Throwing Milton the Red Over the Side...
Double the money stock and you double nominal aggregate, Milton Friedman and Irving Fisher always says. And the first principle of monetarism is to keep nominal GDP on a stable growth path. Now Douglas Holtz-Eakin--who really does know better--says that Uncle Milton and Uncle Irving were wrong.
This is the most amazing thing I have seen... since John McCain picked Sarah Palin to be his running mate:
Noah Kristula-Green:
Fed Critics Argue Easy Money Won’t Fix Economy | FrumForum: On November 15th, the New York based think tank e21 released an “Open Letter to Ben Bernanke” criticizing the Federal Reserve’s intention of engaging in a policy of quantitative easing by purchasing $600 billion worth of U.S. government securities.... [T]he letter... did not [propose] alternative[s]....
FrumForum has been contacting the co-signers of the letter to find out what policies they would propose instead of monetary expansion.... Douglas Holtz-Eakin, President of the American Action Forum, told FrumForum that quantitative easing will not reduce unemployment or inflation.... He argued instead for a “pro-growth fiscal policy”, endorsing the tax reforms of the Bowles-Simpson deficit commission....
Nicole Gelinas of the Manhattan Institute argued... “The Fed should not try to be heroic in the absence of functional politics (on both sides).”... Gelinas called for solutions that bypassed the monetary policy apparatus. She called for regulators to “do their jobs when it comes to making sure that financial institutions are operating prudently and soundly” with a focus on getting foreclosures on defaulted homes....
Get rid of the bad debt, allow house prices to hit bottom, help harness future state and local government liabilities, invest in infrastructure, and create some semblance of market disciple for the financial industry, and you’re on your way to an end to the unemployment crisis.
Gregory Hess of Claremont McKenna College... [said] there was no role for monetary stimulus, “QE2 by the Federal Reserve will likely cause volatility in long term asset markets.... The reasons that banks do not want to lend and firms are hesitant to expand their activities is because of the rising size of government (which portends higher tax rates), the expiration of the tax cuts under President Bush, and the lingering air of economic uncertainty. These all inhibit growth....
Charles W. Calomiris... [said]....
I favor Ben McCallum’s proposal to target nominal GDP growth at about 5%. Since we were on track with that target before QE II.... If there were evidence of a need for further loosening to raise the growth of nominal GDP... some quantitative easing might be a reasonable proposal....
Funny. I don't remember Charlie calling on the Federal Reserve to raise interest rates in 1983-1986 when Reagan was president and nominal GDP was growing at more than 10% per year...
Ronald I. McKinnon... argued for a gradual increase of short-term interest rates... the current regime promoted “a flood of hot money” into markets in Asia and Latin America....
David Malpass argues that the crux of the debate is that quantitative easing represents an expansion of “big government”:
[U]nless Fed asset purchases are in some way necessary to the economy’s survival, the assumed harm from an expansion of government, which is at the core of our principles of limited government, argue against Fed asset purchases...
