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minor recant
Posted by James (more from James) on Mon, 9 May 2011 19:04:53
In Reply to: Re: I'm not for volatility either, James, Sat, 7 May 2011 04:04:04
For fun, I took a quick look back in my econ notes this evening (have not looked at those in ages, most would have chucked them ages ago)... anyway, apparently I need to eat some crow for a comment I made above...

"printing money is monetary policy, not Keynesian"

Reality is right on the point that printing money is advocated by Keynes, though as usual, his interpretation is a little strong. When I think of "printing money" being very weak monetary policy, I think in terms of (but not limited to) some South American governments of years gone by that *primarily* used this + printed vast amounts of currency to finance huge structural deficits (with obvious disastrous effects). In the Keynesian case, printing money is used to address the increased demand for money associated with the outward shift in the curve (due to the expansionary fiscal policy). Not satisfying that demand crowds out the expansion, and other methods to increase the money supply are somewhat contractionary (thus diminishing the effectiveness of the fiscal policy). Of course, when the cycle swings back all the opposite holds: the central bank should pull in currency to not limit the fiscal drag. The net result is not printing money beyond that demanded by the rate of inflation (which should be kept in check).

I can see why this might be distasteful to someone with a libertarian view, but it does not diminish the importance of the cyclically balanced fiscal policy as the modern consequence of Keynes. At least that is my view.

James...

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