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| The dismal science|
Monetarism is a school of macroeconomics that holds variations in the money supply to be paramount to national output and price levels. Monetarists argue that monetary policy should be aimed at controlling the growth rate of the money supply. The monetarist school is generally associated with Milton Friedman, and is usually critical of Keynesian economics, which advocates a stronger role for government fiscal policy. Ironically, Friedman may have been one of the greatest Keynesian economists (the Keynesians adopted some of his criticisms of their models after the stagflation debacle).
To current mainstream Keynesian thinkers, monetarism is not wrong, but only "half-right." It has long been government policy to use monetary policy to prevent both bubbles and recession first and resort to fiscal policy second. This has been more or less good enough with the stagflation of the late '70s and early '80s being rather anomalous (although Fed Chairman Paul Volcker is often credited for stomping it out).
However, the failure of monetary policy alone has been witnessed in Japan over the last 20-odd years. While they ran deficits, they concentrated mostly on monetary policy through massive quantitative easing. Yet despite printing ludicrous amounts of money and showering banks with it, they have experienced continuous and persistent deflation, not inflation. Mainstream Keynesians have been blaming this failure on the mother of all liquidity traps, i.e., that the Japanese public has mostly been concerned with paying down debt and all that money they printed up has been sitting in bank vaults doing nothing (and thus unable to curb deflation). MMTers, on the other hand, say that monetarism is more or less completely wrong and "liquidity traps" are irrelevant.
Various officials from around the political spectrum have declared themselves to be monetarists. These include Alan Greenspan, fabled former head of the US Federal Reserve, and Ben Bernanke, former chairman of the Federal Reserve, two individuals who oversaw US central bank policy during the time leading up to the financial downturn of 2007. However, monetarism is not usually considered the culprit in Greenspan's and Bernanke's failures. In fact, Greenspan is often criticized from all angles for not following monetarist policy by keeping interest rates artificially low and chucking money at failing enterprises like the S&L thrifts and Long Term Capital Management. Bernanke is usually criticized just for being a short-sighted idiot and claiming that "subprime problems were contained."
Christina Romer, an important economic advisor to former President Barack Obama, is also associated with monetarism.
- See the Wikipedia article on Lost Decade.
- In 2013 they're doing this again, this time printing $1.4 trillion as an economic defibrillator. (And you think US debt levels are a problem?)