At The Circle Bastiat, Joseph Salerno
Last week the FOMC announced that it would continue unchanged its policies of open-ended quantitative easing to the tune of $85 billion per month and targeting a zero interest rate for as long as the unemployment rate remains above 6.5 percent and (CPI) inflation does not exceed 2.5 percent. The FOMC polices should thrill Scott Sumner, a leader of the relatively new school of macro policy known as “market monetarism” and ranked 15th jointly with Fed Chairman Bernanke by Foreign Policy magazine on its list of 100 top global thinkers in 2012.
Market monetarism has experienced an amazingly rapid ascent in the past two years, especially in the blogonomics sphere and among economists toiling at small teaching colleges. Sumner and his fellow market monetarists advise the Fed to target nominal GDP, that is aggregate demand or total spending on goods and services in the economy. Briefly, they argue that because velocity is unpredictable, the Fed should manipulate the money supply so as to offset fluctuations in velocity and maintain a fixed rate of growth in the level of aggregate demand. Successfully doing so, they maintain, would considerably mitigate demand-side macroeconomic fluctuations.
But at the end, we´re “DOA”
There is no surer sign that market monetarism is soon destined for the dustbin of failed economic doctrines than Sumner’s resort to the long-discredited “stagnation thesis” proposed by Keynesian Alvin Hansen in the late 1930s. It is somewhat ironic that the blogonomic phenomenon of market monetarism will barely survive the publication of the first Kindle book expounding the doctrine.
PS. The “laughing” part is in the middle, so read it all.
HT Bill Woolsey