I fear that, now as then, the pendulum may well have swung too far, that, now as then, we are in danger of assigning to monetary policy a larger role than it can perform, in danger of asking it to accomplish tasks that it cannot achieve and, as a result, in danger of preventing it for making the contributions that it is capable of making.

Friedman's words presage the complaint central bankers make today, that there's only so much monetary policy can do to revive animal spirits in the absence of a fiscal boost from governments. Previously unorthodox policies are increasingly the norm -- the Fed's James Bullard used a speech in Frankfurt last week to discuss the argument that low interest rates fuel slower, not faster, inflation, while the claim of Modern Money Theory that governments shouldn't be afraid of deficit spending is gaining traction with some of the smartest people in the financial room. 

Friedman describes money as "an extraordinarily efficient machine," akin to tractors and factories in making the economy more efficient and productive. He also notes, however, that it has more potential to wreak havoc:

But money has one feature that these other machines do not share. Because it is so pervasive, when it gets out of order, it throws a monkey wrench into the operation of all the other machines.

Zero or negative interest rates are failing to stir consumer prices, while the Fed's attempt to normalize monetary policy looks likely to backfire embarrassingly. Because the money-machine isn't doing what the rule book suggests it should, the engines of economic growth continue to splutter and misfire. So the argument that might in the end have the most appeal for Friedman is the one that, intellectually at least, appears to be the weakest: If everything else is failing, why not try helicopter money?

First « 1 2 » Next