Hoisted from Fifteen Years Ago: The Monetarist Counterrevolution

The Disappearance of Monetarism

Over at Equitable Growth: I just hoisted [a piece I wrote fifteen years ago1—a follow-up to my “Triumph of Monetarism” that I published in the Journal of Economic Perspectives. I think of it as my equivalent of Olivier Blanchard's “The state of macro is good" piece… Read MOAR

However, it is, I now recognize, clearly inadequate. It is quite good on how's today's New Keynesians are really Monetarists and how today's Monetarists are really Keynesians. But it misses completely:

  • How use of the DSGE framework was morphing from (a) a rhetorical step to emphasize that assuming that agents in models behaved "rationally" did not entail any laissez-faire inclusions to (b) an unhelpful methodological straitjacket.
  • How there were about to be no Monetarists--how the right-wing of macroeconomics, The Republican Party in the United States, the Tory Party in England, and all of Germany were about to, when confronted with the choice between following Milton Friedman's well-grounded and empirically-based arguments on the one hand and a mindless lemming-like devotion to austerity on the other hand, reject both empirical evidence and coherent thought and plump enthusiastically for the second.

I am still not sure how that happened...