Must-Read: Ryan Avent: Making Monetary Policy Great Again

July 21, 2017

Must-Read: Ryan Avent: Making Monetary Policy Great Again

Must-Read: Ryan Avent: Making Monetary Policy Great Again: “Obama’s response to the economic crisis… the timidity of his stimulus plan… his failure to provide broad support to struggling homeowners… his premature pivot to deficit cutting…

…While Roosevelt’s New Deal programs left an indelible mark on the American economy and society, it was his decisive monetary action that saved America from continuing depression. On just his third day… Roosevelt declared a bank holiday… suspended… the… gold standard… a policy of reflation. The economic response was immediate…. Obama would not pursue any comparably radical policy…. His Administration left the hard work of rehabilitating the economy to the Federal Reserve, while the federal government turned to deficit reduction….

The decades prior to the crisis taught political leaders that economic management was the Fed’s job, one it could handle ably. Experience since the financial crisis strongly suggests that assumption was mistaken. It should not have taken six years to return the unemployment rate to the pre-crisis level, nor should so much of the reduction in unemployment have come in the form of frustrated workers leaving the labor force. American incomes should not have been allowed to fall below the pre-crisis trend, and at least some of that shortfall ought to have been made up. Most critically, now, nearly ten years after the start of the Great Recession, the economy should be far better prepared to deal with the next crisis, not trapped with interest rates stuck near zero and the labor market still signaling that more people could be put to work for longer hours at higher rates of pay.

As the Great Recession recedes into the past, the sense that urgent change in the making of economic policy is needed also fades…


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