At Calculated Exuberance, Arpit Gupta notes an intellectual shift that has shaped the tenor of our political conversation: the once widely-held belief that the task of aggregate demand management belongs to the Fed has evaporated.

Opinions on the composition of government spending or taxes differ. We should, in theory, be able to have perfectly reasonable discussions about how much we ought to spend or tax without worrying inordinately about how those discussions affect the labor market. If a central bank is properly targeting inflation or the price level, it will lean against government spending in either direction, meaning that no level of government spending has any effect on the economy in aggregate. That way, we can spend all of our time arguing whether or not any particular spending or tax bill makes sense on its own merits. People back in the ’90s and ’80s had the right idea.
We’ve sort of stopping doing that. A strong goal on the left seems to be ensuring that government spending remains as high as possible; because otherwise that will ensure doom to a poorly functioning recovery. On the right, the goal too is to keep taxes as low as possible, because households too are struggling. Perfectly reasonable policy debates have become infected with the idea that the balance of public spending and taxation is the primary determinant of broader economic outcomes. So you can’t argue in favor of any sort of spending cuts without being some kind of economic arsonist.

Lest you accuse Arpit of monetary policy monomania, he has other arrows in his quiver:

But fine, suppose you say I’m crazy for focusing on monetary policy so much. What about other broader labor market policies? Garett Jones links to a paper on the German labor force experience, which basically finds that their flexible labor markets did a great deal to limit the employment impact of the Great Recession. Why isn’t there a greater focus on generating specific policies to target unemployment, rather than worrying every time the government spends a penny less?

Very sensible.