Monetarism is finally dead

[tango]

POLITICAL ECONOMY

The life and death of a fiscal theory

Apr 25, 2009 04:30 AM

Comments on this story (21)

Thomas Walkom

Monetarism is finally dead. It's been ailing for a while, but this week Bank of Canada governor Mark Carney drove a stake through the heart of the economic theory that has dominated Canadian government thinking since 1980.

Put simply, monetarism was a reaction to government activism. Purists, such as the late U.S. economist Milton Friedman, argued that governments should focus on balancing their budgets and cutting taxes. Indeed, state efforts to regulate or stimulate the economy (which the Friedmanites usually called government interference) could only make matters worse.

In the monetarist world, the only legitimate government actors were central banks. Their role was to be strictly limited to issuing just enough money to keep the economy rolling without causing inflation.

By the lat e '70s, as inflation wracked the Western world, monetarism held great appeal. Business liked its low-tax message as well as its resistance to anything, such as welfare or unemployment insurance, that might keep wages up.

Governments, disillusioned by their often clumsy attempts to foster growth and worried about their own finances, were happy to leave the economy in the hands of inflation-fighting central bankers.

Which is what they did. Before 1980, the Bank of Canada – while always conservative – had been more accommodating to activist government. Indeed, by literally printing money and giving it to the federal government in exchange for government bonds, it helped to finance these actions.

more...

[August1991]

Thomas Walkom is no different from me or any other poster on this forum. He has an opinion but no specialized knowledge about economic theory. In fact, his comments about "monetarism" are about as coherent as my comments about, say, NASCAR racing would be.

One reason newspapers are in such dire straits is because the Internet has exposed people such as Thomas Walkom for what they are: guys in their pyjamas in their mother's basement typing on a keyboard.

If I want to know what monetarism is, I would not go to Thomas Walkom's website. Heck, if I wanted reassurance in my belief that monetarism is a phoney theory, I would not go to Thomas Walkom's website. The Internet offers much better writers and columnists than Thomas Walkom.

Tango, your thread is not about how monetarism is finally dead. (BTW, it's not.) It's about why the MSM is about to undergo a radical change and newspapers, as we know them, are dead.

Dead? If I were Thomas Walkom, I'd be looking for a new job.

[BubberMiley]

If I want to know what monetarism is, I would not go to Thomas Walkom's website.

What did you disagree with in his definition of monetarism?

[Moonbox]

What did you disagree with in his definition of monetarism?

It's obvious he has no understanding of what monetary policy is:

Through most of the '80s and '90s, the Bank of Canada was the real power in Ottawa. By drastically limiting the growth of the money supply, thereby forcing interest rates up to 20 per cent, it induced one punishing recession in the '80s. Then, using the same techniques, it did the same thing a decade later

Reducing the money supply generally does the OPPOSITE of what this idiot is saying. When the money supply is too high (ie the government is printing money) the value of each individual dollar decreases. This causes inflation. Inflation hurts lenders, because the money they get repaid with is now worth less. This leads them to INCREASE interest rates, which is the opposite of what he's saying happens.

He's an idiot writing in an idiot newspaper. He's the LAST person I would go to for any economic theory or opinions. The whole premise of his argument is based on the absolutely moronic assumption that the economy works in a vacuum and outside forces don't affect it.

He's basically saying: Fiscal and Monetary policy can't help bring an economy out of a recession because we're still in a recession that's barely lasted 5 months.

Edited April 29, 2009 by Moonbox

[geoffrey]

Moonbox,

Reducing the money supply will increase the "COST" of money, increasing REAL interest rates.

[Topaz]

Well here another story about money the CPP board who looks after our CPP has loss 20 BIllion and yet they gave their directors a pay bonus and when called about in Parliament, the Finance minister defended the directors. BTW, read the following that was printed in the Financial Post http://www.financialpost.com/story.html?id=1431110

[Moonbox]

Moonbox,

Reducing the money supply will increase the "COST" of money, increasing REAL interest rates.

Real interest rates don't matter to the majority of people as their salaries and wages aren't indexed to inflation. The worst situation is when inflation is high along with even higher nominal interest rates. Any REAL interest rate increase is only temporary anyways. The final consequence of a monetary supply cut is inflation will go down, the economy will slow and interest rates will eventually follow.

The idiot in the article quoted said that monetary supply cuts drove interest rates up to 20 percent in 1980 and 1990. Not only did they never go that high, he also ignores the fact that recessions are highly cyclical and like clockwork we can pretty much expect one every 8-10 years.

The best part is how it was bad fiscal policy in the 70's that drove interest rates up in the first place. Like I said, the article was written by a know-nothing idiot. In a couple of years remember this thread when you see how hard western governments start to reign in spending. We're going to see cuts like we've never seen before. It's what the next Canadian government is going to win its election on and the same thing will happen in the US and Europe. Just wait.