"She was not particularly modest about the role of monetary policy in the economy and I don’t see any evidence that’s changed."
Note that this is not a statement on a specific theory of monetary policy or even on a side of any general debate about monetary policy, such as what the inflation target should be. Mr. Corker is saying he doesn’t like her because she believes that Fed policy has an important influence on the economy. That period is bold for emphasis. That should be requirement number 1 for a Fed Chair. Paul Volcker is famous for showing how easily the Fed can stifle inflation. Even the libertarian Alan Greenspan recognized the importance of monetary policy enough to not feel any need for modesty. Ben Bernanke's academic career was about how influential monetary policy remained over the economy even when interest rates are near 0%.
Here’s a metaphor economists like to use. Say you are a passenger in a car, and have never seen a car before. The car is driving along a hilly road, and maintains a constant speed uphill and downhill. The driver is so skilled that yo can adjust the acceleration and breaking to cancel out the effect of the hills. Without controlling for anything else, you would find that the actions of the driver have no effect on the speed of the car. The speed stays constant whether the driver hits the breaks or the gas. Bob Corker, among others, is that passenger, and probably has about the same understanding of economics as the theoretical passenger has about cars, or hills for that matter.
Typically monetary policy stays in the background, keeping inflation from rising above its target. But in a debt crisis, the reaction of monetary policy can greatly influence the severity of the damage; it can mean the difference between a depression and recession. There's no need for modesty.
No comments:
Post a Comment