Liveblogging World War II: January 13, 1941
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Austerity and Monetary Policy

At some deep level, a lot of us believe in hubris, nemesis, and retribution--in spite of the fact that there is no evidence for and an awful lot of evidence against the proposition that the arc of the universe tends toward justice. Paul Krugman meditates on how this belief has messed up our analysis of the current slump:

Monetary Morality: A further thought inspired by the meditations that led me to today’s column: I think I now understand the otherwise weird resurgence of paleomonetarism in the midst of a prolonged liquidity trap. It’s not really about analysis, it’s about morality.

You see, if you’re the kind of person who views being taxed to pay for social insurance programs as tyranny, you’re also going to be the kind of person who sees the printing of fiat money by a government-sponsored central bank as confiscation. You may try to produce evidence about the terrible things that happen under fiat currencies; you may insist that hyperinflation is just around the corner; but ultimately the facts don’t matter, it’s the immorality of activist monetary policy that you hate.

And this is also why politically conservative economists arguing for something like nominal GDP targeting, and pleading with their perceived political allies to stop talking nonsense, are going to be disappointed. If you’re in the intellectual universe where monetary policy is to be evaluated by results, you’re already out of the true believers’ moral universe. At a fundamental level, Milton Friedman and John Maynard Keynes are on one side; Ron Paul is on the other. And it’s not a debate in which evidence really matters.