Friday, September 28, 2012

Larry White on Market Monetarism

Larry White disagrees with market monetarists like Scott Sumner and suggests that the economic problems faced by the US today (and I'd say that the same applies to many advanced economies) won't be cured with "nominal aspirins":
The nominal-problems-only diagnosis ignores real malinvestments during the housing boom that have permanently lowered our potential real GDP path. It also ignores the possibility that the “natural” rate of unemployment has been hiked by the extension of unemployment benefits. And it ignores the depressing effect of increased regime uncertainty. To prefer 5% to the current 4% nominal GDP growth going forward, and a fortiori to ask for a burst of money creation to get us back to the previous 5% bubble path, is to ask for chronically higher monetary expansion and inflation that will do more harm than good.

No comments: