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I didn’t expect this ever to happen, but I have to say something nice about Paul Krugman’s comments on his New York Times blog. Well, there is actually a lot of positive to say about Paul Krugman, but we just tend to forget it when he is giving us free market economists a hard time. However, the story today is not about what we think, but “where” we express our views and share our research.
Market Monetarists are often misunderstood to think that monetary policy should “stimulate” growth and that monetary policy is like a joystick that can be used to fine-tune the economic development. Our view is in fact rather the opposite. Most Market Monetarists believe that the economy should be left to its own devises and that the more policy makers stay out of the “game” the better as we in general believe that the market rather than governments ensure the most efficient allocation of resources.
Can you recommend a book that you haven’t read yet? I am not sure, but I will do it anyway. I believe we can learn a lot from the Great Depression and I am especially preoccupied with the international monetary consequences and causes of the Great Depression.
As global stock markets once again takes another downturn on the back of renewed European worries I am reminded about a great blog post Scott Sumner wrote a couple a months ago about his studies of the Great Depression.
Market Monetarists like myself claim that the Great Recession mostly was caused by the fact that the Federal Reserve and other central banks failed to meet a sharp increase in the demand for dollars. Hence, what we saw is what David Beckworth has termed a “passive” tightening of monetary policy.
Many economists – including some Market Monetarists – tell the story about Japan’s economy as a true horror story and there is no doubt that Japan’s growth story for more than 15 years has not been too impressive – and it has certainly not been great to have been invested in Japanese stocks over last decade.
At the core of Market Monetarist thinking, as in traditional monetarism, is the maxim that “money matters”. Hence, Market Monetarists share the view that inflation is always and everywhere a monetary phenomenon. However, it should also be noted that the focus of Market Monetarists has not been as much on inflation (risks) as on the cause of recession, as the starting point for the school has been the outbreak of the Great Recession.