Today is my day to be irritable. I just spent the last hour writing a post about Simon Wren-Lewis and his assessment that monetary policy is better since the inclusion of microfoundations in macro modeling that is pointed out in this post by Marcus Nunes. My draft post is entitled 50 Shades of Awful. And it will never see the light of day because I got quite carried away, becoming highly critical of the Keynesian reliance on interest rates in general and an apparent blind spot toward data that contradicts their theories. The inability of Japanese fiscal stimulus to end monetary policy induced deflation is one example.
The real irritant isn’t really Wren-Lewis, though he and his macro philosophy are readily available venting targets. To be honest, I’ve been very surprised that Democratic politicians, particularly President Obama and to some extent important economic committee chairs in the Senate, appear to have erroneously adopted the stance that monetary policy is either ineffective or irrelevant to the economic problems we have today. And that impression, from wherever it may have come, stands uncorrected while nearly every oddity ever dreamt of by macroeconomists revolving around the influence on interest rates is thrown at the current economic state with very little change.
I’ve been very disappointed in the political response to the 2008-2009 plunge in NGDP and subsequent lack of pro-growth monetary policy prescription in the rush to lay blame for expected effects of a prolonged episode of severe disinflation elsewhere (on Reaganism, on greedy bankers, on deregulation – none of which would play a role in severe disinflation unless the monetary authority allows it).
The politically expedient exit from blame with the convenience of Keynesianism has left Democrats with a major philosophical contradiction, however, considering that the adoption of an overly exaggerated concern with inflation with little deference to supply shocks subtracts from the living standards of everyone, but impacts the middle class the most. It would seem that it is not even a means to an appropriate end, at least from a modern liberal point of view. Yet this type of sadistic monetary policy has endured a Democrat super majority with a Democrat Executive and lives on even after losing the House. Does this constitute a Democratic swing to hard statist right where economic survival of the fittest monetary policy becomes the rule rather than exception? It certainly seems that way.