Monday, April 13, 2009

Bernanke Bet on Keynes Has Meltzer Seeing 1970s-Style Inflation. NOT!!

April 13 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke is siding with John Maynard Keynes against Milton Friedman by flooding the financial system with money.

If history is any guide, says Allan Meltzer, the effort will end in tears. Inflation “will get higher than it was in the 1970s,” says Meltzer, the Fed historian and professor of political economy at Carnegie Mellon University in Pittsburgh. At the end of that decade, consumer prices rose at a year-over- year rate of 13.3 percent.

Another dumb Bloomberg article. This time they mix up Keynes and Friedman.

Bernanke is absolutely following Friedman's doctrine of monetarism, not Keynes. Keynes advocated greater government spending to increase aggregate demand as a way of fighting falling output and employment. Friedman on the other hand, said that all problems can be solved by regulating the money supply.

The Fed has been expanding the monetary base, which in and of itself has absolutely no direct or reliably predictable impact on aggregate demand.

If we end up with inflation it is because Bernanke followed Friedman, not Keynes. Rather than truthfully telling lawmakers that the Fed did not have the power to restore demand, Bernanke chose to pursue a classic monetarist approach based on Milton Friedman.


Johnny Mac said...

Thanks for the showing the difference. I just wish that the mass media would actually make the effort to do the research and know the differences. Seems most will throw anything the government does as Keynesian. Particularly the right wing talking heads.

Mike Norman said...

Yes, you're right. How much effort does it take nowadays? Practically none! That's why their dangerous. It's all just subterfuge or an agenda that they are promoting. It's totally phony and disingenuous.

Warren Mosler said...

True, though as you know best I can tell Fed portfolio building does nothing beyond lowering long term rates some. There are no 'monetary' effects beyond the lower rates.

The economy is turning because the deficit grew as it fell due to the 'automatic stabilizers.'

Credit will likely go to everything else but that fact.

googleheim said...

I'd add that the purposeful expansion and contraction of monetary base as a shock absorber is following straight elastic monetary policy. They expanded so great last fall to mitigate any reason for running banks.

The german finance minister who claimed that this is all crass keynes economics should be put to the pasture at the bavarian hog farm.

evidently he could not see dif bet keynes and friedman