understandable as we all have to sleep. I would ask you to reflect on the following from Whittaker Chambers,

“Yet there is one experience which most sincere ex-Communists share, whether or not they go only part way to the end of the question it poses. The daughter of a former German diplomat in Moscow was trying to explain to me why her father, who, as an enlightened modern man, had been extremely pro-Communist, had become an implacable anti-Communist. It was hard for her because, as an enlightened modern girl, she shared the Communist vision without being a Communist. But she loved her father and the irrationality of his defection embarrassed her. 'He was immensely pro-Soviet,' she said,' and then -- you will laugh at me -- but you must not laugh at my father -- and then -- one night -- in Moscow -- he heard screams. That's all. Simply one night he heard screams.'

A child of Reason and the 20th century, she knew that there is a logic of the mind. She did not know that the soul has a logic that may be more compelling than the mind's. She did not know at all that she had swept away the logic of the mind, the logic of history, the logic of politics, the myth of the 20th century, with five annihilating words: one night he heard screams,”

and repent.

"He would actually present the argument that we'd be better off with Carter having won the election in 1980, because Greenspan 1987."

That alone would be a good reason but we also have the other factors associated with conservative ascendancy - the concentration of productivity gains at the very top, the decline of unions, deregulation of the financial sector, etc. The world you all so hate is a conservation creation.

Your criticism of conservatives for their fear of Communism seems to be based almost entirely on hindsight. Even if we accept that the Soviets may not have been as much of a threat as we thought they were at a given time, why are you assuming that we knew that then?

"You assume two things: Team B was correct and there was a uniform national security position across the spectrum from center-left to far left. Both assumptions are, of course, dead wrong."

Do tell. Then may it not be equally wrong to assume there was similarily a uniform position on the right w/r/t plutocracy and economics?

In other words, if it's wrong to ignore the anti-Communist left, is it not equally wrong to ignore the anti-plutocrat right?

"In other words, if it's wrong to ignore the anti-Communist left, is it not equally wrong to ignore the anti-plutocrat right?"

Of course, as long as it isn't cynical lip service. A person on the left who opposed Communism verbally while entering into coalitions that put communists in power deserves what in your eyes?

NM, Team B opposed the then national security estimates which turned out to be right just as the supposed missile gap of the early 1960s turned out to be incorrect. The peak danger period re: the Soviet Union was in the mid-1960s; by the late 1970s on the decline of the SU was irreversible.

As I pointed out, anti-communist liberals in the 1940s saw that eventual collapse inevitable due to the internal contradictions of the system.

"by the late 1970s on the decline of the SU was irreversible"

True enough, but it seems that we didn't know just how bad off they were until the early 80's, right? Which fact Reagan was smart enough to capitalize on. You don't have to argue that he brought down the USSR single-handed in order to give him credit for what he did do (something you leftists never seem able to manage).

"Using your irrational and ahistorical fear of Communism to justify the plutocratic takeover of the United States is perhaps comforting to you and is understandable as we all have to sleep."

Frankly, that's both a ridiculous and offensive statement. The two things are hardly connected (the existence of and considerable attention paid to various well-known conservatives in the 50s and 60s who were both anti-communist and anti-plutocratic should demonstrate this). To say that certain plutocrats took advantage of the thing to increase their own power is probably correct. But this doesn't mean the the entire endeavor was designed or intended to do so. You make it sound as if everyone who voted GOP in the 50s and 60s made a conscious choice between Communism and plutocracy.

Hard as it may be, try to get it out of your head that plutocracy is in conservatism's DNA. It isn't. It may very well be in the GOP's DNA, and may have attached itself to the contemporary mainstream conservative moment thereby, but it's on there as a sort of parasite, not as a part of its genetic makeup.

"True enough, but it seems that we didn't know just how bad off they were until the early 80's, right?"

No, national intelligence estimates were picking this up in real time. Besides, as we know better now, continuing to use the Red Menace as a justification doesn't cut it.

Now the "your" in the quote referred to my friend Paul who is quite consciously willing to accept plutocratic rule in the hope that his side of the coalition will be granted a few crumbs from his socially conservative agenda. The reference wasn't to you (unless it applies) so my apologies if I wasn't clear. We do seem to have a problem though.

All of a sudden we are referencing conservatives from the 1950s and 60s. Some names would help. I assume Russell Kirk is one. He would likely be somewhere between Frum, Bartlett, and Sullivan and scorned and shunned by movement conservatives today.

This may be of interest and you will have a point when these sentiments become common on the right and social conservatives become at least as concerned about the born as the unborn.


Part of the problem you have to overcome is the effect of the 1971 Powell memo. The myriad of right wing think tanks that are financed by plutocrats makes your point moot.

The other problem is that the notion of "ones betters does seem to be part of the conservative DNA and that easily translates into an unhealthy attitude towards great wealth.

Nice Marmot, as you can see it serves Al's rhetorical purposes to pretend that this website is a representative institution of "movement conservatives." Only by such sophistries can he evade the implications of the necessity of coalition politics.

I am, however, highly intrigued by Al's quotation of Whittaker Chambers. "Hearing the screams" is indeed a pulverizing experience, sufficiently solid to form the ground of any politics.

I doubt (though perhaps I am wrong) that Al is at all familiar with the considerable advancements in recent years in ultrasound technology. A moment's exposure to this astonishing technology, even very early in a pregnancy, would illuminate fairly well which screams I hear and why I sleep just fine at night in the coalition I'm in.

Paul, despite your and my differences of opinion on economic matters, I have occasionally seen you disagree with Al on, specifically, economic proposals as well--e.g., a few months ago his proposal that we need much more government spending to get us out of the current crisis. My impression is that your position is orthogonal both to my own and to the standard tax-print-and-spend liberalism that Al represents. If you really do not think (as I hope and trust you do not) that it would be at all good for the country if the Als of the world were running even just its economic policy, it isn't always and solely necessary to advert to non-economic issues to explain your presence on the conservative side of coalition building. As crucially, vitally important as I consider the abortion issue to be, I sometimes do quirk an eyebrow at the impression one might get from your comments that, if only (per impossible) their influence could be confined to the economic realm you would be comfortable with turning the country over to Al & Co., where they would likely do, on average, more good than harm. I know you don't really think that, but...

Lydia, originally the context was Communism, on which subject Al's antique liberalism is exposed in other ways. Look at the last couple of comments, where he are now told to shift our view from the late 70s, early 80s, which was the prior context. "The peak danger period re: the Soviet Union was in the mid-1960s," we're assured. Later the idea that "anti-communist liberals in the 1940s saw that eventual collapse [was] inevitable," is offered as a lullaby. A moment later, however, we're lectured for "all of a sudden" -- right out of the clean blue sky -- "referencing conservatives from the 1950s and 60s." Plus the comical idea, implied in these pedantries, that Reagan was active in the 80s but not the 60s.

So Al's comments are easily shown to be the mere hand-waving we've come to expect. (By the way, to whom were a great many "anti-communist liberals" of the 1940s giving their votes in the 1980s, hmmm? Why, we even have a proper name for these voters: Reagan Democrats.)

But the fact is that liberals were wrong about Communism (as the best of the liberals usually discovered for themselves). And today the liberals are wrong about abortion, wrong like Stephen Douglas was wrong about slavery. Does this exhaust the grave errors of liberalism? Heck no.

Liberals are profoundly wrong about the nature of man, his liberties and obligations, which leaves them particularly ill-suited to answer the bluster of the plutocrat that for him justice is but his convenience. In other words, since liberals cannot give a coherent account of justice, they therefore cannot supply the rational ground for their outrage at, say, MF Global's reckless brinkmanship.

All that said, it turns out that (I suspect) on some prominent matters of finance regulation, I might have more in common with a liberal like Al than a Republican like Romney.

Al's just trying to goad me into elevating that agreement (in importance) above the other matters of disagreement alluded to elsewhere in this thread. It's a feeble effort.

Post a comment

Bold Italic Underline Quote

Note: In order to limit duplicate comments, please submit a comment only once. A comment may take a few minutes to appear beneath the article.

Although this site does not actively hold comments for moderation, some comments are automatically held by the blog system. For best results, limit the number of links (including links in your signature line to your own website) to under 3 per comment as all comments with a large number of links will be automatically held. If your comment is held for any reason, please be patient and an author or administrator will approve it. Do not resubmit the same comment as subsequent submissions of the same comment will be held as well.