The Corner

Monetarism and Conservatism

Paul Krugman writes that “monetarism—broadly defined as the view that monetary policy can and should be used to stabilize economies—has more or less disappeared from the scene, both intellectually and politically,” because it requires a degree of government activism with which the Right is uncomfortable.

If monetarism is defined that broadly, I don’t think that conservatives have turned against it. Krugman links to an interview in which Rep. Kevin Brady, the chairman of the House Ways and Means Committee, says that the Federal Reserve should have a statutory mandate focusing it on price stability alone. I assume that Brady favors it because he believes that focusing on price stability alone is the biggest contribution the Fed can make to economic stabilization. That is, he thinks that the economy will be more stable if the Fed adopts a rule of keeping prices on a predictable path of increasing, say, 1 percent a year on average than if it adopts a different rule or continues to follow no rule. (I say “on average” because Brady has told me that he believes that if the Fed misses its target in one period it should correct for it in the next to keep the average where it should be.)

I would have the Fed follow a slightly different rule, one that would keep nominal spending on a stable and predictable path. That rule would allow prices to move in response to productivity trends, while a price-stability rule would force the Fed to make productivity-driven booms and busts bigger. (If increased productivity put downward pressure on prices, for example, a price-stabilizing Fed would have to inflate to counteract that pressure instead of letting prices fall below the target.)

If the Fed had to follow either rule, it would have considerably less discretionary authority than it has exercised throughout its history. In that important sense, we’d have less monetary activism, not more. As between the two rules, it’s not clear to me why we should think that one is more or less activist, more or less interventionist, than the other; and it’s not clear why we should think either is more or less activist or interventionist than any other proposed rule.

So I don’t think there’s any need to choose between monetarism and a high degree of skepticism about government intervention. To reconcile the two views, the government skeptic need believe only that as long as government is in the central-banking business the central bank should adopt a policy that does the least to generate or exacerbate business cycles. Some conservatives may see a contradiction here, but if so they are merely replicating Krugman’s error. 

Ramesh Ponnuru is a senior editor for National Review, a columnist for Bloomberg Opinion, a visiting fellow at the American Enterprise Institute, and a senior fellow at the National Review Institute.

Most Popular

White House

The Damning Inspector General’s Report

It is hard to believe that the run-up to the presidential-election year has plumbed such a depth of farcical degradation. It must be that Trump’s influence has contributed to unserious responses, but he can’t be blamed for the unutterable nonsense of his opponents and the straight men of the political class ... Read More
White House

The Damning Inspector General’s Report

It is hard to believe that the run-up to the presidential-election year has plumbed such a depth of farcical degradation. It must be that Trump’s influence has contributed to unserious responses, but he can’t be blamed for the unutterable nonsense of his opponents and the straight men of the political class ... Read More
Elections

Diversity Panic Hits the Democratic Field

Stop me if you’ve heard this one before. An Asian guy, two black guys, three white women (one of whom spent much of her life claiming to be Native American), a Pacific Islander woman, a gay guy, a Hispanic guy, two elderly Caucasian Jews (one a billionaire, the other a socialist), a self-styled Irishman, and a ... Read More
Elections

Diversity Panic Hits the Democratic Field

Stop me if you’ve heard this one before. An Asian guy, two black guys, three white women (one of whom spent much of her life claiming to be Native American), a Pacific Islander woman, a gay guy, a Hispanic guy, two elderly Caucasian Jews (one a billionaire, the other a socialist), a self-styled Irishman, and a ... Read More
World

The U.K. Elections Were the Real Second Referendum

In the end, it wasn’t close at all. Jeremy Corbyn’s Labour party met a fate to which it has been accustomed for most of the last half-century. Once again, the British roundly rejected socialism. Boris Johnson and his conservatives will form the next British government. This was no slight rejection. Labour ... Read More
World

The U.K. Elections Were the Real Second Referendum

In the end, it wasn’t close at all. Jeremy Corbyn’s Labour party met a fate to which it has been accustomed for most of the last half-century. Once again, the British roundly rejected socialism. Boris Johnson and his conservatives will form the next British government. This was no slight rejection. Labour ... Read More
Law & the Courts

The FBI’s Corrupt Cops

White-collar criminals should hope for one thing this Christmas: that they get to live under the Horowitz rules. Michael Horowitz has testified that he found no evidence of political bias on the part of the decision makers who, under the Obama administration, relied on hilariously implausible “evidence” ... Read More
Law & the Courts

The FBI’s Corrupt Cops

White-collar criminals should hope for one thing this Christmas: that they get to live under the Horowitz rules. Michael Horowitz has testified that he found no evidence of political bias on the part of the decision makers who, under the Obama administration, relied on hilariously implausible “evidence” ... Read More