Glasner lays out his main point in three sentences. This is the first:
The standard interpretation of the Friedman argument is that since attempts to increase output and employment by monetary expansion are futile, the best policy for a monetary authority to pursue is a stable and predictable one that keeps the economy at or near the optimal long-run growth path that is determined by real – not monetary – factors.
I parse that sentence into three parts
- Context: "The standard interpretation of the Friedman argument is..."
- Assumption: "attempts to increase output and employment by monetary expansion are futile"
- The Meat: "the best policy for a monetary authority to pursue is [yadda yadda yadda]."
The assumption is the part of a sentence where a principle or key fact is presented as a given. The assumption very often follows the word "since". The principle that is presented is not supposed to be questioned by the reader. That's why I call it an assumption. (I don't call it that to challenge anybody today.)
The meat of a sentence often follows the assumption. The meat is the main point of the sentence. Usually it gains strength from the assumption. That is the reason for stating the assumption.
I like the meat of Glasner's sentence. I would agree with it, as a rule; but I do not mean to say I like the idea of a monetary "rule". I agree with the meat of the sentence in principle. It expresses what I see as proper policy for a "normal" economy. I reserve the right to disagree with it when special circumstances arise, but "a stable and predictable one that keeps the economy at or near the optimal long-run growth path" sure sounds like a good plan to me.
Of course, there is a fly in the ointment, a fly named Scott Sumner. For most of a decade the fly was saying we need a stable and predictable policy that keeps the economy at or near the optimal long-run growth path by printing as much money as it takes to get the economy to that level and keep it there.
The fly makes me nervous.
Glasner's second sentence:
Thus, the best policy is to find a clear and predictable rule for how the monetary authority will behave, so that monetary mismanagement doesn’t inadvertently become a destabilizing force causing the economy to deviate from its optimal growth path.
In this sentence Glasner interprets the meat of the first sentence. I don't particularly like his interpretation. There is now a rule, a monetary rule, and I already objected to monetary rules, above.
The latter half of the sentence is the sort of nirvana-narrative about the economy into which everyone occasionally falls: "... so that monetary mismanagement doesn’t inadvertently become a destabilizing force causing the economy to deviate from its optimal growth path." Yeh, sounds great.
Nirvana.
Come to think of it, Glasner's first sentence comes dangerously close to nirvana-narrative as well: Policy that keeps the economy at or near the optimal long-run growth path. I fell for it, didn't I.
Glasner's third:
In the 50 years since Friedman’s address, this message has been taken to heart by monetary economists and monetary authorities, leading to a broad consensus in favor of inflation targeting with the target now almost always set at 2% annual inflation.
At last we're at the paragraph meat: The message has been taken to heart, Glasner says.
The message has been taken to heart "by monetary economists and monetary authorities," he says. Well, that would be nice. But I don't think it's true. I don't think we have policy that keeps the economy at or near the optimal long-run growth path.
I do not remember Friedman calling for "inflation targeting with the target now almost always set at 2% annual inflation". Did he? If he called for a "stable and predictable" policy, that "keeps the economy at or near the optimal long-run growth path", I'll say "me too".
But as I see it, the 2% inflation target is not the policy that "keeps the economy at or near the optimal long-run growth path". 2% has been the official US inflation target since 2012. And it's been the unofficial target since the 1990s, if I remember what I read. As an unofficial target, 2% did not prevent our economy from suddenly leaving its "optimal long-run growth path" in 2008.
What I'm saying is, the 2% inflation target is not "the best policy for a monetary authority to pursue". If you go back and check Glasner's first sentence quoted above, there is nothing in that sentence about the 2% target. That's probably why I had no trouble agreeing with that sentence: it left the door open for better policy.
Glasner's third sentence, the meat of the paragraph, is tough and indigestible. Friedman's message has been "taken to heart" it says. That's just wishful thinking. That's the trouble with nirvana narratives: They're all just wishful thinking. When you read your econ, beware the nirvana narrative.
"In the 50 years since Friedman’s address," Glasner says, "this message has been taken to heart". Fifty years. Fifty years before 2018 is 1968. Since the late sixties then, give or take. Taken to heart.
Call it 1970. In 1970, for every dollar of GDP there was $1.51 of accumulated public and private debt. At the end of 2016, $3.49. More than twice as much. That's not "stable".
For every dollar of M1 money in 1970 there was $7.70 debt. At the end of 2016, $19.73. That's not "stable" either.
M1 is the money we receive as income. It's the money we use to pay our bills. 19, almost 20 dollars of debt for every dollar of money. Almost three times as much as in 1970. And that's after all the quantitative easing.
So much debt. That's why times are hard.
"The best policy for a monetary authority to pursue," Glasner says, "is a stable and predictable one". Three times as much debt today as in 1970, compared to the quantity of money. The policy may be as "predictable" as the problems. But it's damn sure not "stable".
The unstable relation between money and debt is the problem. But what do they focus on? Two percent inflation.
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