Adam Posen: The Case for Doing More (Expansionary Monetary Policy, That Is)

Adam Posen:

Wotton-under-Edge, Gloucestershire: the right thing to do right now is for the Bank of England and the other G7 central banks to engage in further monetary stimulus…. The economic outlook has turned out to be as grim as forecasts based on historical evidence predicted it would be, given the nature of the recession, the fiscal consolidations underway, and the simultaneity of similar problems across the Western world. Sustained high inflation is not a threat… the inflation that we have suffered due to temporary factors in the UK is about to peak. If we do not undertake the stimulative policy that the outlook calls for, then our economies and our people will suffer avoidable and potentially lasting damage….

[I ask] you as sensible listeners to see through the distortions and falsehoods that have cropped up again in the aftermath of this crisis as in the past. Some common sense can be just as useful in appraising monetary policy as in evaluating the overall worth and likely success of other services for which the public contracts with technical experts. After such appraisal, I hope that you will agree with my arguments that:

• More monetary ease will lead to greater restructuring of the economy in the right and necessary direction;
• More of the same Quantitative Easing [QE] program that the Bank already undertook would be where to start, especially if done on sufficient scale;
• More cooperation between the Bank and HM Government to promote investment and credit to small and medium business should be the beneficial next step….

There are too many excuses for passivity being offered, none of which stand up to scrutiny or to the data…. Almost certainly, even if we were to do everything right on monetary policy (and we certainly will not get everything right, despite the best of intentions), there will still be suffering and ongoing problems from economic adjustment. And the benefits of our right policies may not turn out to be self-evident. But it is our responsibility and our duty to make things better if we can. Central bank officials have wasted too much time over the last year worrying about how their institutions would appear to markets, to politicians, and to the public, were we to undertake more stimulus. Sometimes you have to do the right thing even if it may be misperceived. I believe that by explaining how doing more would work, as I am trying to do today, the chances may increase that we will do the right thing on monetary policy now, and that it will be recognized as right later if not immediately…