The Failure of the Monetarist Creed -National Review Online

In the late 1980s, I attended a speech by my friend, the brilliant George Gilder, in which he said: “When I was a single man, all I thought about was sex, and all I wrote about was sex. Now that I’m a married man, all I think about is money, and all I write about is money.”

Marriage doesn’t quite have the same effect on women, apparently, or on me at any rate, because I have been very slow to spend much time thinking about money, either before or after marriage, but it appears to me now that Republicans ought to.

debate took place last week between Paul Krugman and Robert Samuelson on whether Reagan’s supply-side economics had anything to do with the economic boom let loose in the 1980s. Krugman argued that the credit belongs solely to Paul Volcker for squeezing inflation out of the economy. Samuelson agreed that monetary policy was the key, but said that Reagan deserved credit for supporting Volcker while he did the necessary painful work. Both agreed, however, that monetary policy is the key to growth.

Nowadays inflation is not the issue. “Secular stagnation” — meaning widespread stagnation that might well be permanent — and deflation are what the central bankers are worried about.

Consider for example what Larry Summers said this week at Davos: The great danger is that Europe is poised to become Japan and will thus experience a decade or more of economic stagnation. In this context, Summers supports the newly announced European quantitative easing, on the theory that doing something about “secular stagnation” is better than doing nothing. But he warned us not to expect much from it. “I come back to the central importance of demand,” he said. “The focus has to be on providing adequate economic energy, adequate demand, so we avoid these liquidity traps and avoid the problem of secular stagnation. What is striking in Europe today is how much it looks like Japan, seven years in after the bubble. I think Europe is on its way to being the new Japan unless there is a substantial departure.”

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