I realize that David Weigel’s job is to be cynical, but consider the following. In his recent address to the Jack Kemp Foundation, Sen. Marco Rubio (R-FL) made a brief reference to monetary policy:
Sound monetary policy would also encourage middle class job creation. The arbitrary way in which interest rates and our currency are treated is yet another cause of unpredictability injected into our economy. The Federal Reserve Board should publish and follow a clear monetary rule – to provide greater stability about prices and what the value of a dollar will be over time.
David Weigel replies:
Rubio’s problem with the Fed is common among Republicans: He doesn’t like its dual mandate to control interest rates and lower unemployment. “The arbitrary way in which interest rates and our currency are treated is yet another cause of unpredictability injected into our economy,” said Rubio. “The Federal Reserve Board should publish and follow a clear monetary rule – to provide greater stability about prices and what the value of a dollar will be over time.” He was characterizing the Fed’s rounds of quantitative easing as “arbitrary,” when many people would argue they were pretty well-timed and lowered unemployment by putting more cheap money out there.
It’s very possible that Weigel’s interpretation is correct, but of course Rubio is not the only person who is critical of the Fed’s rounds of quantitative easing as “arbitrary.” So are market monetarists who favor rule-based monetary policy. David Beckworth and Ramesh Ponnuru made the case for rule-based monetary policy in National Review:
If central banks adopted an explicit rule for the growth of nominal income, with the proviso that they would correct for short-term departures from the target, they could pocket the gains we have made in monetary practice while fixing some serious remaining flaws. The difficulty of using interest rates as an instrument at the zero bound, the inability to restabilize long-term expectations after a deviation, and the inappropriate responses to supply shocks would all cease to be problems. The Fed’s dual mandate would be obeyed, but its flexibility would be constrained by a rule and thus its behavior made predictable.
So has Scott Sumner, who goes further:
In an ideal world, we’d remove all discretion from central bankers. The Fed would simply define the dollar as a given fraction of 12- or 24-month forward nominal GDP, and make dollars convertible into futures contracts at the target price. If the public expected NGDP to veer off target, purchases and sales of these contracts would automatically adjust the money supply and interest rates in such a way as to move expected NGDP back on target. It would be something like the classical gold standard, but with the dollar defined in terms of a specific NGDP futures contract, instead of a given weight of gold. The public, not policymakers in Washington, would determine the level of the money supply and interest rates most consistent with a stable economy.
I have no reason to believe that Marco Rubio is a market monetarist. But there is nothing in his address that isn’t consistent with market monetarism.