After the nearly decade long strong discussions regarding monetary policy here and elsewhere around the macro blogosphere, I was sort of excited about the prospect of an idea that might finally overcome the stalemated argument that appears to be being won by the conventional wisdom via attrition. After all, there are only so many of us, and the extreme monetary propagandists appear to just keep coming out from under whichever rocks and bushes the bubbles do.
So I downloaded the paper with glee, only to be shocked to see an analysis of a way to use QE, IoR and interest rates, the balance sheet in recessions… All things that the bubble fear mongers, interest rate buffoons, and hawks of every shape and size drill down on every day of the week, and twice on Sunday.
Maybe the totality of the information in the paper is a good idea. If it’s true that meeting the demand for money would keep that demand from spiking, it is a good idea, in theory. But for practical reasons, I have to object to a paper about interest rates, and balance sheets, the kind of things these supposedly well-meaning central bankers confuse both themselves and the public they are supposed to be serving with. I am skeptical about what sustainable good muddying the waters with further complexity in the conduct of monetary policy would accomplish, and we need to keep in mind that, to a hammer, everything looks like a nail.
In a perfect world, we could finally drive home the idea that interest rates are a lot like inflation, with neither of these being indicative in and of themselves of the stance of monetary policy. Then we could get down to the brass tacks of monetary policy, having frank discussions about the supply and demand for money, the stuff that really does matter without having to bury it under a bunch of confusing fluff.
Anything else is really just applying copious amounts of bubblegum and bailing wire to an obsolete, broken, and untenable policy regime meant for industrial dinosaurs in the hope of gaining some extra mileage because of an ingrained and entrenched tendency of the establishment to resist new ideas for appropriate policy in an evolved world. The handwriting is all over the wall that interest rate policy is dead, and denying it doesn’t render it tenable. The denial is the problem that just keeps robbing potential from the future while causing a lot of unnecessary misery in the present. At some point in our history, the buggy whip makers needed to find something else to do, and I don’t see this as much different for the interest rate setters.
My recommendation is to just say no to more bubblegum and bailing wire that delivers lackluster results and would have little practical impact on the longevity of an obsolte monetary regime. Let’s flush out the remnants of industrial age monetary policy and get a policy regime fit for the people and economy it serves – NGDPLT – regardless of whom we may have to fire to get it.
PS: We have to speak their language, not because they don’t understand ours. We have to do it, because once one can speak and comprehend ours, the true gravity of the state of monetary affairs becomes undeniable. It is, of course, said that ignorance is bliss – and I suppose it is doubly so when it has hurt lots of innocent people.