Richard Williamson and Lars Christensen are having an interesting discussion on the language of Market Monetarism (a moniker that Lars coined). Lars objects to Richard’s use of “monetary stimulus” because for him as an economist:
o “Stimulus” smacks of discretion(ary fiscal policy).
o One of the keys to Market Monetarism (actually of monetary policy, period) is setting/anchoring expectations.
o Discretionary policy, since it can be changed in the future at the policy-makers’ discretion, can’t anchor expectations so well.
As usual, Steve Waldman nails it (tweet):
Best to replace the fiscal/monetary debate w/rules vs discretion debate that is catholic about means. cf @shewingthefly
Automatic stabilizers are the key to effective 1) policy and 2) expectation-setting. Because 1) They happen, and 2) People know they’re gonna happen. Could be fiscal or monetary, largely a question of where you inject the money.
My personal preferred stabilizer is to up the EITC bigtime, expand it up the income spectrum, pay it on weekly paychecks, and index its benefit levels to some measure of unemployment.
Or the MMTer’s guaranteed employment scheme.
Both long-term goals, of course, not happening any time soon. (But who would have guessed that NGDP level targeting would get in sight of the goalposts in only a few years?)
Either, it seems to me, would give the Fed a much more congenial environment for exerting its moxie, more flexibility for managing the tradeoffs between its mandates.
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