Friday, September 4, 2015

Market Monetarists and the Great Divide

In a recent post, Scott Sumner reflects on the market monetarist effort to make headway in public dialogue, after Noah Smith highlights a "powerful" Neo-Fisherian argument, so to speak.
Unfortunately, market monetarism is still a fringe movement, even less popular than other heterodox theories like ABCT.
Neo-Fisherian thought provides a too convenient rationale, that "normalization" can occur by means of the interest rate peg. Steve Williamson and John Cochrane in particular, have found an audience that is willing to see whether economic logic can be turned inside out. Scott Sumner was clearly frustrated in the above linked post. How could an economist from the University of Chicago, so easily dismiss the veracity of QE at the zero bound?

Like many, Cochrane is focused on an increasingly limited equilibrium which is credit driven, instead of the broader equilibrium which markets seek to maintain. In recent decades, some have become convinced that monetary policy is just another name for credit policy. Apparently, central bankers at the Fed feel the same way - given the fact one hardly finds mentions of monetary factors in FOMC minutes. Instead, there are constant mentions of the interest rate.

Indeed the idea of credit as primary for wealth origination is important for Austrians in terms of private industry, just as Keynesians consider credit integral for government's role in the economy. Further, the average citizen is exposed on a regular basis to watered down versions of these opposing poles of economic thought. Since central bankers have proven to be more concerned about credit circumstance than monetary circumstance, Neo-Fisherism appears as though a "useful" concept whose time has come.

There has been insufficient time for market monetarism to influence public opinion to any real extent, at least in the U.S. Some years earlier, it didn't appear that a broader public understanding would be necessary. But who could have known, the degree to which public opinion would also contribute to an ongoing path of monetary tightening? With a little luck, market monetarism could influence monetary policy in the next presidential election. But in this one, as Bonnie Carr recently noted, only Marco Rubio has a market monetarist adviser on his team.

Market monetarist thought has yet to benefit, from the kinds of personal associations that populations hold in regard to Keynesian and Austrian thought - even if those associations are a crude reflection of the theoretical realities. For instance it is far too easy to align internet Austrians with anti-government rhetoric, much as crude versions of Keynesian thought are associated with government interests - especially those of major cities and U.S. coastal areas. Neither of these represents a cohesive interpretation, for the vast panorama that is today's economic activity.

Perhaps market monetarism needs an identification with something tangible, i.e. a concrete image or symbol in the public's mind. At the very least, balance could play a role. Thus far, without some degree of public support and understanding regarding monetary policy, it is not clear that central bankers will be willing to act in the public's best interests, any time soon.

Even though I believe market monetarism could help bridge the divide between pro and anti government factions, plenty of obstacles remain in the way. How to find identity in the middle of opposing forces, which seek to gain strength through opposition and divisiveness? Everyone needs to take part in healing the rift between pro and anti government forces. Perhaps the next political election will have more market monetarist representation, than the coming election holds thus far.

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