13
May
2017
Where Monetarism Goes Wrong
Jeff Deist had me on “Mises Weekends” to talk about Vienna vs. Chicago. Speaking of which, we’ll be in Chicago next week, and then Seattle.
Jeff Deist had me on “Mises Weekends” to talk about Vienna vs. Chicago. Speaking of which, we’ll be in Chicago next week, and then Seattle.
OT to Robert Murphy:
Okay, you asked me a few days back should orthodox macroeconomists mention property zoning more often. Yes, it should be a very prominent topic, as prominent as free trade or the minimum wage.
My guess is that presently property zoning is a larger structural impediment than wiggles in trade laws or fidgets in the minimum wage.
And yes, there is the serious problem that developed nations (with good property rights) running large chronic trade deficits will see exploding house prices, and perhaps see the middle-class boxed out of home ownership. This has happened already in Great Britain, while a house in Sydney is now $1 million. The West Coast of the United States? Boston?
So, orthodox macroeconomists who defend large chronic trade deficits need to be honest and say, “Due to property zoning, large trade deficits lead to higher house prices, and a lot higher in some cases. You have restricted supply, but increased demand.”
In addition, there is a troubling idea also that a globalized economy leads to globalized wages. This in a world where many nations are in “the middle income trap.” So, U.S. wages will have to sink down to global levels, in free markets.
Okay, so we have exploding house prices and lower wages in the U.S. as we practice “free trade.” In fact, Tyler Cowen has been linking to articles that young men in the U.S. have wages 31% less than in 1969!
Lastly, the US spends $1 trillion a year on national security (DoD, DHS, VA, black budget and debt service). It is common to hear that “with a globalized economy, we need a global military.”
Certainly, preventing foreign occupation of U.S. soil is not what today’s military is about. Our military more resembles a guard service for multinationals or Mideast royalty.
That being the case, should not multinationals pay for the U.S. military?
Would it make sense to raise $1 trillion a year in tariffs to fund the U.S. multinational guard service? We could cut payroll taxes by $1 trillion, and nearly eliminate FICA taxes. That would reduce the cost of labor in the U.S by about 15%.
Yes, some of my ideas seem crazy. But is embracing a “free trade” that results in lower wages, higher house prices and a $1 trillion a year in military outlays…not crazy?
Where monetarists go wrong:
1. They know absolutely nothing about basic Austrian analysis or concepts while Austrians know everything about monetarism;
2. They refuse to deal with the evidentiary basis of economics which is human action, voluntary exchange vs. violent intervention, prices as essential information including interest rates vs. artificial and distorted prices resulting from government “stimulus”;
3. Like the Keynesians and other schools promoting violent intervention, they cannot and do not point to that magical moment in history when laissez faire failed thereby demonstrating the need for violent intervention and “stimulus”.
4. Like the Keynesians and other schools promoting violent intervention, they cannot and do not point to that magical moment in history which demonstrates that economies require or lack “momentum” or that “momentum” can and should be provided by violent intervention in the form of “stimulus”.
5. . Like the Keynesians and other schools promoting violent intervention, they are quite casual about choosing violent intervention over voluntary exchange, contracts and private property and fail to account for the ongoing theft of purchasing power invariably engendered by their “stimulus”.
6. And finally, of course, they cannot grasp that the distorted price, investment and capital structure induced by their “stimulus” is unsustainable and will collapse into a bust or that their “solutions” are the cause of problems that would not otherwise exist.
Other than that, their theories have no flaws at all.
For what it’s worth,
I don’t know much about monetarism (to LK’s point that I don’t know much about the other school’s beliefs). I know a little bit about Keynesianism.
(The Action Axiom makes logical sense, and the other schools have often made claims that are inconsistent with what logically follows from the Action Axiom.)
Regarding point #3, I imagine that for all other schools, the magical moment when laissez faire failed is when consumers decided it wasn’t worth thinking of everyone else, and made their purchasing decisions based on how well producers satisfied their preferences.
Thereby resulting in unfair profits going to the best producers.
I.e., wealth inequality.
😀
I wish you discussed the MM claim that NGDP targeting allows the market rate to equal the wicksellian/natural rate. (whereas without it it would be above)