The current head of the Federal Reserve, Benjamin Bernanke, is definitively an activist when it comes to monetary policy just like his predecessor Alan Greenspan. Now both of them were into countercycical policy, which I think they both are doing/ have done a good job with it, but I believe that we should follow monetarist non-activist policy.
While cycical policy sounds nice (we're going to get rid of recessions!) in the end I think it only aggravates the business cycle. My main criticism are time lag and overexaggeration. First of all, as noted in the previous post, there is such lag in the changing of monetary (and even more so fiscal) policy that frequently the policy ends up being procyclical instead of countercyclical. I'd do a graph if I knew how, but I don't. Procylclical is just as stupid. Granted that you'd hope the time lags would turn it into countercyclical, aiming to lose is never a good way to go. My theory is that is we adopt the monetarist policy, the recessions and inflationary gaps might be just as bad for a while, but if we stop cosntantly jumping from on side to antoher, the business cycle which behave much like the law of large numbers in statistics, and the swings will slow down because of the central tendency of the policy.
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Yo pensaba que monetariast es que el gobiermento no cambia los doloraes. Si esa es verdad, por que inflaciones y recessiones? Yo pensaba que recessiones son los resultos de inflacion y inflacion es el resulto de el gobiermento cambiado los dollares.
The government by printing excess money will indeed cause inflation, but there is much more to inflation than that. Here is a macroeconomics equation:
Money supply times velocity = price level times real GDP growth rate.
Inflation is an overall rise in the price level, and can be brough on by an increase in velocity, and excess increase in the money supply, and declining real GDP. Did I make any more sense this time around?
as another note, monetarists try to match up money supply and real GDP growth rate and allow the other two factors to sort of calm down on their own.
So in other words, monetarists tweak the currency in a different way from cyclicals/countercyclicals. How is this better than just leaving the currency alone?
And I am guessing that as GDP goes up, monetarists try to increase the money supply at an equivalent rate. Is this correct?
The answer to the second question is yes, the first question is more complicated. I suppose that entirely leaving the money supply alone is à la Austrian School. My problem with them is that they are fixated on a random object and they don't allow for GDP growth. So monetarists, other than trying to match money supply and GDP match, don't tweak the money supply at all. The people who do are mainly modern Keynesians who increase the money supply to combat unemployment and decrease it to fight inflation. I am very dubious as to the effectiveness of these types of policies.
Si recuerdo correctamente, economicas austrianas tiene el objecto de...rats. I'm switching to English for this comment.
If I remember correctly, Austrian economists want as many goods to be produced and owned as is economically possible. How is this a random object? And it seems to me that this is the essence of prosperity. How much money the GDP (what is GDP anyway?) has is of no consequence, only how much buying power.
And yes, I will readily admit that I do believe the Austrian economic theories. Except that I like tariffs on imports sometimes.
Me gusta que nos gustan teorias economicas differentes. Ojala que tengamos muchos discussiones profundos.
The Austrian School (for some unknown reason) is entirely incapable of understanding two very simple ideas.
1. Gold backed money is really no safer than any other type of money. Gold has no intrinsic value other than what we (humanity) give it. Same is true of any other object. What happens with the gold standard is that you get into nasty problems when GDP just keeps expanding and you can't keep up the money supply because then you have to find more gold. The other option is inflating the currency.
2. there is more to life than numerical GDP. There is also more to life than real (inflation adjusted) GDP. In my opinion, the best prosperity marker is purchasing power parity, not GDP. (GDP is gross domestic product, whsh is the total value of final goods and services produced in one year). The Austrian School will support almost any policy which increases numerical GDP, even if it's actually harmful, economically or otherwise. In my opinion, the Distributists figuered out that sometimes you should think about how humans react to different systems before you advocate them. Austrian Schoolers throw out the person for GDP.
Anyways, the first point is why I'm a monetarist, and the second why I'm a Distributist and I'm not with the Austrian school. It should also be noted that the founders of the Austrian school were rabidly anti-Catholic.
I always wondered what would happen when people became so rich without inflation that they couldn't buy something cheap because there was no denomination small enough. But I don't think that this is a practical question in today's situation, though it might be in an other wise perfect society. I think that any currency that did not increase would work as well as a gold standard. The function of gold is to make inflation impossible, not to actually provide value to the money (though many people obviously think it does so).
You say that Austrian economics and Distributism are incompatible...how so? I would not exactly like a system that made people rich at the expense of morality (and I suppose that in this sense, I am not Austrian), but why inflating the currency to keep up with the GDP is conducive to morality (unless you have the never-seen-as-far-as-I-know-which-isn't-very-far situation above) is beyond me (and probably beyond you too, I shouldn't wonder ;).
I think that the Austrian economists are not interested in numerical GDP at all. If they were, either they would love inflation or I don't know what GDP is or both.
I don't remember Distributism saying anything about inflation or non-inflation anyway.
If inflation were necessary to enable people to have bill denominations small enough to buy cheap things, I would support it.
So you guys do speak English after
all?
With the Austrian school, if you don't mine fast enough, you experience deflation as essnetially the money supply just doesn't grow. Eventually you would have to inflate the currency in order for people to be able to use it in transaction. Both inflation and deflation make restructuring the monetary system necessary eventually, as the the bills are too large/small to be convenient, which is the point of money.
and they like real (inflation adjusted) GDP, otherwise they probably would support inflation.
And that's why I pointed out that I'm a monetarist, because Distributism doesn't really cover monetary policy... yet. =)
And yes, we do speak English! =)
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